Category Archives: Housing Market

Bitcoin, Propaganda, Fake News And Unmitigated Idiocy

I want to show two quotes from commentators in related areas of financial analysis because they illustrate the difference between truthful commentary and unmitigated idiocy.

Yesterday, James “Mc” wrote in Bill Murphy’s nightly “Midas” report:

“The sexiness of Bitcoin, Tesla, Netflix, and hundreds of other techie things will become FAR less sexy in a good old fashion economic crash. Reality will quickly set in, and real stuff, made by real people will prevail. As history has shown everything else becomes superfluous. Millennials, or even Gen-Xer’s for that matter have never experienced truly hard times. Many will be shocked to learn when TSHTF a plumber is far more marketable than an IT guy. Bartering with Bitcoin might prove problematic.”

I doubt there’s anything with that statement with which anyone could dispute. Murphy prior to that made the valid points that Central Banks and sovereign nations will never incorporate Bitcoin into their currency reserves like they do with gold. The point being that, while Bitcoin is accepted as a form of currency by its users, it is not considered a wealth storage asset.

It would be tough to classify James’ comment as propaganda or fake news. Gold is the world’s second oldest form of money (silver is the oldest). Bitcoin may or may not become a passing fad but it certainly has not stood the test of time. Its use can be eliminated by shutting down the global power grid.

Here’s an example of propaganda, fake news and unmitigated idiocy from Citicorp’s “respected” strategist, Tom Fitzpatrick:

“…markets ultimately will be driven by the economic backdrop rather than by headlines. US labor and housing markets remain robust and should continue to drive growth. European growth is picking up. China remains stable in our view despite recent volatility.” LINK

China remains “stable?” I doubt anyone would disagree that China has fomented the second biggest debt and asset bubble in the world, with the U.S. bubble the largest, and its financial system rests on the precipice of systemic collapse resting on a pyramid of debt and derivatives that requires a flood of printed money and credit creation in order to defer the inevitable financial and economic implosion. That’s the truth, in contrast to Fitzpatrick’s moronic assertion.

As for the remark that the U.S. labor market is “robust.” My guess is that a majority of the 95 million working age people (37% of the working age population) in the U.S. who are no longer considered part of the “labor force” would have a different set of adjectives to describe the labor market here (they would also have a set of adjectives to describe Fitzpatrick that would make some blush).

A “robust” housing market? Total home sales are running two-thirds of the long run average and about 50% the last peak in sales. This is despite a steady long term growth in the population. Furthermore, in order to for a home to sell, in general buyers have to resort to using a 0-3% down payment mortgage and use at least 50% of their monthly income to service the mortgage. An oversupply of housing in New York City and Miami is beginning to crush those two housing markets, a dynamic that will soon spread to most major metro areas across the country. Flippers and “investors” were about 35% of all home sales in 2016.

These are unequivocally NOT the attributes of a “robust” housing market, not to mention the fact that the even the monthly manipulated home sales data series published by the Government and the National Association of Realtors have been trending lower this year. Tom Fitzpatrick’s remarks embody the attributes of Wall Street propaganda,  outright fake news and total unmitigated idiocy.  I hope you get rich selling lies and feel good about it, Tom.

There’s been a lot of debate over the meaning and significance of the parabolic move in Bitcoin.  Allhambra Investments’ Jeffrey Snider has come the closest to the truth by equating the Bitcoin move as the manifestation of Gresham’s law.

While this encapsulates the Bitcoin frenzy, beneath the surface represented by Bitcoin is an even bigger movement  of bad money (fiat currencies) piling into physical gold that is occurring in the eastern hemisphere, specifically in India and China.  The evidence of this movement in the form of a higher price expressed in dollars is being hidden by the continuous intervention in the western gold market implemented by the western Central Banks using paper gold derivatives.

The point of this is that the price of Bitcoin is behaving the way price of gold would be behaving in the absence of manipulation.   The rush into both is a rejection by the market of  the continuous devaluation of fiat currencies that is occurring from the trillions of paper currencies that have been created since 2008.

At some point, and there’s not anyone who can predict when, Tom Fitzpatrick’s fake news and unmitigated idiocy will be exposed for what it is as global financial markets and economies crash and money that is pulled out of bubble assets floods into the safety of physical gold and silver.   At that point the Central Bank effort to suppress the price of gold and silver will fail.

It’s been occurring slowly since 1971 (and really since 1913) and will at some point happen all at once.  Have a great Memorial Day weekend and try to enjoy what you can, as much you can, while you still can.

