Beware The Greeks, Two Hopes for U.S. Housing, Inflation Returns and More!

by Addison Wiggin & Ian Mathias

  • Will Greece be the next Iceland? The 5, the free market and Rob Parenteau weigh in
  • America’s looming debt crisis creeps closer… new commission urges immediate response, first signs of inflation emerge
  • The one — and only — U.S. city forecast to see home prices rise in 2010
  • Greg Guenthner on a strange but certain investment reality: Senior housing communities are set to boom


  "There are times in a nation’s history that define it for decades, for generations to come. This is such a time.”

That’s true for most countries in the world right now, but likely more for Greece than anyone else. The quote above comes from Prime Minster Papandreou, who made an emergency speech last night. Just as Rob Parenteau forecast in yesterday’s 5, the focus of the world has turned to the Greeks.

Pinned under a 12.7% budget deficit-to-GDP ratio, at monetary odds with other EU nations and recently targets of sovereign credit downgrades, Papandreou and his people are scrambling. Last night, he promised to reduce that same ratio to 3% (the limit under EU laws) by 2013. The plan: Cut spending where convenient and soak the hell out of the rich. Greece will soon have higher taxes, probably across the board, but most notable will be a 90% tax on bonuses in the financial industry and the introduction of a capital gains tax. Ironically, in the same breath, he promised to fight corruption and tax evasion, both crimes that will likely rise in the wake of more government confiscation.

Will it work? The market says no. The difference in yield between Greek and German bonds was 229 basis points before Papandreou spoke. Soon after, it was 252 bps.

  “Some professional investors are already attracted to this widening spread in Greek and German bonds,” Rob Parenteau adds, “and they are finding encouragement from the restrictive policy measures announced in the past week or so. But it strikes us as too early to wade into the fray. We would not go so far as to predict Greece will default, nor would we go so far as to suggest the euro is about to come undone, but we do believe the pressures and the pushback that are going to be brought to bear on a number of European nations will put a serious question in the minds of investors who may have convinced themselves in recent months that the euro was a contender for snatching the reserve currency status of the U.S. dollar.”

Greece’s total debt to GDP ratio is currently over 112%.

  Back in the States, “both spending cuts and tax increases will be necessary” to reign in our own untamed deficits, according to the Peterson-Pew Commission on Budget Reform. They’re a group of budget hawks and old congressmen that dropped a report titled Red Ink Rising all over Washington yesterday.

Basically, as the report claims we’re headed the way of Greece: Our current debt-to-GDP ratio is on track to hit 85% by 2018, 100% in 2022 and 200% by 2038. The commission urged Congress to make cuts in spending and raise taxes almost across the board, with the goal of stabilizing our debts to “just” 60% of GDP by 2018. "We believe the problem is so large that nearly all areas of the budget will be affected," the group said, which is precisely why we predict their report will fall on deaf ears, regardless of how appropriate it may be.

  Wholesale prices inflated at their highest rate in over a year during November, the Bureau of Labor Statistics reluctantly announced this morning. Their producer price index shot up 1.8% just last month — about double what the Street expected. Over the last 12 months, producer prices are up 2.4%, the highest annual rate of inflation in a year.

Even if you strip out food and energy (a practice the Fed loves to do during inflationary times, but usually forgets to mention when they support deflationary policies), the core rate rose 0.5% in the month. You’d have to go back to October 2008 for core rate inflation that large.

Good thing Mr. Bernanke still has rates at 0%, eh? Wouldn’t want this deflationary death spiral to get any worse.

  But hey, not all is bad in the U.S… like the city of Pittsburgh! Of every housing market in America, Moody’s said this week that it expects Pittsburgh — and Pittsburgh alone — to have its home prices rebound in 2010. A whole 0.41%, thank you very much. Good news for our friend Byron King, a longtime resident of the Steel City.

For everyone else, your editors included, too bad. Moody’s chief economist Mark Zandi expects home prices to fall another 5-10% next year for the other 99 metropolitan areas in the U.S.

For the record, Zandi forecast this time last year that prices would fall 14.5% in 2009. Likely to come in around 13% this year, that’s pretty damn good… and pretty bad news for 2010. Zandi expects high foreclosure areas to become even more flooded with new defaulted properties. So Florida, Nevada, California and Arizona — you’re still on notice.

