I've been intrigued lately about what's happening in Washington... how they're handling today's housing crisis. As we speak, Washington is doing its level best to engineer the new real estate boom as fast as it possibly can. Yeah, that's right: Washington wants a new real estate bubble... and wants it in the worst way.
But the only way they could get away with it is to keep unemployment around 10% for the next 18 months, if at all possible.
And a body could stand to make some 500% gains off this whole debacle... if they were willing to hold their nose against the stench of it all!
Now I'm sure this is going to trigger a veritable flood of angry mail. I've already received some comments since I first started writing about this. And I'm sure I'll get some more once this e-mail goes out.
The idea of another artificial real estate bubble and the idea that Washington might even enjoy high unemployment has folks so hot under the collar that many have resorted to language I wouldn't repeat in the men's room of my local biker bar.
So I will forego answering the queries as to my lineage and my parents' marriage status at the time of my birth, and answer your pertinent questions.
Why Does Washington Want a Real Estate Boom?
Because we are dead broke. No, we are beyond broke. Our budget deficit for the current fiscal year is over $1.3 trillion.
And that ain't nothing... compared to how much Washington has committed to spend going forward. Washington has yet to disburse over 75% of the stimulus monies it has promised. Those outlays could add another $8.2 trillion to the red side of the accounting sheet.
Meanwhile, the recession has put tax receipts in the toilet, so the only way Washington can fund all this spending is by borrowing. Our country's debt is already at an amazing $11.5 trillion – some $37,000 for each and every stateside reader of this column.
And most every week for the past few months, the Treasury has broken the previous week's record for new debt sales. At the last auction, they put up some $50 billion in new bonds. And now they want to move out a mind-boggling $75 billion worth.
Even the Flood-Meister himself, Helicopter Ben Bernanke, has warned that this tsunami of red ink could drown us for years to come. Okay fine, he didn't put it quite like that, but he has noted repeatedly that we need to do something soonest.
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So what could we possibly do to bring in some much-needed tax receipts? Can't be something too long term or experimental: The need is now, and we can't afford to fail. Hmmm – what did the last couple of guys do when faced with similar problems? (Actually, the exact same damn problem, but that's another day's rant.)
They conspired to pump a boatload of dollars into real estate via artificially cheap mortgages, and then taxed our supposed "gains." And we tolerated the whole farce because Washington allowed us to keep a good chunk of those "gains."
So now we see the Fed doing its level best to keep mortgage rates at rock bottom. And just in case that's not enough, Washington wants to reconfigure Fannie Mae and Freddie Mac (again). The idea is to transfer all the bad mortgages we forced them to buy up last time around to a new "National Bad Bank."
This will achieve two critical goals: It will allow the two biggest mortgage banks in the history of finance to resume lending to every Tom, Dick and Larry capable of signing their name. And it will stem the tide of heavily discounted foreclosure sales that compete with regular home sales.
But why do I keep putting gains in quotes? Well, that leads us right to the next question...
Why Does Washington Love High Unemployment?
Okay, I don't know that they "love" it. But I do know that they desperately need 10% unemployment.
You see, the one catch with a new artificial real estate bubble is – well, pretty much the same catch as the last one – inflation. You probably remember how the storyline went:
Washington pumps in cash...
The dollar goes down...
Real estate goes "up"...
But so do oil, gasoline, food, etc...
Eventually, folks have to pick between an inflated house mortgage and inflated food...
Food wins – and life gets ugly.
There is one way to keep inflation at bay that works. High unemployment keeps wage demand down, which can forestall an inflationary spiral – for a while anyway. (This trick does not necessarily work every time: In the seventies, we got stuck with stagflation and high unemployment.)
Yes, high unemployment will drag down a president's numbers. But Mr. Obama's not up for re-election for another three-and-a-half years. In the meantime, he has warned quite specifically that he expects unemployment in the 10% range to persist for some time to come.
This temporary brake on inflation will allow Washington to continue to pump out fresh dollars into real estate with relative impunity. The 90% of us who have jobs will happily buy, sell and refi until we feel rich again, and Washington can skim its 25% off the top, thus filling its coffers and reducing debt.
I'm not guessing about all this: Pending home sales have been up for the past five months in a row. And the builders are all reporting daylight for the first time in months (if not years!).
Is it a massive Ponzi scheme? You bet.
Is it immoral and shortsighted? Arguably.
Can we stop it? I dunno. I suppose I could squawk about it some more (and probably will). But I've been on the White House "Enemies List" for decades now. And my senator doesn't seem to answer my calls. How about yours?
How Much Will Your House Go Up This Time Around?
Depends on where you live. My spread in rural Maryland never really fell. But I don't see it floating up but so much in the near future. If I want to see a price improvement, I will have to put in some sweat equity. (Perhaps a new patio door? Maybe do something about the barn's roof? How about killing that damn groundhog that digs up the back acres?)
But if you live in one of the markets that have shot up and down like a maddened yo-yo, well, you probably stand a good chance of seeing your property prices shoot back up 10% or maybe even 20% over the next year or so.
But don't open that bottle of cold duck just yet, because your property taxes are going up too. And don't be surprised to see a couple of special levees and such, because Uncle Sugar ain't just doing this for charity.
What This All Means to You (a.k.a. How You Can Make Some Money Off This)
With everything going on in the economy and especially in Washington, I strongly suggest you pick up a few shares of Standard and Poors' Homebuilders ETF (XHB:AMEX).
By owning the XHB, you're getting a basket of companies that replicates the movement of the S&P Homebuilders Select Industry Index. Now please understand, this is not a pure play on homebuilding companies. Quite the contrary. The XHB is more than a pure homebuilder play.
Industrial materials are clearly the largest segment, but you also have exposure to business services and consumer goods, including KB Home (KBH:NYSE), Bed Bath & Beyond (BBBY:NASDAQ), Owens Corning (OC:NYSE), Lennox International (LII:NYSE), and Williams-Sonoma (WSM:NYSE). So you truly have an all-around basket of companies that are each affected by the homebuilding sector.
XHB is also exhibiting some very strong buy signals. A move from its current price of around $15.00 to $22.70 is almost certain. A follow-on move as high as $31.86 is quite possible. That's a potential gain of 112%!
So look into Standard and Poors' Homebuilders ETF (XHB:AMEX) for your portfolio.
Now, that's one way to play XHB.
I introduced my WaveStrength Options Weekly (WOW) readers, though, to another method: an options trade on XHB. Options offer the opportunity to make more money, faster. If XHB hits the $31.86 target mentioned above, that could lead to an even bigger gain – to an explosive gain of 459%!
Yeah, I know what you're thinking: "459%? No way!" Well, my WOW readers have been seeing these triple-digit winners over and over again. Maybe you've heard about the gains we just posted with the options trade recommendation on Ford: 691% in only five months!
Or the 275% posted with ArcelorMittal in four months...
Or the 177% gain with GlaxoSmithKline in another four months...
Now, I have to be honest with you. Not all of the gains my WOW readers are seeing are triple-digit winners. We're also posting gains like 69%... 12%... 29%... 66%... 63%... another 63%. And those types of numbers could look great in your portfolio.
I've just put together a new Special Report on my latest profit opportunity, and you should check it out. Insiders from Washington to Wall Street have been using this information – what I call the "Title XV Tip Sheet" – to get rich. Now it's your turn. It could be your ticket to net $31,000 or more. Here's how to grab it immediately.
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