Elliott investors were prepared for the housing crisis and ensuing mayhem, despite the “all is well” media.

When the U.S. housing crisis “officially” began last year, most new homeowners were unruffled.
Perhaps many thought:

“I’m a prime borrower; subprime lenders have nothing to do with my home price.”
“Why worry? My mortgage broker and real estate agent said I was getting a great deal.”
“If I was at risk, the bank wouldn’t have lent me all that money, right?”

Really, it’s no surprise homeowners felt invincible; they’d been told to feel that way every day.

The mainstream media – the group who believes they’re supposed to question authority for the good of John Q. Public – got caught with their pants down. Government agencies appeared equally inept – or at least unwilling to confront the problem. Even now, both media and government continue to say things like: “Nobody saw the housing crisis coming!” or more specifically “Nobody dreamed back a year ago Bear Stearns would have fallen and Fannie and Freddie would be under threat right now.” (USA Today, Aug. 21)

But the simple truth is, someone did.

A whole team of analysts was warning tens of thousands of readers about the crisis years before it began. Those readers were well aware of exactly how the debt, real estate and stock bubbles would deflate, almost as if the entire scenario was presented in a step-by-step timeline. In fact, these analysts were so sure of their research that they commissioned a trio of crystal orbs engraved with the words “Debt Bubble,” “Real Estate Bubble” and “Stock Market Bubble” back in 2002 as novelties for investors wise enough to avoid them.

Point is: Before the first mainstream media writer pecked the letters s-u-b-p-r-i-m-e c-r-i-s-i-s into his keyboard, a whole slew of investors already knew it was coming.

What’s more, these savvy investors also knew which dominoes would fall once the widespread confidence in U.S. real estate was lost. Most importantly, they know what’s still to come for U.S. stocks, real estate, commodities and more.

This group, of course, consists of readers of Elliott Wave International’s two most widely read monthly publications, The Elliott Wave Financial Forecast and Bob Prechter’s Elliott Wave Theorist (and Prechter’s best-selling book Conquer the Crash).

Don’t Be Fooled By the Media and Government

The Mainstream media and government have tried to fool you for too long. The Elliott Wave Financial Forecast and Bob Prechter’s Elliott Wave Theorist forecast the housing bubble, bust and ensuing mayhem years before it occurred, so subscribers could position themselves to weather the storm. Now, the collective “they” say nobody saw it coming. Find out what else they’re keeping from you in Bob Prechter’s August Elliott Wave Theorist, called a “guilty-butt-whipping-bonanza” by one subscriber. Learn More Here

Back when a show called “Flip This House” was among the top-rated “how-to” shows on television, EWI’s founder and CEO Robert Prechter, along with colleagues Steve Hochberg and Pete Kendall, were warning their subscribers about a looming mortgage disaster that would wipe out decades of housing gains, then lending institutions, then large banks.

In 2002, Prechter’s best-seller Conquer the Crash dedicated entire chapters to the soon-to-deflate real estate and debt bubbles. One such startlingly accurate passage read:

Bank loans to home buyers are bad enough, but government-sponsored mortgage lenders – the Federal National Mortgage Corp. (Fannie Mae), the Federal Home Loan Mortgage Corp. (Freddie Mac) and the Federal Home Loan Bank – have extended $3 trillion worth of mortgage credit. Major financial institutions actually invest in huge packages of these mortgages [Ed Note: These packages are now called CDOs], an investment that they and their clients (which may include you) will surely regret. Money magazine (December 2001) reports that the CEO of Fannie Mae “may be the most confident CEO in America.”

Certainly his stockholders, clients and mortgage-package investors had better share that feeling, because confidence is the only thing holding up this giant house of cards. When real estate prices begin to fall in a deflationary crash, lenders will experience a rising number of defaults on the mortgages they hold. My guess is that the Treasury will lose the $7 billion line of credit that it is required by law to extend to these quasi-government companies and even more if it attempts a bailout.
Then in March 2004, The Elliott Wave Financial Forecast published a short section entitled “Five More Signs that the Real Estate Bust Is On.” Four months later, the July 2004 Financial Forecast sounded another alarm:

The housing market is the logical sector for where the bubble should end because its positive performance during the last bear market makes it the asset class that most investors trust the most. It is also among the most illiquid markets, which means it will lock investors in during the bubble’s deflation.

Then came this warning in September 2004:

This time, the fallout will be much greater because banks’ exposure to real estate is unprecedented and the bear market is of much larger degree. Also, there will be no inflation to help break the fall in prices for all that property, which will soon be repossessed by the banks out of desperation. Bankers’ other big problem is that they don’t have the cash-generating businesses to fall back on as they did in the past. … Obviously, bankers are as convinced as the public that real estate never goes down.
Then, as real estate topped out in 2005, a special September issue of The Elliott Wave Theorist was there to tell subscribers about it:

Real Estate Has Topped Worldwide

Property prices in Sydney have fallen 15 percent. The property market in London has turned soft, with eager sellers discounting about 15 percent. One seller called the market there “dismal,” but he has no idea what dismal is. Dismal is when there are no shoppers, and the only way to effect a sale is to offer a price so low that the lone potential buyer you have managed to locate sees it as a can’t-lose gift. U.S. property prices have held up, but the glut of homes on the market is near a record, and supply is finally catching up not only to occupancy demand, which it surpassed some time ago, but also to investor demand. Meanwhile, Fannie Mae is limping through investigations of impropriety, and the marketplace is running out of bodies to offer full credit, so the credit engine is sputtering. New credit and new debtors are the fuel of all bubbles, and while credit is still freely available, the supply of potential debtors is exhausted.