Just how grave is it getting out there in those hard-hit states? We learned this morning that the new CityCenter in Las Vegas — the architectural gangbang we mentioned a few weeks ago — received 175,000 applications for 12,000 new jobs, according to CNBC. 95% were Nevada residents. As CNBC pointed out, that’s the like the entire city of Providence, R.I., showing up looking for work… at a new casino that is widely predicted to fail, in a city that is struggling to survive. Amazing.

  Sign of things to come: Fairfield Residential, a billion-dollar real estate company with properties all over the U.S., filed for bankruptcy this week. The AP reports, “It entered court protection after failing to refinance debt or sell off investment properties, forcing it into default on certain loans.” Get familiar with that line.

  “I’ve got a housing play that’s guaranteed market growth in the next few years,” Greg Guenthner told his Penny Stock Fortunes readers yesterday. The latest PSF recommendation operates senior living communities all across the U.S.

“Senior communities basically fit into one of three broad categories: independent living, assisted living and skilled nursing facilities. Independent living communities let seniors live independently while keeping resources like dining and community centers at close call. Assisted living facilities provide an increased level of medical attention, and skilled nursing facilities — better known as nursing homes — provide a higher tier of medical care.

“If you think that the senior living business isn’t sexy, you’re dead wrong. An aging baby boomer population and ever-increasing life expectancy here in the U.S. guarantee that the market for senior living communities is due to swell in the coming years.

“Between 2000-2050, the U.S. Census Bureau expects the population in the United States to increase by 49%. During that same time, the 65-and-over population is projected to increase by 147%, to 86.7 million men and women — a full 21% of the population.

“With healthy occupancy currently in place for most senior communities, it’s clear that aggressive expansion will be necessary in order to keep up with demand. Established business in this sector stand to do very well. With limited leverage and a highly expandable business, the company I just told my PSF readers about is one of the best-positioned senior living companies to expand its footprint. You can get the ticker by subscribing, here.”

We hasten to add, Penny Stock Fortunes is a super bargain… this pick alone is worth the cost of a one-year subscription.

The stock market is taking a breather today. After a small gain yesterday, major indexes are just below break-even today. Looks like holiday mode might be upon us.

“This week will largely mark the year-end for most professional traders — if they haven’t checked out already. The volumes will most likely slow to a trickle after the Dec. 18 option expiration all the way through the end of the 2009 year. Next week and the one after Christmas may offer limited trading opportunities, but mostly a much-needed rest for some to reflect on the past year. We will be watching the positions closely as always and give any updates as needed.

“The key focus will continue to remain the dollar, which has been very good to commodities in general. A move back below 76 sends natural resources on another run, confirming just a temporary bounce in the greenback. Oil and energy stocks have retreated and set up for buying opportunities to lean on support. Gold and silver have done the same to shake out some recent buyers and look ready to rebound.”

Alan will keep his Resource Trader Alert readers informed through the end of the year lull, but frankly, with a track record like they’ve had this year, we wouldn’t blame them if they shut off the computer and enjoyed the holidays. They’re sitting on an average gain of 70% this year — 19 winners out of 24 recommendations. Congrats to Alan and his readers.

If you want gains like this in 2010, we think Resource Trader Alert would be a great place to start… so we’re offering nearly 50% off the subscription price if you click right here.

  The dollar got a nice boost this morning thanks to all that drama in the eurozone. The dollar index is up half a point from Monday, to 77.

  Thus, gold is under pressure. At $1,118 as we write, the spot price has given back most of yesterday’s rally.

  “What nobody seems to be saying in this debate about compensation,” a reader writes, “is that the stockholders of these public companies are being robbed by their leaders. I started my own company and have not sold stock or taken public funding; therefore, no one has the right to tell me what I can pay myself. These fat cat CEOs didn’t start the company, and really are just hired help, their main goal being to run the company profitably for the shareholders. Yet they are robbing these companies at the shareholders’ expense, and long-term health of the company and the U.S. economy. I think if they want the crazy pay they are demanding, they should go out and create their own companies.

  “Your reader who chastises The 5 for not coming down on the excessive compensation of CEOs is off the mark,” another reader writes. “You know the difference between Madoff’s Ponzi scheme and Social Security? You are not legally required to put money with Madoff. Similarly, you are not legally required to put money with corporations that pay excessive amounts to ‘insider’ incompetent CEOs. You just boycott those companies. No revenue, no more company — unless, of course, Chairman Barack subsidizes them. But we are legally required to pay exorbitant salaries of bureaucrats. Now if only there were enough intelligent votes left in the U.S. to do some good…

“Thanks, 5, for keeping on track.”

It’s our pleasure,

Ian Mathias

The 5 Min. Forecast


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