since my previous post was about capitulation of the rally, and in anticipation that some of you may think i'm a perma-bear, i just want to clarify that i read data for what it is. as a chartist and scientist, i see no point in making things sound worse than they seem. however, this data is quite scary to me, and i think others should be aware of it too. this is some fundamental data taken from a Credit Suise report in Mar 2007....

the recent months of relatively good data has misled most investors into thinking that the economy is headed for a rebound. in reality, unless things have changed drastically, we're headed for much more trouble. it's unlikely we've seen the bottom.

here's why:

[img=http://img93.imageshack.us/img93/5553/90621204.th.jpg]

ARMS = adjustable rate mortgages. in other words, borrowers can choose how much to repay. sometimes there's a minimum amount that is actually less than what it would cost to beat the increase in interest rates. this is similar to paying only the minimum on your credit card. in effect, negative amortization.

the calm we've see in the last few months, which has resulted in the media spinning "less bad than expected" news as seemingly "positive" coincides with the sudden dip in this chart. the chart starts at jan 2007 and if you count up the bars, months 24 - 27 are january to april of 2009. that's right when the "good news" kicked in. keep in mind that the next "wave" of foreclosures will be WORSE than the projections in this report by Credit Suise as more households opt to make only the min payments in an increasingly savage job market. the next wave of foreclosures will hit hard and fast.

that's just a bit of fundamental analysis for those of you that don't believe in reading the tape for chart signals. based on this, and the charts... of course, the second half of the year seems somewhat bleak, and we should also expect kick off 2010 with a new batch of foreclosures. in short, this recession is here to stay.

Hi Java

I wonder if you could explain this more...I have posted the picture rather than a link so that I don't have to dive back and forth when you answer



I will be the first to say I don't really understand the mortgage market but it would seem that the cause of the past problem was the extent of the "Sub-prime" mortgages which dominated the first 2 years of this chart. Those have virtually been wiped out now. They are being replaced by "Agency ARM" and "Option ARM" type mortgages...are these the problem ones?

Just from the shape of the chart Jan 2010 will be at bar 36 which relatively speaking is not as bad as June 2008 (bar 18) however Jan 2011 (Bar 48) seems as bad as at the height of the sub-prime era.

surely with a 2 years heads-up the banking industry/USA gov't will be prepared for the event.

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I am not a stockbroker. I retired four years ago and learned charting. The opinions expressed in my posts are my own. Do your own DD and accept or reject my comments as you please.

1. Yes! I believe the options ARMS and the other ARMS will be a problem. within this includes the jumbos of Cali and Las Vegas, etc...

2. Given the heads up, the thought is that they SHOULD be a able to mitigate the impact, but it seems the leading foreclosures now are on people WITH jobs, which makes me worried. these people were probably all paying the minimum, and therefore creating negative amortization these past few months, which has cushioned the foreclosure rate... but will inevitably still lead to foreclosures.

what is the variable at the moment, in my opinion, is the rate at which the ARMS will reset to... that could make or break a lot of foreclosures in the next few months. honestly, i don't see a way to keep rates low for much longer, since we've already printed a tremendous amount of money. repeating the same thing again would devalue so much that it'd take a decade or more before our housing prices come back up and individuals' "worth" is restored... HARD TIMES WE'RE LIVING IN!