New Home Sales Plunge 11.4% In April

So much for the jump in the builder’s confidence index reported last week.  The Government reported a literal plunge in new home sales in April.   Not only did the seasonally manipulated adjusted annualized sales rate drop 11.4% from March, it was 6% below Wall Street’s consensus estimate.

Analysts and perma-bulls were scratching their head after the housing starts report showed an unexpected drop last week after a “bullish” builder’s sentiment report the prior day.

The Housing Market index, which used to be called the Builder Sentiment index, registered a 70 reading, 2 points above the prior month’s reading and 2 points above the expected reading (68). The funny thing about this “sentiment” index is that it is often followed the next day by a negative housing starts report.  Always follow the money to get to the truth. The housing starts report released last Tuesday showed an unexpected 2.6% drop in April. This was below the expected increase of 6.7% and follows a 6.6% drop in March. Starts have dropped now in 3 of the last 4 months. So much for the high reading in builder sentiment.

This is the seasonal period of the year when starts should be at their highest. I would suggest that there’s a few factors affecting the declining rate at which builders are starting new single-family and multi-family homes.

First, the 2-month decline in housing starts and permits reflects new homebuilders’ true expectations about the housing market because starts and permits require spending money vs. answering questions on how they feel about the market.  Housing starts are dropping because homebuilders are sensing an underlying weakness in the market for new homes. Let me explain.

Most of the housing sale activity is occurring in the under $500k price segment, where flippers represent a fairly high proportion of the activity. When a flipper completes a successful round-trip trade, the sale shows up twice in statistics even though only one trade occurred to an end-user. The existing home sales number is thus overstated to the extent that a certain percentage of sales are flips. The true “organic” rate of homes sales – “organic” defined as a purchase by an actual end-user (owner/occupant) of the home – is occurring at a much lower rate than is reflected in the NAR’s numbers.

Although the average price of a new construction home is slightly under $400k, the flippers do not generally play with new homes because it’s harder to mark-up the price of a new home when there’s 15 identical homes in a community offered at the builder’s price. Flippers do buy into pre-constructed condominiums but they need the building sell-out in order to flip at a profit. Many of these “investors” are now stuck with condo purchases on Miami and New York that are declining in value by the day. The same dynamic will spread across the country. Because flipper purchases are not part of the new home sales market, homebuilders are feeling the actual underlying structural market weakness in the housing market that is not yet apparent in the existing home sales market, specifically in the under $500k segment. This structure weakness is attributable to the fact that pool of potential homebuyers who can meet the low-bar test of the latest FNM/FRE quasi-subprime taxpayer-backed mortgage programs has largely dried up.

Second, in breaking down the builder sentiment metric, “foot-traffic” was running 25 points below the trailing sales rate metric (51 on the foot-traffic vs. 76 on the “current sales” components of the index) In other words, potential future sales are expected to be lower than the trailing run-rate in sales. This reinforces the analysis above. It also fits my thesis that the available “pool” of potential “end-user” buyers has been largely tapped. This is why builders are starting less home and multi-family units. The only way the Government/Fed can hope to “juice” the demand for homes will be to further interfere in the market and figure out a mortgage program that will enable no down payment, interest-only mortgages to people with poor credit, which is why the Government is looking at allowing millennials to take out 125-130% loan to value mortgages with your money.  We saw how well that worked in 2008.

Finally, starts for both single-family and multi-family units have been dropping. The multi-family start decline is easy to figure out. Most large metropolitan areas have been flooded with new multi-family facilities and even more are being built. I see this all around the metro-Denver area and I’ve been getting subscriber emails describing the same condition around the country. Here’s how the dynamic will play out, again just like in the 2007-2010 period. The extreme oversupply of apartments and condos will force drastic drops in rent and asking prices for new apartments and condos to the point at which it will be much cheaper to rent than to buy. This in turn will reduce rents on single-family homes, which will reduce the amount an investor/flipper is willing to pay for an existing home. Moreover, it will greatly reduce the “organic” demand for single-family homes, as potential buyers opt to rent rather than take on a big mortgage. All of a sudden there’s a big oversupply of existing homes on the market.

The quintessential example of this is NYC. I have been detailing the rabid oversupply of commercial and multi-family properties in NYC in past issues. The dollar-value of property sales in NYC in Q1 2017 plummeted 58% compared to Q1 2016. It was the lowest sales volume in six years in NYC. Nationwide, property sales dropped 18% in Q1 according Real Capital Analytics. According to an article published by Bloomberg News, landlords are cutting rents and condo prices and lenders are pulling back capital. Again, this is just like the 2007-2008 period in NYC and I expect this dynamic to spread across the country over the next 3-6 months.

