Category Archives: Housing Market

“Things Have Been Going Up For Too Long”

I have to believe that the Fed injected a large amount of liquidity into the financial system on Sunday evening. The 1.08% jump in the S&P 500, given the fundamental backdrop of economic, financial and geopolitical news should be driving the stock market relentlessly lower. The amount of Treasury debt outstanding spiked up $318 billion to $20.16 trillion. I’m sure the push up in stocks and the smashing of gold were both intentional as a means of leading the public to believe that there’s no problem with the Government’s debt going parabolic.

Blankfein made the above title comment in reference to all of the global markets at a business conference at the Handlesblatt business conference in Frankfurt, Germany on Wednesday. He also said, “When yields on corporate bonds are lower than dividends on stocks – that unnerves me.” In addition to Blankfein warning about stock and bond markets, Deutsche Bank’s CEO, John Cryan, warned that, “We are now seeing signs of bubbles in more and more parts of the capital market where we wouldn’t have expected them.”

It is rare, if not unprecedented, the CEO’s of the some of the largest and most corrupt banks in the world speak frankly about the financial markets. But these subtle expressions of concern are their way of setting up the ability to look back and say, “I told you so.” The analysis below is an excerpt from the latest issue of the Short Seller’s Journal. In that issue I present a retail stock short idea plus include my list of my top-10 short ideas. To learn more, click here: Short Seller’s Journal information.

In truth, it does not take a genius or an inside professional to see that the markets have bubbled up to unsustainable levels. One look at GS’ stock chart tells us why Blankfein is concerned (Deutsche Bank’s stock chart looks similar):

The graph above shows the relative performance of GS vs. the XLF financial ETF and the SPX. Over the last 5 years, GS stock has outperformed both the XLF and the SPX. But, as you can see, over the last 3 months GS stock not only has underperformed its peers and the broader stock market, but it has technically broken down. Since the 2009 market bottom, the financials have been one of the primary drivers of the bull market, especially the Too BIg To Fail banks. That’s because the TBTFs were the primary beneficiaries of the Fed’s QE.

The fact that the big bank stocks like GS and DB are breaking down reflects a breakdown in the financial system at large. DB was on the ropes 2016, when its stock dropped from a high $54 in 2014 to $12 by September. It was apparent to keen observers that Germany’s Central Bank, the Bundesbank, took measures to prevent DB from collapsing. Its stock traded back up to $21 by late January this year and closed Friday at $16, down 24% from its 2017 high-close.

This could well be a signal that the supportive effect of western Central Bank money printing is wearing off. But I also believe it reflects the smart money leaving the big Wall Street stocks ahead of the credit problems percolating, especially in commercial real estate, auto and credit card debt. The amount of derivatives outstanding has surpassed the amount outstanding the last time around in 2008, despite the promise that the Dodd-Frank legislation would prevent that build-up in derivatives from repeating. It’s quite possible that the financial damage inflicted by the two hurricanes will be the final trigger-point of the next crisis/collapse. That’s the possible message I see reflected in the relative performance of the financials, especially the big Wall Street banks.

This would explain why the XLF financials ETF has been lagging the broad stocks indices.  It’s well below its 52-week high and was below its 200 dma until today’s “miracle bounce” in stocks.

Again, I believe the really smart money sniffs a derivatives problem coming. Too be sure, the double catastrophic hurricane hit, an extraordinarily low probability event, could well be the event that triggers a derivatives explosion. Derivatives are notoriously priced too low. This is done by throwing out the probability of extremely rare events from the derivative pricing models. Incorporating the probability of the extremely rare occurrences inflate the cost of derivatives beyond the affordability of most risk “sellers,” like insurance companies.

Let me explain. When an insurance company wants to lay off some of the risk of insuring against an event that would trigger a big pay-out, it buys risk-protection – or “sells” that risk – using derivatives from a counter-party – the “risk buyer” – willing to bet that the event triggering the payout will not occur. If the event does not occur, the counter-party (risk buyer) keeps the money paid to it to take on the risk. If the event is triggered, the counter-party is responsible for making an “insurance payment” to the insurance company in an amount that is pre-defined in the derivatives contract.

