Wednesday, April 7, 2010

Wonder what might be Driving this market?.....written by Greg Gann

As crazy as it may sound, TrimTabs, a highly regarded investment research company, catering mostly to institutions to which I also subscribe reported that rising mortgage delinquencies are actually providing a boost to the U.S. economy. On March 15, 2010, Lender Processing Services reported that 7.4 million residential mortgages are non-current. This equates to 13.5% of all mortgages. Of these 7.4 million mortgages, only 2.0 million are in foreclosure, leaving 5.4 million owner-occupied residences in which owners are not paying their full mortgages. In fact, there are surely numerous instances where homeowners are paying nothing at all. This means that there are a great number of homeowners who are living for free, which may account for why retail sales figures are as good as they are. Banks can book mortgages which are more than 90 days delinquent as assets that are non-paying but accruing interest until the property is foreclosed. Therefore, although the delinquencies are impacting the cash flow of banks, they are not yet translating into a loss of banks’ retained earnings or net worth. Annual mortgage payments average between $12,000 to $18,000 annually. Multiplying these dollar figures by 5 million, delinquent mortgages result in $60 billion to $80 billion of additional economic “stimulus”.

This is why it’s always critical to appreciate the facts beneath the facts.

The opinions voiced in this material are for general information and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, you should consult a financial advisor prior to investing.