In May 2007, The Elliott Wave Financial Forecast shared an email from a subscribing industry insider that “gets it.” Still, at this time, there was little mainstream concern for the safety of hedge funds and banks. Many media reports even denied that real estate was in trouble. EWI subscribers, again, were ahead of the news.

In a recent e-mail, an industry insider revealed that his careful study of syndicate activities in 1929 confirms that the parallel is solidly in place: “As for the late 1928-1929 ‘pool operation’ analogue, I have never seen or read about such financial sector combinations as exist today. Official Washington and the gullible public can only marvel at their ‘sophistication’ as stock, and still many property prices, especially commercial and high-end residential, continue to go up. In the latest quarter, it became abundantly clear to me that eight core poolers (Citigroup, Bank of America, JP Morgan, Goldman Sachs, Lehman, Merrill Lynch, Bear Stearns and Morgan Stanley) literally will go to any extreme to expand their balance sheets. If they can just keep adding and ‘carrying’ more securities, often financed by very short term borrowings and rapidly unhedgeable basis risk, they can skip over any business cycle trough.” When the trough turns out to be a way station on the way to depression, vast amounts of the paper these firms hold and distribute will be worthless.

So, with all these specific forecasts and warnings – and believe me, there are dozens more on record – how could the mainstream media possibly say “Nobody saw it coming”? Perhaps admitting that someone – actually an entire firm – did, in fact, not only “see it coming,” but also wrote a book about it, published dozens of warnings about it, and continues to keep subscribers ahead of the news regarding “it,” would be a self-admission that the media simply failed to do their jobs. Good thing EWI subscribers knew better.

Don’t Be Fooled By the Media and Government

The Mainstream media and government have tried to fool you for too long. The Elliott Wave Financial Forecast and Bob Prechter’s Elliott Wave Theorist forecast the housing bubble, bust and ensuing mayhem years before it occurred, so subscribers could position themselves to weather the storm. Now, the collective “they” say nobody saw it coming. Find out what else they’re keeping from you in Bob Prechter’s August Elliott Wave Theorist, called a “guilty-butt-whipping-bonanza” by one subscriber. Learn More Here

MarketWatch

Tooke manages a trio of small-cap growth funds for fund giant Eaton Vance Corp. (EV:34.51, +0.78, +2.3%) , each of which tops its category for both the year to date and the past 12 months.

Eaton Vance Small-Cap Growth (ETEGX:13.97, +0.04, +0.3%) rose 4% this year through Aug. 25, while siblings Tax-Managed Small-Cap Growth (ETMGX:16.40, +0.05, +0.3%)
gained 4.3% and Special Equities (EVSEX:16.98, +0.06, +0.4%) added
3.1%.

The average small-cap growth fund, meanwhile, has tumbled 12%. What’s her secret? Nothing that can’t be had from investing in companies with solid earnings growth prospects whose shares trade at discounted valuations. But nowadays that’s a tall order. It’s certainly helped to be focused as Tooke is on U.S. small-caps, which have performed relatively better than their larger counterparts.

Her funds have also benefited from a hefty stake in energy, materials and industrials companies — sectors that have charged ahead this year. Perhaps most importantly, Tooke deftly avoided most of the battered financial-services sector, which has slashed the returns of many bargain-minded fund shareholders.

That targeted strategy is still in place. “You still have good earnings power in energy and materials,” said Tooke, who has managed the trio of funds since February 2006. “They’re selling at good valuations. I still have a lot of concern about financials, particularly in small-caps.”
Tooke and a team of five analysts scour a universe of around 3,000 companies, looking for several dozen with market values of no more than about $3.5 billion that would fit the portfolios. The goal is to find companies in strong financial shape that generate plenty of cash and have sharp management that can steer the corporate ship through tough times.

“Management in small caps can make you or break you,” Tooke said. “It’s very important to have management that can not only talk a good game, but execute.”

{Ed. Nancy Tooke is a good name to remember for your long term stuff.}

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About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

Detroit Free Press
http://www.freep.com/apps/pbcs.dll/article?AID=/20080824/COL07/808240435/1081

New car sales are likely to be curbed

Planning to cover the college tuition this fall by tapping into an existing home equity line of credit? You could need to turn to Plan B.

Big-name lenders are reducing or shutting off existing home equity lines of credit in Michigan and elsewhere. The latest move was by Morgan Stanley.

Lenders are taking action in some cases because borrowers don’t have a reasonable shot at repaying all that money since the home isn’t worth all that much anymore.