Unfortunately it is the extremely low probability events that cause the most financial damage (this is known as “tail risk” if you’ve seen reference to this). Wall Street knows this and, unfortunately, does not incorporate the truth cost – or expected value – of the rare event from occurring into the cost of the derivative. Wall Street plays the game of “let’s pretend this will never happen” because it makes huge fees from brokering these derivatives. When the rare event occurs, it causes the “risk buyer” to default because the cost of making the payout exceeds the “risk buyer’s” ability to honor the contract. This is why Long Term Capital blew up in 1998, it’s why Enron blew up, it’s why the 2008 de facto financial collapse occurred. We are unfortunately watching history repeat. This is the what occurred in the “The Big Short.” The hedge funds that bet against the subprime mortgages knew that the cost of buying those bets was extremely cheap relative the risk being wrong.

If the hurricanes do not trigger a financial crisis, the massive re-inflation of subprime debt – and the derivative bets associated with that – are back to the 2008 levels.

The optimism connected to the stock market is staggering. According to recent survey, 80% of Americans believe that stock prices will not be lower in the next 12 months. This is the highest level of optimism since the fall of 2007. The SPX topped out just as this metric hit its high-point. The only time this level of optimism was higher in the history of the survey was in early 2000.

Wave Good-Bye To The Dollar’s Reserve Status

“Paper Money Eventually Returns To Its Intrinsic Value – Zero” – Voltaire

Set aside all other financial, economic and political concerns continuously shoved in our collective faces by the mainstream media.  It’s a distraction – to a large degree intentional.

These are the ONLY events that matter right now:    this, “China Begins To Reset The World’s Currency System,” and this,   “Venezuela Is About to Ditch the Dollar in Major Blow to US: Here’s Why It Matters.”

Once the dollar is no longer regarded or used as the reserve currency, third-world poverty will engulf everyone in this country below the upper half percent wealth stratum…except those who possess a fair amount of physical bullion.  I just bought more gold and silver coins from a friend yesterday who had an uncontrollable urge to get their house painted and needed to sell some to me to fund it.  It won’t matter what the house looks like in a couple years but they would never take my word on that.

The level of assumed entitlement in this country by the middle class is absurd…

All the money and all the banks in Christendom cannot control credit…Money is gold and nothing else – JP Morgan’s 1912 Congressional testimony on “the justification of Wall Street

Trump has suggested permanently removing the Treasury debt-ceiling. The Treasury debt-ceiling is the last remaining barrier to the ability of the Fed and the Government to create an infinite amount of fiat currency.  Debt that is issued behaves exactly like printed currency until that debt is repaid.  The non-repayment and continued issuance of the amount of debt outstanding is the critical point to understanding this concept.  Since the early 1970’s, the Treasury debt outstanding has grown continuously.

Printed Treasury certificates created in this manner behave no differently than printed currency. This is a reality that economists completely ignore.  Most analysts who think they understand monetary economics look upon this concept with disdain. The continuous issuance of an increasing amount of credit of any type is no different that outright currency printing (until the amount of outstanding credit is paid off, which it never has been since the demise of Bretton Woods in 1971).

Removing the debt-ceiling gives the U.S. Government, in conjunction with the Fed, the power to print an unlimited amount of Treasury notes. Historically, a large portion of these notes have been funded with recycled petro-dollars. The “QE” implemented by the Fed funded $2.5 trillion of the Treasury issuance.  I don’t know where the funding for the next round will come from unless the Fed prints a lot more money.  I suspect it will. The price of gold (and silver) spiked-up on Friday in correlation with the announcement of Trump’s proposal.  That’s your warning shot

The Coming Run On Banks And Pensions

“There are folks that are saying you know what, I don’t care, I’m going to lock in my retirement now and get out while I can and fight it as a retiree if they go and change the retiree benefits,” he said.  – Executive Director for the Kentucky Association of State Employees,  Proposed Pension Changes Bring Fears Of State Worker Exodus

The public awareness of the degree to which State pension funds are underfunded has risen considerably over the past year.  It’s a problem that’s easy to hide as long as the economy is growing and State tax receipts grow.  It’s a catastrophe when the economic conditions deteriorate and tax revenue flattens or declines, as is occurring now.

