Robert Campbell newsletter

I just received the latest copy of Robert Campbell's terrific "Campbell Real Estate Timing Letter" (858 481 3235). Robert was one of the very first to call the top of the real estate boom back in August 2006. Robert uses both fundamentals and technicals in his report. He runs what he terms his "Real Estate Crash Index" which is a composite of various vital items such as existing home sales, notice of defaults, and the number of foreclosure sales. The Index applies to Southern California, but I think it acts as a barometer for the entire nation's real estate situation. Robert notes that the current reading on the Crash Index "is the lowest reading since the data was first collected in 1982."

Writes Robert, "If falling home prices put the US economy in recession, as I suspect it will, my guess is that a credit contraction will be far worse for the US housing market. This is because housing is highly overvalued and so incredibly over-leveraged. Trillions of dollars of mortgage debt were extended to people with no ability to pay them back."

Robert Campbell sees the picture as an enormous credit boom just a huge expansion of credit. And he notes that every boom based on a massive credit expansion ends with a massive credit contraction.

I'm very much afraid that Robert Campbell will prove to be right. If so, it promises to be a heck of a year in 2007. Yeah, it's early. Yes, the stock market is hesitating. Yes, Treasury secretary Paulson thinks "Credit issues are there, but they are contained." And yes, Fed Chief Bernanke continues to tell us that he's worried about inflation.

But if Bernanke is so worried about inflation, why doesn't he raise rates? You can bet that he won't raise rates, because that would put even more pressure on housing. My guess -- the next thing Bernanke will do will be to lower rates. But wouldn't lowering rates hurt the dollar? Of course it would, but Bernanke would rather hurt the dollar than deal with a real estate collapse. So let me put it this way -- I look for lower rates before this year is out.