SHREVEPORT, La., March 25, 2007 (PRIME NEWSWIRE) -- Wall Street Maverick, Don Harrold says, "the bottom" is yet to come.
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"Investors were told the reason the market was strong last year was a 'robust' economy. They were told the reason the economy was so strong was the 'resilient consumer' (ie: people who spend money they don't have, for things they don't need). They were told that the 'resilient consumer' got all that money from the 'wealth' 'created' in the housing market bubble. They were told they took all that 'equity' out of 'their' homes and trotted down to Wal-Mart (NYSE:WMT) or Home Depot (NYSE:HD) to spruce up the joint. And, that, ultimately, fueled revenue and profits for big business," says Mr. Harrold.
"That is the story they were told," adds the contrarian investor.
"At face value, that story should be disturbing. That story should cause investors to recoil in horror. It should disturb people greatly that Americans borrowed their way into a black hole of debt," reports Mr. Harrold.
"The 'subprime mortgage' disaster is just starting. Adjustable Rate Mortgages from the last couple years are just now beginning to reset at higher rates (an extremely bad situation because the people who could not afford 'higher rates' a few years ago, can't now, either). There is even talk -- gasp -- of a 'spillover' into more 'prime' loan territory," says Mr. Harrold.
"I could quote all sorts of economic data. I'd be right about all of it too. I've been right about this economy for the last year. However, we are at a point where I don't need to talk about the bad economy quite as vociferously as I once did. This is because 'the fed' and 'the media' are beginning to use language like, 'slowing growth', 'soft', and even -- gasp, once more -- 'recession'," adds DonHarrold.net's founder.
"So, the theory-du-jour is: The U.S. economy is 'slowing', and 'inflation' is 'rising'. But, everything is just fine because the Fed will keep things moving along with a couple rate cuts," says Mr. Harrold.
"Or, maybe not," continues Mr. Harrold.
"Because, if the fed cuts rates that will drive inflation higher. A drop in interest rates will lower the value of the dollar. A lower dollar means all sorts of nasty things, including more of that 'yen carry trade' story that whacked the markets last week," investors are reminded of by Mr. Harrold.
"If the fed raises rates, that will crush the already disastrous housing market as the last two or three Americans not already saddled with a mortgage are priced out of that racket (to their benefit, by the way, whether they know it or not)," posits the Wall Street realist.
"And, therein lays the problem. Well, one of the problems. This problem is a serious quandary for the U.S. economy: The very thing which propped up the stock market (all that 'wealth' created in the housing bubble) is gone. So, too, will be the fortunes of millions of Americans when 'their' home values plummet as buyers dry up, plus, their stock portfolios will get whacked as buyers dry up there, too. The fed would love to stop these, ahem, 'problems' from happening (well, not really, but that's another commentary) but they can't use interest rates as the catalyst. A cut in rates now, while the rest of the world raises rates, would deal a crushing blow to an already weak U.S. dollar, and spike the currently way-too-high-but-underreported inflation," says Mr. Harrold.
"The fed can't raise rates, either. That would -- as I mentioned -- kill off the last of the swinging spenders in the housing market. This too would have the effect of pushing house prices lower as home 'owners' must sell at ever-cheaper prices to 'buyers' who can't afford payments at higher interest rates," Mr. Harrold adds.
"This is what happens when you run out of money. No good options. Like you are stuck in the middle of a lake with no gas, no paddles, and storm on the horizon," says Mr. Harrold.
Don advises, "Your trading must continue to err on the side of caution. My comments here are an exaltation to you, not a story for the sake of historical perspective. The reason I told you months ago about the coming economic storm was to prepare you."
"It's about time to grab those life jackets. Difference is, you and I know the storm is coming. You and I have our life jackets on ahead of time," concludes Mr. Harrold.
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