The quote above references a report of a 20% jump in Kentucky State worker retirements in August after it was reported that a consulting group recommended that the State restructure its State pension system.   I personally know a teacher who left her job in order to cash completely out of her State employee pension account in Colorado (Colorado PERA).  She knows the truth.

But the problem with under-funding is significantly worse than reported.  Pensions are run like Ponzi schemes.  As long as the amount of cash coming in to the fund is equal to or exceeds beneficiary payouts, the scheme can continue.   But for years, due to poor investment decisions and Fed monetary policies, beneficiary payouts have been swamping investment returns and fund contributions.

Pension funds have notoriously over-marked their illiquid risky investments and understated their projected actuarial investment returns in order to hide the degree to which they are under-funded.  Most funds currently assume 7% to 8% future rates of return. Unfortunately, the ability to generate returns like that have been impossible with interest rates near zero.

In the quest to compensate for low fixed income returns, pension funds have plowed money into stocks, private equity funds and illiquid and very risky investments,  like subprime auto loan securities and commercial real estate.   Some pension funds have as much as 20% of their assets in private equity.  When the stock market inevitably cracks, it will wipe pensions out.

As an example of pensions over-estimating their future return calculations, the State of Minnesota adjusted the net present value of its future liabilities from 8% down to 4.6% (note:  this is the same as lowering its projected ROR from 8% to 4.6%).   The rate of under-funding went from 20% to 47%.

I can guarantee you with my life that if an independent auditor spent the time required to implement a bona fide market value mark-to-market on that fund’s illiquid assets, the amount of under-funding would likely jump up to at least 70%.  “Bona fide mark-to-market” means, “at what price will you buy this from me now with cash upfront?”

For instance, what is the true market price at which the fund could sell its private equity fund investments?   Harvard is trying to sell $2.5 billion in real estate and private equity investments.   The move was announced in May and there have not been any material updates since then other than a quick press release in early July that an investment fund was looking at the assets offered.  I would suggest that the bid for these assets is either lower than expected or non-existent other than a pennies on the dollar  “option value” bid.

At some point current pension fund beneficiaries are going to seek an upfront cash-out. If enough beneficiaries begin to inquire about this, it could trigger a run on pensions and drastic measures will be implemented to prevent this.

Similarly, per the sleuthing of Wolf Richter, ECB is seeking from the European Commission the authority to implement a moratorium on cash withdrawals from banks at its discretion. The only reason for this is concern over the precarious financial condition of the European banking system.  And it’s not just some cavalier Italian and Spanish banks.  I would suggest that Deutsche Bank, at any given moment, is on the ropes.

But make no mistake. The U.S. banks are in no better condition than their European counter-parts.  If Europe is moving toward enabling the ECB to close the bank windows ahead of an impending financial crisis, the Fed is likely already working on a similar proposal.

All it will take is an extended 10-20% draw-down in the stock market to trigger a massive run on custodial assets – pensions, banks and brokerages.  This includes the IRA’s.  I would suggest that one of the primary motivations behind the Fed/PPT’s  no-longer-invisible hand propping up the stock and fixed income markets is the knowledge of the pandemonium that will ensue if the stock market were allowed to embark on a true price discovery mission.

Like every other attempt throughout history to control the laws of economics and perpetuate Ponzi schemes, the current attempt by Central Banks globally will end with a spectacular collapse.   I would suggest that this is one of the driving forces underlying the repeated failure by the western Central Banks to drive the price of gold lower since mid-December 2015.   I would also suggest that it would be a good idea to keep as little of your wealth as possible tied up in banks and other financial “custodians.” The financial system is one giant “Roach Motel” – you check your money in but eventually you’ll never get it out.

