Editor’s Note:
With gasoline prices now at $4 per gallon, two new energy proposals are attracting a lot of attention on the airwaves – the Pickens Plan and Newt Gingrich’s "Drill Here. Drill Now. Pay Less." plan. But did you know that we’ve had an energy plan on the books for months now? It was developed by Chris Nelder and Brian Hicks.
They released their plan to the public last May… and it consistently ranks #1 on Amazon in popularity. In short, the Nelder-Hicks plan could save the US economy from disaster… and make many investors a fortune. To see their plan, go here.
Gold Price Forecast: Why Gold Could Rally to $1,200 by 2009
Gold closed in on $1,000 this week on fresh financial concerns, fears of Fannie Mae and Freddie Mac insolvency, and the collapse of California’s IndyMac Bank.
Retail and institutional investors alike even see gold racing above $1,000.
UBS just raised its near-term gold price forecast to $1,000 from $900. And investors in the Gold ETF (GLD) are buying September 1,000 call options like they were going out of style. Just the other day, more than 160,000 of these options traded hands.
But it’ll be 2009 when we see $1,200 to $1,300 gold. Here’s why.
ARM-ageddon by April 2009?
It shouldn’t come as a shock when mountainous Option ARM and Alt-A loans begin resetting and the second leg of the credit crisis begins.
Alt-A loans were given to borrowers with credit scores of between 620 and 700, and included the option of interest-only loans, option ARMs, and no documentation loans that required little if any documentation for loan approval. Ninety percent of those that got an Option ARM in 2006 provided little or no documentation.
Ninety percent!
And it’s estimated that only 60% of Option ARM borrowers make only minimum monthly payments. Others estimate that up to 80%.
Say a borrower makes minimum payments on a $600,000 loan. That loan could easily be a $750,000 loan within two years.
And we’re supposed to be shocked when this problem ends in the second credit crisis?
These are the types of loans that give borrowers the "option" to set payment amounts. Unfortunately, many of these types of loans were set up near the real estate market peak in 2005 and 2006, which means they’ll reset in 2010 and 2011.
And, according to the FDIC, many of these loans will see payment resets and require amortization by 2009. That means we’re nowhere near the end of financial writedowns or loan defaults. If we’re lucky, this’ll end by 2011… maybe 2012.
Of the $581 billion in option ARM loans, and the $1.4 trillion in interest-only loans, about $325 billion will default at some point. That alone could lead to more than a million foreclosures.
We’re nowhere near the end of financial hardship.
And we’re not alone in our thinking…
According to Business Week, "With the subprime mortgage crisis already crippling the U.S. economy, some experts are warning that the next wave of foreclosures will begin accelerating in April, 2009. What that means is that hundreds of thousands of borrowers who took out so-called option adjustable-rate mortgages (ARMs) will begin to see their monthly payments skyrocket as they reset. About a million borrowers have option ARMs, but only a fraction have already fallen due."
"Monthly option recasts are expected to accelerate starting in April, 2009, from $5 billion to a peak of about $10 billion in January, 2010. Some of these loans have already started to recast. About 13% of option ARMs that were issued in 2006 were delinquent by 60 days by the time they were 18 months old, Credit Suisse said."
And it’ll be California that gets hit the hardest. As of today, outstanding option ARM loans in the U.S. alone total $500 billion. About 60% of that was sold to CA homeowners, according to reports.
Not only does this negatively impact consumers, it’ll continue to wreak havoc on banks.
And, according to Greg McCoach, "Fear is rapidly increasing that the next shoe is about to drop on the credit derivatives time bomb. Recent research I have been doing had led me to the conclusion that a major banking crisis is soon to unfold not just in America but Europe as well."
"The size of this debacle is going to be colossal. It will involve huge write-downs by the banks which in turn will cause instant liquidity problems and possibly bankruptcy for some of these institutions."
"It looks like the end of August or early September could be reckoning day for at least 20 financial institutions across the United States and Europe. The fallout will be devastating to financial stocks and depositors of troubled and or failing banks and institutions."
"As these banking failures pile up starting in the next few months, look for gold and silver prices to have their biggest moves yet since the bull market in precious metals began back in 2002. These banking failures and the corresponding inflation that will take place will finally take the U.S. Dollar Index below the critical "70" level."
"Gold in my opinion will begin to have a series of $100 up days taking the yellow metal to $1,500 per ounce and possibly even higher before the end of the year. Silver will be trading at no less than $30 an ounce and probably much higher as well before year end."
You heard it here, folks. Back up the truck on gold.
Take care,
Ian L. Cooper
http://www.goldworld.com
In case you missed our other investment opportunity highlights, here’s what we covered in Wealth Daily, Gold World, Energy and Capital, and your free blogs for the week of July 14, 2008.
The Gingrich & Boone Pickens Energy Plans: Which Energy Plan Will Work?
In the past 2 weeks, we’ve been inundated with two specific energy proposals to kick America’s foreign oil addiction. One has come from Newt Gingrich’s American Solutions advocacy group. You may have seen the commercial for the petition. The energy campaign’s motto is "Drill Here. Drill Now. Pay Less."
Stooges Testify, Inflation Soars: Nothing But a Clown Show
Lost in the charade of yesterday’s testimony by Bernanke, Paulson & Cox was an absolutely abysmal wholesale inflation number from the Labor Department. While the Three Stooges entertained, prices continued their journey to the moon.
Gold Mining in Mexico: An Undervalued Gold Producer Working Across the Border – Part 1
Over the next two days I am going to report on one of my favorite Canadian gold stocks mining in Mexico.
The Next Major Banking Crisis: And What To Look For in Precious Metals
Market conditions for the junior mining sector continue to deteriorate as we approach mid-summer. Several forces are currently at work, causing problems not only for our sector but for stock markets in general. Here is what I believe is happening:
Green Energy Investments: Where the Green Money’s Going Now
And yet, there’s no point in selling-houses or stocks. Why sell a long-term investment for less than you paid for it, especially if it’s likely that the price will rise again in the next few years?
Renewable Energy in Europe: France Goes Green for Jobs
MARSEILLE, FRANCE: As beautiful as the South of France is, landscapes alone don’t make the future look promising. The economies of Portugal, Spain, and southern France are feeling the pinch of the global recession more than many developed countries.
Shadowboxing the Apocalypse: Energy and the Politics of Partisan Paralysis
If it weren’t such a desperately serious situation, watching our fearless leaders trying to grapple with the energy and financial crises would be hilarious.
Offshore Oil Drilling: The One Offshore Oil Drilling Company to Play this Week
It is always good to have a plan. It’s not, however, good to have a bad plan. That was my initial reaction last month when the President gave Congress several steps to reduce gas prices and foreign oil dependence.
Copper Mining Companies: Why Southern Copper is a Buy
In September 2007 Citigroup analysts Alan Heap and Alex Tonks called for the spikes in coal and iron ore prices "because of demand from China and congestion at ports in Australia and South Africa." And they were spot on. So when the same analysts upgraded outlooks for coal and copper, why argue?
Insiders Buy at 2-Year Lows
These insider buys come as the company looks to boost customer food business performance, and buy back $900 million of stock with monies from the sales of its departure with its agricultural commodities trading unit.
