So we gave you Deep Thoughts already today, but deep thoughts are usually followed by dark thoughts, so why not give you some of them too.

From a stock guy to us investors (in stocks):

About the market:

My primary thesis is that we are now into one of the primary home selling months, May, and as June and July unfold, that the numbers of existing and new homes sold will come in well below expectations. Further, home building starts and permits just rocked the market as they came in at a record low, the day after the home builder sentiment index rallied the market, due to its second month upturn. The rise in sentiment did not correlate with the reality.

I expect similar difficult conditions going into the primary home selling season. Then I anticipate even greater challenges as the number of foreclosure increases. If RealtyTrac is correct and the shadow foreclosure market is really over 600,000 homes nationally that have already been foreclosed on but have not yet been put on the market, and in markets like Sacramento, may be as much as 5,000 homes, when the total homes on the market is 6,600, then I feel that their estimate of another 30-40% down on home prices from their current 30-40% down in CA, may be quite likely. Should this happen, according to Gary Shilling’s Insight’s newsletter [sorry, don’t have it for you], you could see another 15% drop in housing prices. According to Shilling, this would result in roughly 25 million of the 51 million home owners with mortgages being upside down. The portion of these upside down home owners that are on the verge of handing in their keys, are what I refer to as the “finger nail market.” That is, many of these people are the ones holding on by their finger nails to their homes. Although some programs are aimed at writing down the loss on these home owners loans to current market prices, one program that he notes was expected to help 400,000 home owners. As of his May newsletter writing, there had only been 51 mortgages restructured.

After the June and July “hopes” for a recovery in the housing market fade, I am afraid that the economic challenges the country and world are facing may seriously weigh on the market. These are the primary market “driving forces” that lead me to reduce my scenario ratings on the first tick down on the market. The risk of a sovereign default (Brittan) and the fact that we are now entering the two big housing sales months, June and July, and my expectation that new and existing sales will come in well below expectations, and many of those people in the “finger nail market” will turn in their keys later this year, lead me to change my market expectations again.

Don’t shoot the messenger, but discuss at your leisure.