Gold Breakout Signals A Financial Hurricane Coming Onshore

I found it amusing that Mohamed El-Erian wrote an opinion piece for Bloomberg which asserted that gold is not much of a “safe haven these days.”  His thesis was entirely devoid of material facts.  His underlying rationale was that safe haven capital was flowing into cryptocurrencies rather than gold.  I guess if one has a western-centric view of the markets, that argument is a modicum of validity.  However the scope of the analysis omits that fact that the entire eastern hemisphere is converting fiat currency at a record pace into physical gold that requires bona fide delivery outside of western custodial roach motels.

Elijah Johnson invited me onto his podcast sponsored by Silver Doctors to discuss why the financial upheaval beginning to engulf the United States will be much worse than the 2008 “Big Short” crisis.  We also discussed by the precious market has always been and will continue be the best place to seek shelter from coming financial hurricane:

If you are looking for ways to take advantage of the next move higher in the precious metals bull market, you can find out more information about the Mining Stock Journal using this link:  Mining Stock Journal subscription information.

“Stock Market?” What Stock “Market?”

“There are no markets, only interventions” – Chris Powell, Treasurer and Director of GATA

To refer to the trading of stocks as a “market” is not only an insult to any dictionary in the world that carries the definition of “market,” but it’s an insult the to intelligence of anyone who understands what a market is and the role that a market plays in a free economic system.  By the way, without free markets you can’t have a free democratic political system.

The U.S. stock is rigged beyond definition. By this I mean that interference with the stock market by the Federal Reserve in conjunction with the U.S. Government via the Treasury’s Working Group on Financial Markets – collectively, the “Plunge Protection Team” – via “quantitative easing” and the Exchange Stabilization Fund has destroyed the natural price discovery mechanism that is the hallmark of a free market.  Capitalism does not work without free markets.

Currently a geopolitically belligerent country is launching ICBM missiles over a G-7 country (Japan).   In response to this belligerence, the even more geopolitically belligerent U.S. is testing nuclear bombs in Nevada.  The world has not been closer to the use of nuclear weapons since Truman used them on Japan.  The stock markets globally should be in free-fall if the price discovery mechanism was functioning properly.

To compound the problem domestically in the U.S., the financial system is now staring down a potential financial catastrophe that no one is discussing.  The financial exposure to the tragedy in Houston is conservatively estimated at several hundred billion.  Insurance companies off-load a lot of risk exposure using derivatives.  The potential counter-party default risk connected to this could dwarf the defaults that triggered the AIG and Goldman Sachs de facto collapse in 2008.   The stock “market” should be down at least 20% just from the probability of this occurrence.  Forget the hurricane issue, Blackrock estimates that insurance investment portfolios could lose half a trillion in value in the next big market sell-off.  Toxicity + toxicity does not equal purification.  The two problems combined are the equivalent of financial nuclear melt-down.

Last night after the news had circulated of the missile fired by North Korea, the S&P futures dropped over 20 points and gold shot up $15.  As I write this, the Dow is up 50 points, the SPX is up over 3 points and gold has been taken down $20 from its overnight highs.  Yet the two catastrophic risks above have not changed in potential severity.   Pushing around the markets is another propaganda tool used by the Government in an attempt to control the public’s perception.  In the words of the great Jim Sinclair, “management of perception economics,” or “MOPE.”

The good news is that, while the systemic puppeteers can control the markets in general, they can’t control the individual parts.  There has been a small fortune to be made shorting individual stocks.  Today, for instance, Best Buy reported earnings that predictably “beat” the Street estimates but it warned about future sales and earnings.  The stock has plunged 11% from yesterday’s close.  The Short Seller’s Journal featured Best Buy as a short in the May 28th issue at $59.  The target for this stock is $12.50, where it was in 2013.  I recommended some January 2019 puts as high probability trade to hit a home run on this idea.

Other recent winners include Chipotle, General Electric, Tesla (short at $380), Bed Bath Beyond in December at $47 and may others.  The more the PPT interferes in the markets to keep the major indices propped up, the more we can make from shorting horrendously overvalued stocks that can’t hide from reality. There’s very few investors and traders shorting the market, mostly out of fear and the inability to do fundamental research.  The Short Seller’s Journal focuses on the areas of the stock market that are no-brainer shorts right now.  You learn more about this product here:  Subscription information.

