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XMFSinchiruna (26.53)

$1 Trillion to Solve the Housing Crisis!!



July 23, 2008 – Comments (5)

Be sure to check out the video... this guy isn't holding any punches. I'm not advocating a government fix, as I wish Bernanke, Paulson, etc. had done nothing rather than try to make it all go away with the magic of the printing press.  They're just prolonging the inevitable.

Great opportunity to get back into SKF today at $115.  :)  

Tons of bargins in the commodities space today... across the board... especially natural gas.

Fool on!


Roubini: More Than $1 Trillion Needed to Solve Housing Crisis Posted Jul 22, 2008 09:42pm EDT by Aaron Task in Newsmakers, Recession, Banking Related: FNM, FRE, XLF, WM, WB, WFC, BAC

Treasury Secretary Hank Paulson has been putting on a full-court press in the last 24 hours, making the case for his plan to shore-up Fannie Mae and Freddie Mac.

"I would rather not be in the position of asking for extraordinary authorities to support the GSEs," Paulson said in a speech Tuesday in NYC.  "But I am playing the hand that I have been dealt. There is a need to support efforts that strengthen Fannie and Freddie's ability to continue to play their important role in financing mortgages and in our capital markets more broadly."

The timing of Paulson's speech -- and various and sundry media appearances -- is not coincidental. This week, Congress is expected to vote on housing legislation that includes Paulson's plan, which a GAO report said is likely to cost the government $25 billion.

But $25 billion -- or even the GAO's worst-case $100 billion estimate -- pales in comparison to the cost of doing nothing, says Nouriel Roubini, NYU professor and chairman of RGE Monitor.

"We have to find a solution where government intervention prevents a disorderly outcome" in the housing market that leads to a "systemic banking crisis," Roubini says.

The housing bill, which earmarks $300 billion to backstop mortgages after lenders agree to lower mortgage payments, is "a step in the right direction" but "doesn't do enough," he says, predicting the government will ultimately need to spend more than $1 trillion.

Roubini's main concern stems from a view that the "housing recession is not bottoming by any standards," in contrast to hopeful comments from Paulson on Fox News and Barron's last weekend.

The economist believes U.S. home prices will ultimately fall 30% from their peak -- vs. 18% to date according to the S&P Case-Shiller Index -- "before bottoming out some point in 2010."

In the interim, the negative wealth effect of declining home values and increase in "underwater" mortgages will lead to more Americans walking away from their homes. Such "jingle mail" threatens to ultimately cost $1 trillion in credit losses, wiping out 75% of the capital of U.S. financial institutions, Roubini warns.

It is that "disorderly" outcome Roubini says the government cannot afford to let happen. With "the charade" that Fannie and Freddie weren't already government agencies over, he believes a nationalization of the 50% of mortgages not owned or guaranteed by Fannie and Freddie will be necessary, and the Frank-Dodd Bill is a small step down that road.

From Roubini's view, nationalizing housing avoids the government having to nationalization the entire banking system, making it the lesser of two evils.

5 Comments – Post Your Own

#1) On July 23, 2008 at 5:13 PM, MGDG (33.03) wrote:

I still like the Energy and commodity sector. I'm just not sure where to enter and re-establish my positions.

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#2) On July 23, 2008 at 5:29 PM, mandrake66 (76.92) wrote:

Great opportunity to get back into SKF today at $115.  :) 

I'm still thinking it's headed back to $100-ish. Wish I had a crystal ball good for about a 2-week glimpse.

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#3) On July 23, 2008 at 10:17 PM, XMFSinchiruna (26.53) wrote:


Are you starting from scratch?  If I could start from scratch today, here's what I would have been buying:

It all starts with CEF, the only secure bullion vault out there IMO.  Equal parts silver and gold. I advise people to make that their largest commodity holding.

I would go for AUY and AEM for gold, especially if AEM dips further tomorrow after lower zinc prices hur earnings.

For copper Freeport McMoRan (which also mins tons of gold) and Souther Copper, with Taseko on the watchlist for when the extent of recent expansion delays is known.

Silver:   Coeur d'Alene... which the naked shorts are in complete control of... but as protracted as that has been, it will ultimately prive temporary.  I would then do some additional juniors like Great Panther, ECU Silver, Mag Silver, etc.

For natural gas... it's hard to go wrong here ater this deep correction from $14 to $10.  Chesapeake, Anadarko, XTO Energy, Southwestern Energy, Harvest Energy Trust.  All are excellent, with CHK, XTO, and HTE probably my favs.

Oil:  I'm out of oil from here.  I see tremendous volatility ahead and unpredictable interventions.  Natural gas is my bet.

Coal:  Again, they have been so battered in recent days / weeks. Cleveland Cliffs is by far the best now after their purchase of Alpha Natural Resources... and the market drove the stock right down into super bargain territory after the announcement.  Your luck.  Also Massey and Arch Coal are nice.

Iron Ore:  there's only one:  RIO (Vale)

Aluminum:  there's only one:  ACH

Steel: Mechel is king

Post back here if youhave questions about these or any others.

Fool on.





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#4) On July 24, 2008 at 11:47 AM, TMFDeej (97.76) wrote:

Hey Sinch.  I read what Roubini has been saying as well.  It's pretty scary stuff...even if he's half right.  The funny thing is that this is a well respected individual who traditionally has not been an alarmist or a perma-bear.

On HTE, I used to be a shareholder but I sold out after becoming extremely bearish on refining last year.  I prefer some of the other CANROYs that shall remain nameless because they are more pure, oil / gas plays without the refining junk.

I like NUE for steel and think that this pullback is a great buying opportunity...if only I had more money :).


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#5) On July 25, 2008 at 2:31 AM, Tastylunch (28.66) wrote:

From Roubini's view, nationalizing housing avoids the government having to nationalization the entire banking system, making it the lesser of two evils.

That may have been the most depressing thing I have read all year . :-(

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