The markets have been frazzled and rattled by the subprime mortgage industry’s continued implosion. And while the markets appear to be a bit calmer these past few days, some experts believe “it ain’t over yet.”

In fact, Angelo Mozilo, chief executive of Countrywide (the biggest mortgage lender in the U.S.), sees a deep dark recession ahead. Mozilo says, “This is one of the greatest panics I’ve seen in 55 years in financial services.”

Nigel Gault of Global Insight echoed the sentiment. Just recently he warned in a research note that “the economic outlook has dimmed.”

Morgan Stanley’s chief U.S. economist, Richard Berner, told The Wall Street Journal that economic trouble is brewing, even if it’s not yet obvious. He predicted that “the housing downturn is going to be more prolonged and deeper than people might have imagined.”

Then consider that a recent government report shows a national drop in the median price of single-family homes since last year.

Nationally recognized economist Mark Zandi says, “too much inventory, weak demand and tighter credit have been problems in some markets for two years.”

“Well over half the country is now experiencing price declines and will experience further price declines through this time next year into 2009,” Zandi said. “That’s unprecedented.”

But don’t tell that to the folks over at the Congressional Budget Office. They see a different picture ahead for the economy. The office says, “the fallout from the mortgage crisis so far had been “quite muted.” The CBO Director Peter Orszag added, “market turbulence may continue, but the economy still looks robust.”

What do the folks here at Taipan think? While most agree we’ll see more rough waters ahead, they are optimistic about the economy by the end of the year.

In case you missed their commentary in previous issues of TFN e-news, let me recap their predictions.

Ian Cooper expects more trouble ahead, specifically in the month of October. He says, “October 2007 happens to be the peak month for mortgage resets. That’s when $50 billion in mortgages will reset at higher rates. After that $30 billion worth of mortgages will reset every month until 2008, possibly forcing millions of cash-strapped homeowners to delinquency and foreclosure filings.”

Andrew Mickey shares Ian’s concerns: “U.S. markets are going to take another hit in September and October. Only then will we get back to the uptrend. No one understands liquidity. Fundamentals are there, but retailers always lead the way down.”

Adam Lass, creator of the WaveStrength Charting System, thinks we’ll see a recovery in the Dow by the end of the year. In fact, he used the system to chart possible scenarios: “(1) A reasonably quick recovery back to recent highs, followed by a bold late-fall buying season, which would push the DJIA as high as 15,275 by year’s end. (2) The blue chips negate the extremely bullish trend of the last four months, returning instead to the more reasonable rate of climb of the previous six months. In this scenario, we would see share prices continue to drop to the bottom line of the gentle rising trend at 12,795, before recovering and returning to the top line of that trend at 14,037.”

Stephen Oakes, a new analyst to our group, says, “When looking at the Moving Average Convergence Divergence (MACD) indicator on a long-term chart plotted against monthly price movement, the Dow Jones Industrial Average has only given two buy signals.

“The first came at the very beginning of 1995 in which this major index surged from around 4,000 to 12,000 in about five years' time. Furthermore, a sell signal was given in early 2001. Over the past few decades it seems that markets get slammed in years ending with 0 through 2. For example, there was a recession in the early '70s, '80s, '90s, and '00s. So, there appears to be trend indicating that markets top at the end of each decade, followed by a recessionary period in the next. Nothing is guaranteed here, but one thing is for sure, the market will not forfeit its gains any time soon.

“In fact, in 2006 the MACD indicator convergence is signaling that investors should buy. In my estimation we are closer to a short-term bottom in the market, which will ultimately lead to a typical year-end rally. The markets should continue to perform well until late 2009 in which case the sub-prime lending issue may begin spilling over and ultimately drag down the major indices with it. Bet on a severe correction beginning in 2010, in which case investors may need to quickly shift assets into more risk adverse investments, primarily fixed income securities.”

As Stephen points out, there are no guarantees… but I can tell you from my 10 years working in the Taipan Group, we’ve been right more times than we’ve been wrong. In fact, it was our own Ian Cooper who first spotted the fallout of the subprime woes back in March. It was February 2007, when Ian called for the slow death of subprime and watched as the cream of the crop floundered and crashed.

Ian saw early on that New Century would be one of the first to file for bankruptcy. He helped his readers realize triple-digit gains in the weeks before the filing was even inked.

He had even called for the downside of other lenders and homebuilders, helping readers realize 59% to 291% gains on Fremont; 46% and 122% gains on Radian, 23% and 138% gains on Hovnanian; 27% and 92% gains on Toll Brothers; 188% gains on Thornburg; 150% gains on Standard Pacific, 141% and 134% gains on Accredited Home; and 134% gains on Centex.

By the way, Stephen and Ian are nearly set to launch their new trading service, Black Sheep Trader, based on Stephen’s proprietary system. And it seems they’re off to a good start. Here’s what one reader had to say:

“Thanks so much for the NRMX tip. Bought Puts at .75 and just sold yesterday for 2.00. Maybe should have held a bit longer, but, hey I already made a "pile" of money!!! Can't say how much, in case that nasty 'ol IRS is listening. Keep 'em coming!!!

Watch for an official invitation to hit your inbox in the few next weeks.

 

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