I think 7% interest rates on the 30 yr. mortgage will put the economy into a mild recession. We're close as it is given current rates. The 3rd quarter of '06 thru the 1st quarter of '07 could very likely see the weakness in GDP that the financial markets are currently portending, IMO.

Off topic:

Anyone else see the H&S in the price of gold which projects to a price of about $537 - conveniently near prior support and just below the most recent bottom. It also would be a nice completion to wave 5.

Bill & All

Gold, China & India :

http://globalgold.blogspot.com/2006/06/gold-china-india.html

Thoughts?

7% on a mortgage is a normal rate - probably close to the average over the past 20 years.

FYI:

"Intel Corp. (INTC) announced Monday that it will begin shipping its new Xeon processors for servers next week. Intel TOUTS (-: the Xeon processor series as has having better performance and lower power consumption."

"More than 150 companies, including IBM Corp. (IBM) and Dell Inc. (DELL) are planning to release server and workstation models using Xeon processors, according to Intel."

"Intel has priced the Xeon 5100 series from $209 to $851 in 1,000-unit quantities."

"7% on a mortgage is a normal rate - probably close to the average over the past 20 years."

Agreed, and actually 8% is probably more the norm if you look out over a longer period of time. My point is that given the current fragility of the real estate market I can see increased weakness in the financial system should 7% rates be reached as it would represent a detriment to further investing in real estate.

There are so many ancillary businesses that are tied to the real estate market that any sustained downturn in that area of the economy will likely lead to, at minimum, a mild recession, IMO.

Gsmbling...is it not GAMBLING to be long Gold and SILVER stocks before the major Fed meeting this week!? What if they do a 50bp? Who's to know? So why jump in WITH both feet, when the water is still swimming with sharks of Fedspeak unpredictability?

Jason22,

You commented in Bill's WIR that you may go short gold here with a price target of $488. Once again, how did you come to this conclusion and price target?

I also am looking for lower prices in select shares and gld but for purchases, not to get short like you. I feel that the price of gold is going up longer term which contradicts your position. I have specifically stated the reasons for my bullishness numerous times here. So, why am I wrong?

thanks

The point of masrkets sometimes is to get all out.
I am forecasting 488 area as the point of CAPITUALTION, I am a bull, and I guess it can all depend on Thursday, but I am concerned we get 50bp. If 25bp, then the rally could take place. Point being, if GLD doesnt rally here soon, its going to be a strong dollar time. Dont forget the weakening DOLLAR story "INCREDIBLY SHRINKING" was recently on Newsweek COVER. That right there..

I agree, Bill. IIRC, about $2 trillion in ARMs are due to reset over the next 18 months. This will cause a lot of pain for those who used these loans to purchase a house beyond their budget. Even though that isn't what they were designed for, that's how they have been marketed to home buyers.

As for new home sales, I doubt we will be similarly surprised by existing sales tomorrow. The home builders have been especially agressive in discounting recently. That has to be squeezing anyone trying to sell a home at last year's prices. Also, coincidentally, while most home builders have been reporting 20% decreases in new orders YoY this quarter, Lennar (LEN) reported today that their orders were down only 3%; which tends to confirm the new home sales data.

In the meantime, however, inventories of unsold homes keeps growing. Public builders who rely on volume to satisfy Wall Street are going to be swimming upstream for awhile.

The Fed is about done raising rates and shouldn't raise them this week. Inflation is extremely mild. The Fed should pause here or else they do run the risk of creating a recession and deflation. IMHO.

If an economic slowdown is here, then the Fed may have to start moving rates in the other direction.

Did I hear this right? Housing starts were up 5%. The margin of error of the survey was +/-11%.

That would be 11... ELEVEN

Why bother reporting it?

Here's a link to something Bill was touching on regarding home sellers with ARMs having little equity left in their homes. Even when they go to foreclosure the potential buyers are not too interested.

http://www.mercurynews.com/mld/mercurynews/business/14893575.htm

As a follow up, this morning's existing sales number were, as expected, in line with expectations. That is to say, weak. I suspect the NAR, which is now VERY nervous about increasing interest rates, has been forced to release more accurate numbers than periods past for fear of encouraging the inflation hawks.

I also note comments in a report from Northern Trust about the new home numbers from yesterday, which they viewed with pointed skepticism:

http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0606/document/dd062606.pdf