subprime mortgages

Bank For International Settlements (BIS): Global Economy Situation Similar To Pre-2008 Crash Era

At the end of last week I left readers with that post about individuals credited with publicly predicting the 2008 global economic crisis.

Yesterday, I learned that some organizations correctly forecast the carnage. In particular, the Bank for International Settlements (BIS). Phillip Inman reported on The Guardian (UK) website Sunday:

The BIS was one of the few organisations to warn during 2006 and 2007 about the unstable levels of bank lending on risky assets such as the US subprime mortgages that eventually led to the Lehman Brothers crash and the financial crisis.

Curious to know what the “central bankers’ bank” thinks about the state of the global economy these days? Inman revealed:

Investors are ignoring warning signs that financial markets could be overheating and consumer debts are rising to unsustainable levels, the global body for central banks has warned in its quarterly financial health check.

The Bank for International Settlements (BIS) said the situation in the global economy was similar to the pre-2008 crash era when investors, seeking high returns, borrowed heavily to invest in risky assets, despite moves by central banks to tighten access to credit.

The BIS, known as the central bankers’ bank, said attempts by the US Federal Reserve and the Bank of England to choke off risky behaviour by raising interest rates had failed so far and unstable financial bubbles were continuing to grow.

(Editor’s note: Bold added for emphasis)

I’m not going to steal The Guardian’s thunder here, so head on over to the article on their website for the full story.

By the way, Inman noted the following about the BIS chief economist who was around during those alarms sounded in 2006 and 2007:

William White, who now chairs the OECD’s review committee, warned last year that global debt levels had escalated to unstable levels largely in response to almost zero interest rates to create a situation that was “worse than 2007”.

(Editor’s note: Bold added for emphasis)

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Peter Schiff: Buy Gold, Silver To Prepare For Bursting Of This ‘Much Bigger Bubble’ Than Housing, Dot-Com

The first installment of Peter Schiff’s Gold Videocast for the new year is out on YouTube. And Euro Pacific Capital’s Schiff recapped gold’s performance in 2014 and shared his outlook for the precious metal- along with silver- in 2015. He told viewers:

I think the sentiment situation, the markets, the technicals, are really poised for a very, very big year up in the precious metals in gold and silver for 2015. And nobody is expecting this. We had the sentiment completely in the opposite direction. All the bears were piled onto the same side of the boat. And now it turns out that they got it wrong. And I think they’re going to have to scramble to get to the other side as this illusion rapidly fades. Again, I’ve said this many times, that I’ve never seen a bigger disconnect in the markets- the stock market, the currency market, the precious metal market- between reality and perception. What everybody believes is wrong. And soon, these widely-held beliefs are going to be questioned in a major way and then abandoned. Just like they were with the housing market and subprime when that bubble burst. And just like they were with in dot-com market when that bubble burst. Except that this is a much bigger bubble, and the damage and the fallout on the financial markets will be much greater when this bursts. And therefore, it’s that much more important that investors be properly prepared. And part of that preparation is owning gold and silver.


“State of the Gold Market 2015: Exclusive Forecast & Charts”
YouTube Video

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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The Housing Bubble Is Pricked

Housing Rebound Ahead?
June 6, 2007

The latest housing headlines come from the National Association of Realtors (NAR), which is reporting that home sales and prices in 2007 will decline more than originally forecasted before picking up later in the year. A month ago, the NAR predicted that existing home sales would decline 2.9% and home prices would drop only 1%. Now, the Association is calling for a 4.6% decline in existing home sales to 6.18 million units. They also forecast that the U.S. median existing home price will fall 1.3% to $219,100. The NAR is also revising its new home numbers. The median price for new homes will fall 2.3% to $240,800 with new home sales declining 18.2% to 860,000 units. Last month, they predicted new home prices would remain unchanged with sales totaling 864,000 units. The trade group, representing more than 1.3 million real estate professionals, has revised its forecasts downward several times since the beginning of the new year.

The NAR continues to predict the first annual decline in the median national existing home price since it began compiling data in the late 1960s.

However, the National Association of Realtors did offer a glimmer of hope for the beleaguered housing sector. “Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year,” says Lawrence Yun, an economist for the trade group. In 2008, existing home sales are projected to rise 3.7% to 6.41 million units. The national median existing home price is forecast to rise 1.7%. The median new home price is expected to rise 2.6% next year as well.

