Home sales drop 9% to 12 year low


This worsening housing recession, together with the worst liquidity and credit crunch in the last 20 years, oil close to $100, faltering capex spending by the corporate sector and a saving-less and debt-burdened consumer that is on the ropes and stopped spending (in real terms) in December will lead in 2008 to the worst US economy wide recession of the last 20 years.

— Perma-bear Nouriel Roubini, who did indeed predict the housing crash early and accurately.

Commercial real estate is starting to wobble. Credit card debt is soaring as are late payments on them. The economy will be the major issue in the presidential elections, not the war. The war is far away while layoffs, foreclosures, and bankruptcies will be up close and personal issue for many.

If you haven’t done so already, batten down whatever financial hatches you may have. If you have investing money, is any of it in “enhanced” money market funds? If so, move it out, as the “enhancements” are now toxic. Cash rather than stocks is always a good place to be. Pay off credit card debt if you can, as interest rates and late penalty fees are high and rising.

The stock market, from all indications, is about to tumble. So it might be time to sell iffy stocks. Right now, Sue and I are almost entirely in cash and I’m using a tiny percentage of that, no more than 5-7%, to buy puts on homebuilder and financial indexes as well as on financial stocks. With puts, you make money if the price of the stock drops. This is not a strategy for all, as option trading, is extremely fast moving and tricky. But it could work for some. Another ploy is to buy short or ultra-short EFTs, which go up if the index they are based on goes down. If what I’m saying appears to be in a strange space alien language, then don’t even think of acting on it! Seriously.

But what about those with no financial resources? Job layoffs and company bankruptcies will hit them first. Maybe they have an ARM about to reset. They could lose everything. Given that millions or ARMs will be resetting in the next year or so with a spike coming early next year, this is no theoretical matter. Real people will be feeling real pain, just in time for the elections too.