Stocks: Storm Cloud Hovering – comments on Gold & Real Estate

Posted by Richard Russell - Dow Theory Letters

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“At this point, the stock market looks weak and it’s not thrilled by the latest Obama scheme. Gold has been hovering around 1800 and looks as though it wants to hold its ground. After all, the rise to 1800 was no easy move, and gold is entitled to rest like your editor.

Every one is wondering about real estate, and whether we’re near the bottom. For this I depend on my brilliant friend, Robert Campbell of the Campbell Real Estate Timing Letter (858 481 3235). Robert called the top for real estate right on the nose. Robert uses a technical method of calling real estate turns.

Following are Robert’s latest words — “In a balance sheet recession caused by too much private sector debt, US households much de-lever until their earned incomes can more easily service the debts they amassed during the bubble. As I showed you with the bottom chart on page 2, mortgage debt accounts for most of the debt overhanging the US.

“Because earned incomes adjusted for inflation have fallen for all but the top 5 to 10% of all Americans in the last ten years, I could see where US mortgage debt may have to fall by as much as 50% from today’s levels before the private sector has sufficiently repaired their balance sheets, and the deleveraging process is over.

“Bursting bubbles typically give back all or most of all their ‘easy come, easy go’ gains. This means mortgage debt would have to fall from today’s still lofty level of $10 trillion to around $5 trillion–which pre-bubble as where it was in 2001. With falling incomes, most Americans will eventually be forced to default on massive overhang of mortgage debt in order to de-lever — and this would result in a lengthy and steady stream of distressed sales that will be hitting the market and depressing housing prices for years, not months, into the future.”

Russell Comment — Like A.Gary Shilling, Campbell sees a LONG period of deleveraging ahead for Americans. This will not be kind to real estate — or, in the long run, for markets in general.


Ed Note: One of Richard Russell’s best pieces: The Perfect Business

Richard Russell has made his subscribers fortunes. One of the best values anywhere in the financial world at only a $300 subscription to get his DAILY report for a year. Click HERE to subscribe. The 87 year old Russell got his subscribers heavily invested in Gold below $300 and has urged his subscibers to stay long. He continues to urge his subscribers to stay long.