I really truly look forward to every Monday morning when I get to read through your SSJ. Again, last nights one was great. I have added to the BZH short position and I have had a lot of success adding to CCA each time it has tagged its 200 dma from below. I have done it four times now and each time it has sold off hard within the next several days. I plan to do the same again if it tags it again this time as it has bounced again.  – subscriber feedback received earlier this week (James from England)

 

The Debt Bubble Is Beginning To Burst

There will be numerous excuses issued today by perma-bull analysts and financial tv morons explaining away the nearly 10% drop in new home sales.  Wall Street was looking for the number of new homes, as reported by the Census Bureau, to be unchanged from June.  June’s original report was revised higher by 20,000 homes (SAAR basis) to make this month’s huge miss look a little better.  The primary excuse will be that new homebuilders can’t find qualified labor to build enough new homes to meet demand.

But that’s nonsense.  The reason that home builders can’t find “qualified” labor is because they don’t pay enough to compete with easier alternatives, like being an Uber driver, which can pay nearly double the wages paid to construction workers.  I had a ride with a Lyft driver, a family man who moved to Denver from Venezuela, who to took a job in construction when he moved here.  As soon as he got his driver’s license, he switched to Lyft because it was easier on his body and paid a lot more.  If builders raise their wages to compete with alternatives,  they’ll be able to find plenty of qualified workers but their profitability will go down the drain unless they raise their selling price, in which case their sales will go down the drain…which is beginning to happen anyway.

Toll Brothers, which revised its next quarter sales down when it reported yesterday, stated that new home supply is not an issue in the market for new homes.  No kidding.  I look at the major public builders’ inventories every quarter and every quarter they reach a new record high.

The real culprit is the record high level of household debt that has accumulated since 2010. The populace has run out of its capacity to take on new debt without going quickly into default on the debt already issued.  Mortgage purchase applications are a direct reflection of this.  Mortgage purchase applications declined again from the previous week, according to the Mortgage Bankers Association.  In fact, mortgage applications have declined 14 out of the last 20 weeks.  Please note that this was during a period which is supposed to be the seasonally strongest for new and existing home sales.  Furthermore, since the beginning of March, the rate on the 10-yr bond has fallen over 40 basis points, which translates into a falling mortgage rates.  Despite the lower cost of financing a home purchase, mortgage purchase applications have been dropping consistently on a weekly basis and at a material rate.

The NY Fed released its quarterly report on household debt and credit last week. In that report it stated, “Flows of credit card balances into both early and serious delinquencies climbed for the third straight quarter—a trend not seen since 2009.”

The graph above is from the actual report (the black box edit is mine). You can see that the 30-day delinquency rate for auto loans, credit cards and mortgages is rising, with a sharp increase in credit cards. The trend in auto loans has been rising since Q1 2013. The 90-day delinquency graph looks nearly identical.

I’m not going to delve into the student loan situation. Between the percentage of student loans in deferment and forbearance, it’s impossible to know the true rate of delinquency or the true percentage of student loan debt that is unpayable. Based on everything I’ve studied over the past few years, I would bet that at least 60% of the $1.2 billion in student loans outstanding are technically in default (i.e. deferred and forbearance balances that will likely never be paid anyway). In and of itself, the student loan problem is growing daily and the Government finds new ways to kick that particular can down the road. At some point it will become untenable.

The auto loan situation is a financial volcano that rumbles louder by the day. Equifax reported last week that “deep subprime” auto delinquencies spiked to a 10-year high. Deep subprime is defined as a credit score (FICO) below 550. The cumulative rate of non-performance for loans issued between 2007 and Q1 2017 ranges from 3% (Q1 2017 issuance) to 30%. The overall delinquency rate for deep subprime loans is at its highest since 2007. To make matters worse, in 2016 deep subprime loans represented 30% of all subprime asset-backed securitizations.