Sellers, buyers suffer

The home equity crunch hurts consumers and consumer-driven companies, including Detroit’s automakers.

Art Spinella, president of CNW Research in Bandon, Ore., said new car sales are likely to continue to struggle in some states because some home equity lines have been trimmed or reduced to nothing. He noted that one-third of new vehicle sales in California were made with the use of a home equity line of credit.

This month, Morgan Stanley, the second-largest U.S. securities firm, told thousands of homeowners in Michigan and elsewhere that it would unilaterally close their home equity lines of credit.

The letter stated: “Our recent review showed that your home value has declined significantly since the time you opened your HELOC.” Some homeowners had barely tapped into their existing lines. Consumers are required to continue to pay at least the minimum payment due, if any, each month.

Some homeowners did say they were later told they’d be given a chance to appeal through a “walk-by reappraisal” within 30 days.

Christine Pollack, a Morgan Stanley spokeswoman in Purchase, N.Y., declined to comment last week on the home equity changes.

Subject to change

Even if you haven’t received notice of a change yet, you cannot be certain that you won’t later be told that you can no longer borrow up to the limit.

Chase began reducing or freezing existing home equity lines of credit nationwide in March. More than 150,000 Chase customers saw changes in their home equity lines. The changes affect less than 20% of Chase’s home equity customers.

Tom Kelly, a spokesman for Chase in Chicago, said Chase is using an automated system to review current home values and compare those values with credit lines that had been extended earlier when home values in many markets were higher.

“We’re trying to protect both them and us from owing more than the house is worth,” Kelly said.

Kelly said last week that such reviews are taking place every month.

National City Corp. said it may be notifying borrowers that access to further credit on their line has been suspended because of a significant decline in the home’s value or a decline in the borrower’s credit score.

“We’re facing an unprecedented time in the housing industry, and we believe it’s prudent to assess and address risks that arise due to significant changes that have occurred since the original line of credit was extended,” said Bill Eiler, a spokesman for National City.

Scripps News
http://www.scrippsnews.com/node/35562

A countdown clock on a Web site operated by Nehemiah Corp. of America is ticking off the days, hours, minutes and seconds until a new government ban will terminate virtually all seller-funded down payment assistance programs in the United States. But the clock may be stopped, now that a bill that would reverse the ban has been introduced in Congress.

The clock will tick off its last second Oct. 1, the last day when homebuyers will be able to use seller-funded down payment assistance with any mortgage backed by the Federal Housing Administration, or FHA, a division of the U.S. Department of Housing and Urban Development, known as HUD.

More than 1 million buyers and sellers have utilized these programs, according to industry figures. The two largest organizations, Nehemiah in Sacramento, Calif., and AmeriDream in Gaithersburg, Md., have processed more than 300,000 and 250,000 transactions, respectively, according to company statements.

Indeed, seller-funded down payments have become so closely associated with FHA-backed mortgages that more than 33 percent of loans backed by the agency last year included such assistance, according to FHA data. The agency is still working out the details of how the ban will be implemented, says HUD spokesman Lemar Wooley.
————–
If it works then Congress will break it. Has anybody in Congress given any thought to what this idiotic ban would do to home resale prices?

Here is the link to a new market club video. I think you’ll get something out of it because it emphasizes that simple is almost always better. As a side note the video was produced by Adam Hewison who just got back from two weeks of vacation without a computer, newspaper or TV.

Asia Times
http://www.atimes.com/atimes/Global_Economy/JH19Dj08.html

“Troubles at United States banks are making mortgage, credit card and business loans scarcer and more expensive. Falling home prices, rising foreclosures and high gas prices have stalled home building and consumer spending. These problems are exacerbated by the long-festering trade deficits on oil and with Asia on consumer goods and cars that tap off demand for US-made goods and services.

Troubles at United States banks are making mortgage, credit card and business loans scarcer and more expensive. Falling home prices, rising foreclosures and high gas prices have stalled home building and consumer spending. These problems are exacerbated by the long-festering trade deficits on oil and with Asia on consumer goods and cars that tap off demand for US-made goods and services.

These schemes now exposed, banks can’t securitize mortgages into bonds and must finance mortgages through more expensive certificates of deposit. US homebuyers must put up larger down payments and pay higher interest rates and fees to get loans.

The result is predictable: housing prices are falling. Builders have a 10-month supply of unsold new homes, and new home construction is down more than 55% since April 2006.

Rising delinquencies and repossessions are making similar abuses apparent in credit card and auto loans. Lenders face difficulties selling bonds to finance new loans and are increasing monthly interest rates and tightening qualifications.”

———————

I almost always get some entertainment value out of the Asia Times. The writing is pretty good. When it comes to the US economy I think you can use the Asia Times to identify the worse case scenario possible in any situation. They always provide enough facts to make a credible argument, and they string them together in a logical way. Their ultimate conclusion is almost always wrong. Not quite a contrary indicator but if the Asia Times is beating up the US economy on a particular issue the problem has proabably already hit the apogee.

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