Sunday, December 27, 2009

Should be a quiet week...

Most investors have realized substantial gains this year and will look to coast into the new year on our highs. There will be little in the way of market moving news this week and the sentiment right now seems to be if we go a little higher expect a flood of new buying. I'll reiterate that business activity that is not tied to stimulus spending is really anemic but the stock market is acting independent of fundamentals at this point. Some market observers are a little worried about the light volume and the concentration of trading in some names, but again it should be quiet this week.

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The story of the housing bubble is definitely in our rearview mirror for most of the country --- however, I'd argue that there has been a bubble building in low-end houses as a result of the tax credit --- but I thought you might appreciate the history of one house and one borrower in NJ.

Mortgage $256,000 7/12/2002
Mortgage $301,500 7/3/2003 --- refinanced and took out "equity".
Mortgage $347,700 7/12/2004 --- refinanced and took out MORE equity"
Mortgage $43,443 10/3/2005 --- took out a bonus 2nd mortgage!
Mortgage $400,000 6/13/2006

Total debt--- almost $44ok. Over 4 years of "owning" the home the debtors managed to add almost $2ook to the their mortgage balance. I'm sure nothing could go wrong here. What happened to the $2ook

Hummer, Mercedes and Corvette.
Couple of get jet skis at the shore house.
Shopping and vacations.

This was fairly typical in many bubble markets. So much of our retail economy was built on this type of excessive spending. I can't see this spending returning any time soon.

Cheers!

1 comment:

Jeff Green said...

This mortgage and all article is a great resource. Thanks for posting!