Combined, the percentage of auto, credit card and student loan delinquencies and rate of default is as big or bigger than the subprime mortgage problem that led to the “Big Short.” To compound the problem, the nature of the underlying collateral is entirely different. A home used as collateral has some level of value. Automobiles have collateral value but a shockingly large number of borrowers have taken out loans well in excess of the assessed value of the car at the time of purchase. Unfortunately for auto lenders, used values are in a downward death spiral. Credit card and student loan debt have zero collateral value.

NOTE: The stock market has not priced in the coming debt apocalypse nor has it begun to price in at all the upcoming Treasury debt ceiling/budget fight that is going to engulf Capitol Hill before October. The Treasury apparently will run out of cash sometime in October. Supposedly the Fed has a back-up plan in case the issue can’t be resolved before the Government would be forced to shut-down, but any scenario other than a smooth resolution to the debt ceiling issue will reek havoc on the dollar, which in turn will send the stock market a lot lower. In my view, between now and just after Labor Day weekend is a great time to put on shorts.

The Government’s Retail Sales Report Borders On Fraud

As a quick aside, I got an email today from a colleague, a self-admitted “very small fish,” who told me he was now getting cold calls from Goldman Sachs brokers offering “very interesting structured products.” I told him the last time I heard stories like that was in the spring of 2008. One of my best friends was getting ready to jump ship from Lehman before it collapsed – he was in the private wealth management group. He told me he heard stories about Merrill Lynch high net worth brokers selling high yielding structured products to clients. He said they were slicing up the structured garbage that Merrill was stuck with – mortgage crap – that institutions and hedge funds wouldn’t take and packaging them into smaller parcels to dump into high net worth accounts. Something to think about there…

As conditions worsen in the real world economy and political system, the propaganda fabricated in an attempt to cover up the truth becomes more absurd.  Today’s retail sales report, prepared and released by the Census Bureau which in and of itself makes the numbers extraordinarily unreliable, showed a .6% gain in retail sales in July from June.  As I’ll show below, not including the affects of inflation, in all likelihood retail sales declined in July.

The biggest component of the reported gain was auto sales, for which the Census Bureau attributed a 1.1% gain over June.  While this correlates with the SAAR number reported at the beginning of the month, the number does not come close to matching the actual industry-reported sales, which showed a 7% decline for the month of July.  Note: the SAAR calculation is fictional – it implies that auto sales, which are declining every month, will continue at the same rate as the rate measured in July.  Per the stark contrast between the Census Bureau number and the industry-reported number, the number reported by the Government is nothing short of fictional.

The automobile sales component represents 20% of the total retail sales report on a revenue basis.  If we give the Government the benefit of doubt and hold the dollar value of auto sales constant from June to July (remember, the industry is telling us sales declined sharply) and recalculated the retail sales report, we get a 0.03% gain in retail sales.

Another huge issue is the number recorded for building material and sales.  In the “not seasonally adjusted” column, the report shows a huge decline from June to July (a $1.3 billion drop from June to July.  But through the magic of seasonal adjustments , the unadjusted number is transformed in a $337 million decline.   Given the declining trend in housing starts and existing home sales, it would make sense that building and supply stores sold less in July vs. June.  But the Government does not want us to see it that way.

Yet another interesting number is in the restaurant sales category, which the Census Bureau tells us increased .3% in July from June.   Restaurant sales are also one of the largest components of retail sales, representing 12.1% of what was reported.   This number was diametrically opposed to the Black Box Intelligence private sector report for monthly restaurant sales, which showed a 2.8% drop in restaurant sales in July (a 4.7% drop in traffic).   The Census Bureau survey for total retail sales is based on 4,700 questionnaires mailed to retail businesses.  The Black Box restaurant survey is based on data compiled monthly from 41,000 restaurants.   We don’t know how many restaurants are surveyed and actually respond to the Government surveys.

Here’s the Census Bureau’s dirty little secret (click to enlarge):

The sections highlighted in yellow are marked with an asterisk.  In the footnotes to the report, the Census Bureau discloses that the asterisk means that, “advance estimates are not available for this kind of business” (Retail Sales report).  In other words, a significant percentage of the Government’s retail sales report is based on guesstimates. Lick your index finger and stick it up in the political breeze to see which way you need to make the numbers lean.