It is still too early for the National Association of Realtors to call an end to the housing bottom. The sub-prime mortgage debacle has led to a tightening of lending standards, making it impossible for a growing number of potential homeowners to get credit. Also, the rising number of foreclosed properties is adding more supply to the inventory glut. ZipRealty Inc., a national real estate brokerage firm based in California, just released a report showing the number of homes listed for sale in 18 major U.S. metropolitan areas at the end of May was up 5.1% from the previous month. This is important because on a national basis, housing inventories have typically remained unchanged in May over the last two decades, reflecting the fact that May is a peak home-selling month as families are moving during the summer vacation. The growing inventory of unsold homes will continue to put downward pressure on prices as well as sales, since the remaining buyers will hold off until better bargains come along.

Housing Slump Ends In 2 Months
June 22, 2007

In an interview with Bloomberg on Tuesday, Bank of America’s Chief Executive Officer Kenneth Lewis said the U.S. economy will pick up speed due to a recovery in the housing sector. Lewis predicted, “You’ll see the economy begin to pick up in the third and fourth quarters, and the slowdown in home sales is just about to be over.” He went on to say that the housing market will begin to improve in the next month or two, forestalling a recession, according to Bloomberg. Lewis believes that job growth will lift home prices and reinvigorate construction by early 2008.

However, as Bloomberg pointed out, Mr. Lewis’ views contradict those of other market watchers, including money manager Paul McCulley of Pimco. At a Bloomberg News panel discussion on Tuesday, McCulley insisted that, “The housing-market recession ain’t over. It’s going to be a long, protracted recession.” Some are willing to go farther than that. Mark Kiesel, executive vice president of California-based Pacific Investment Management, said in Bloomberg yesterday, “It’s a blood bath. We’re talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market and corporate profit.” Nouriel Roubini, a former Treasury Department director under the Clinton administration and head of Roubini Global Economics in New York, added, “It’s not just a housing recession anymore, it looks more and more like an economic recession.” Roubini believes the chance of a recession in 2007 is at “50-50,” greater than the 33% chance former Federal Reserve Chairman Alan Greenspan was calling for back in March.

It will be interesting to see just how Mr. Lewis’ housing prediction pans out 2 months from now. I’m circling August 19 on my calendar!

Paulson Weighs In On Housing
July 3, 2007

Today, U.S. Treasury Secretary Henry Paulson spoke to Reuters about a number of economic issues, including housing. Paulson said the U.S. economy is healthy, despite problems with the subprime mortgage sector. The former chairman of Goldman Sachs stated that the downturn in the housing market is “at or near the bottom. It’s had a significant impact on the economy. No one is forecasting when, with any degree of clarity, that the upturn is going to come other than it’s at or near the bottom.” Beyond subprime mortgage woes, Paulson declared that the financial markets looked sound. He said, “Markets are volatile. I haven’t seen a single thing that surprises me- it’s hard to surprise me.”

There have been a number of stories in the news lately pointing to the end of the U.S. housing slowdown. Newshounds and regular readers of Boom2Bust.com might recall some of the more recent ones:

• June 18- The Coldwell Banker Previews International Luxury Survey showed more than half of affluent homeowners expect their property value to appreciate at least somewhat during the next year, with one-tenth of respondents expecting significant gains.

• June 19- Bank of America’s Chief Executive Officer Kenneth Lewis said the U.S. housing market will begin to improve in the next month or two, forestalling a recession. Job growth will lift home prices and reinvigorate construction by early 2008.

• June 26- A Boston Consulting Group survey revealed that 55% of Americans believe they can sell their house for more now than a year ago. Nearly three-quarters believe they can sell their homes within the next 6 months at a price they set, and 63% feel that real estate is a good or excellent investment.

I have a pretty good idea that realtors and others dependent on a healthy U.S. residential real estate market are welcoming such statements. Maybe they’ll back off of real estate columnist Mary Umberger, who said yesterday in the Chicago Tribune that, “Real estate agents complain to me that every time there’s a news story about declining home sales, consumers send up a collective screech and run to the sidelines, further suppressing the marketplace.” Umberger talked about the Coldwell Banker and Boston Consulting Group surveys and had this to say:

Obviously, one might point out that a real estate company has a vested interest in promoting positive attitudes about the market, but I’m inclined to believe that both studies do reflect Americans’ conviction that real estate — that is, their real estate – won’t let them down. It’s not unlike the way that every parent of every toddler thinks their little darling is a genius. And it’s why sellers in the last year or so have clung so hard to asking prices that are way too high.

While wishful thinkers refuse to lower asking prices, the inventory of unsold homes continues to grow. As prices inevitably fall, so will consumer spending (no more housing ATM) and eventually, the financial markets.

Surprise, Mr. Paulson!

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Survival And Prosperity
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Christopher E. Hill, Editor

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