I calculated the total amount of sales for which the Census Bureaus claims is not based on guesstimates.  45.3% of the report is a swing and a miss. Not coincidentally, the areas of its report that conflict directly with actual industry-provided numbers and area guestimate categories happen to be auto sales, building materials and restaurant sales.  Get the picture?

Just like every other major monthly economic report – employment, GDP, inflation – the retail sales report is little more than a fraudulent propaganda tool used to distort reality for the dual purpose of supporting the political and monetary system – both of which are collapsing – and attempting to convince the public that the economy is in good shape.

Household Debt At Record Level – Bigger Than China’s GDP

The economy continues to grow weaker despite all of the Fed, Wall St. and media propaganda to the contrary. The economy is growing weaker due to the deteriorating financial condition of the consumer, which is by far the biggest driver of GDP in the United States. The only way the policy-makers can avoid a systemic collapse is “helicopter” money printing, in which printed cash or digital currency credits is, in some manner, distributed to the populace.

The Fed reported that non-revolving consumer debt (not including mortgage debt) hit $2.6 trillion at the end of the first quarter. Student loans outstanding hit a record $1.44 trillion. Recall that at least 40% of this debt is in some form of delinquency, default or “approved” non-pay status. Auto loans hit a record $1.2 trillion. Of this, at the very least  30% is subprime. A meaningful portion of the auto debt is of such poor credit quality when it’s issued that it is not even rated. Credit card debt is now over $1 trillion dollars and at a record level. The average outstanding balance per capita is $9600 per card for those who don’t pay in full at the end of the month.  Just counting the households with credit card debt  balances, the average balance per household is $16,000.  The average household auto loan balance for all households with a car loan is over $29,000.

The data shows a consumer that is buried in debt and will likely begin to default at an accelerating rate this year. In fact, I’d call these statistics an impending economic and financial disaster. Credit card companies are already warning about credit charge-offs. Synchrony (which issues credit cards for Amazon and Walmart) reported that its credit card charge-offs would rise at least 5% in 2017. Capital One (Question: “What’s in your wallet?” – Answer: “Not money”) reported that credit card charge-offs soared 28% year over year for Q1.  Synchrony, Capital One and Discover combined increased their Q1 provision for bad loans by 36% over last year’s provisions taken.

The monthly consumer credit report last week showed a $12.4 billion increase over May. A $16 billion increase was expected by Wall St. Keep in mind that every month of credit expansion is another new all-time high in consumer debt. Credit card debt outstanding increased by $4.1 billion, which is troubling for two reasons. First, it’s likely that financial firms are lending to less than qualified borrowers, as evidenced by the rising credit card delinquency and charge-off rates. Second, given the declining household real disposable income and savings rate, it’s likely that households are using credit card debt to pay for non-discretionary expenses. The smaller than expected increase in credit is being attributed primarily to slower growth in auto loans.

Speaking of the auto industry, Bloomberg reported last week that auto dealers, in a desperate bid to increase sales and reduce inventory, cut prices on new cars and trucks in July by the most since March 2009. It also reported that used car prices dropped 4.1%. This graph from Meridian Macro Research captures the rapid deterioration auto sales (click to enlarge):

The chart shows rate of change in motor vehicle freight carload volume on a year over year basis vs. per capita auto sales. As you can see, the last time these two metrics were showing negative growth (a decline) and heading lower was 2008. The entire “boom” in auto sales since the “cash for clunkers” program, which ran from July 2009 to November 2009, has been artificially created by a massive expansion in Government-enabled credit and Fed money printing. The impending crash in the auto industry is unavoidable unless the Government resorts to outright “helicopter” money printing (i.e. giving cash directly to households rather than to the banks).

One of the best barometers of consumer financial health is restaurant sales, which are entirely dependent on the relative level of household disposable income that can be allocated to non-discretionary expenditures. Black Box Intelligence’s monthly restaurant industry snapshot,  released Thursday,  showed another monthly decline in restaurant sales and traffic – this one steeper than the past couple of months. I believe this is the 17th successive monthly year-over-year decline. Comp sales (year over year for July) were down 2.8% and comp traffic dropped 4.7%. The latter is more significant, as it better represents actual sales volume because dollar sales are boosted by price inflation. In contrast to these Real World numbers, the BLS reported in its employment report for July that the restaurant industry created 57,000 new jobs. This is not just flagrant misrepresentation of reality for propaganda purposes, it’s outright fraud.

In terms of specifics with the July restaurant numbers, sales declined in 183 of the 195 markets covered by the Black Box Intelligence survey. The worst region was the midwest, where sales declined 3.6% and traffic dropped 5.2%. The best region was California, with sales down 0.7% (price inflation) and traffic down 3.6%. Not surprisingly, the fine dining category outperformed the other industry segments, as it reflects the growing disparity in income and wealth between the upper 1% and the rest. The quick service segment turned in the worst performance.

The above analysis was excerpted from the Short Seller’s Journal, which is dedicated to digging truth out from the Government, Fed and  financial media propaganda.  Contrary to the message conveyed by the stock market’s inexorable climb higher, the average U.S. household, along with the Government at all levels (Federal to local municipal), is on the ropes financially and economically.  The Short Seller’s Journal exposes this reality.   Hundreds of stocks are plumbing 52-week and all-time lows. The Short Seller’s Journal helps you find these stocks before they plunge and take advantage of the most overvalued and most inefficiently-priced stock market in history.   You can find out more here:   Short Seller’s Journal information.

Is The Fed On The Verge Of Losing Control?

After hitting an all-time low of 8.84 three weeks ago, the VIX more than doubled at one point this past week, closing up 55% for the week.  The attributed cause, those far from the primary reason, was the childish verbal skirmish between North Korea and Trump.  The cat-fight bordered on the traditional playground, “my dad is stronger than your dad” duel.

From the U.S. propagandists’ perspective the show itself was a great device to deflect the public’s attention from the collapsing U.S. financial and political system, the process of which will get a boost from the upcoming political war over the Treasury debt ceiling (remember that?).

Silver Doctor’s invited me to join Eric Dubin and Elijah Johnson to discuss last week’s action in the stock and precious metals markets and why the stock market may be on the verge of a historic sell-off.

The Mining Stock Journal and the Short Seller’s Journal are designed to offer a low-cost, high-quality stock and financial markets research tool help you take advantage of the historically undervalued precious metals sector and greatest asset bubble in history. Click on either image below to find out what each has to offer:

Dave, just a moment for some feed back. I just placed an order for 1oz gold eagles thx to my profits off your Tesla and BBBY short-sell ideas, thx as always. – subscriber feedback

More B.S. From The BLS Leads To A Blatant Attack On Gold & Silver

With the release of the latest BLSBS at 8:30am EST, the market interventionists were set up for a spectacular effort today. The S&P was first out of the gate, to the upside of course, and the precious metals were slammed. Ironically, the impulse triggered by the headline jobs report should have effected the stock market and the precious metals similarly.

How are 100’s of thousands of working age people leaving the labor force yet, somehow, the BLS can report hundreds of thousands of new jobs that were filled? Well, there is the “Birth/Death Model”. The Birth/Death Model, much like the Federal Reserve Note, is just made up out of thin air. A number is determined by the Bureau of Labor Statistics and then entered into the BLS report. It has nothing to do with reality. But someone forgot to tell the BLS that construction spending in June was down nearly 10% year over year from last June because the BLS reports that new construction businesses added 11,000 new jobs to the economy – an economic and statistical extreme improbability.

If there were any markets that actually moved in accordance with fundamentals, natural price discovery or anything associated with reality the S&P and Dow Jones would be moving to the downside as well. Why? Because as Dave explains in the latest Shadow of Truth, if the [equities] markets were sensing the Fed was going to raise interest rates, and if the employment report were based in reality the Fed would be forced to raise interest rates, this would be negative for those indices. But, alas, everything is rigged, so it doesn’t matter. The “market saved us again…”