This is exactly what happened in 2008 as the financial crisis was hitting. I would suggest that we’re on the cusp of this scenario repeating. Mortgage applications (refi and purchase) have declined in 6 out of the last 9 weeks, including a 2.7% drop in purchase mortgages last week. Please note: this is the seasonal portion of the year in which mortgage purchase applications should be rising every week.

The generally misunderstood nature of housing oversupply is that it happens gradually and then all at once. That’s how the market for “illiquid” assets tends to behave (homes, exotic-asset backed securities, low-quality junk bonds, muni bonds, etc). The housing market tends to go from “very easy to sell a home” to “very easy to buy a home.” You do not want to have just signed a contract when homes are “easy to buy” because the next house on your block is going to sell for a lot lower than the amount you just paid. But you do want to be short homebuilders when homes become “very easy to buy.”

The above analysis is an excerpt from the latest Short Seller’s Journal.  My subscribers are making money shorting stocks in selected sectors which have been diverging negatively from the Dow/S&P 500 for quite some time.  One example is Ralph Lauren (RL), recommended as short last August at $108.  It’s trading now at $67.71, down 59.% in less than a year.  You can find out more about subscribing here:  Short Seller’s Journal information.

The Foundation Of The Stock Market Is Crumbling

The S&P 500 and Dow have gone nowhere since March 1st. The SPX had been bumping its head on 2400 until Wednesday. The Dow and the SPX have been levitating on the backs of five tech stocks: AAPL, AMZN, FB, GOOG and MSFT. AAPL alone is responsible for 25% of the Dow’s YTD gain and 13% of the SPX’s.  Connected to this, the tech sector in general has bubbled up like Dutch Tulips in the mid-1630’s. The Nasdaq hit an all-time high (6,169) on Tuesday.

But, as this next chart shows, despite a handful of stocks trying to rain on the bears’ parade, there’s plenty of stocks that have been selling off:

The chart above shows the S&P 500 vs the SOX (semiconductor index), XRT (retail index), IBM and Ford since the election. The SOX index was used to represent the tech sector. You can see that, similar to the culmination of the 1999-early 2000 stock bubble, the tech stocks are bubbling up like a geyser. IBM is a tech company but its operations are diversified enough to reflect the general business activity occurring across corporate America and in the overall economy. The retail sector has been getting hit hard, reflecting the general decay in financials of the average middle class household. And Ford’s stock reflects the general deterioration in U.S. manufacturing and profitability. Anyone who believes that the unemployment rate is truly 4.4% and that the economy is doing well needs to explain the relative stock performance of the retail sector, IBM and F.

Despite the levitation of the SPX and Dow, the “hope helium” that has inflated the stock bubble since the election has been leaking out since January 1st. While many stocks in NYSE are either below their 200 dma or testing 52 week lows, the price action of the U.S. dollar index best reflects the inflation and deflation of the Trump “hope bubble:”

I’ve always looked at the U.S. dollar as a “stock” that represents the U.S. political, financial and economic system. As you can see, U.S.A.’s stock went parabolic after the election until December 31st. Since that time, it’s deflated back down to below its trading level on election day. This has also been the fate of the average stock that trades on the NYSE. In fact, as of Friday’s close, 55% of the stocks on NYSE are below their 200 day moving average. Nearly 62% of all NYSE stocks are below their 50 dma. Just 4.37% of S&P 500 stocks are at 52-wk highs despite the fact that the SPX hit a new all-time high of 2402 on Tuesday. These statistics give you an idea of how narrow the move higher in the stock market has been, as the average stock in the NYSE/SPX/Dow indices is diverging negatively from the respective indices. The foundation of the stock market is crumbling.

The above analysis was a portion of the latest Short Seller’s Journal released last night. SSJ recommended shorting IBM in the April 23rd issue at $160.  It’s down 4.6% since then. The primary short idea presented in the latest issue was down 2.3% today despite the .5% rise in the SPX.  This idea is a stock trading in the mid-teens that will likely be under $5 within a year.  You can find out more about the Short Seller’s Journal here:  LINK

An Impending Economic And Financial Disaster


You’ve probably heard/read a lot lately about the VIX index. The VIX index is a measure of the implied volatility of S&P 500 index options. The VIX is popularly known as a market “fear” index. The concept underlying the VIX is that it measures the theoretical expected annualized change in the S&P 500 over the next year. It’s measured in percentage terms. A VIX reading of 10 would imply an expectation that the S&P 500 could move up or down 10% or less over the next year with a 68% degree of probability. The calculation for the VIX is complicated but it basically “extracts” the implied volatility from all out of the money current-month and next month put and call options on the SPX.

The graph above plots the S&P 500 (candles) vs. the VIX (blue line) on a monthly basis going back to 2001. As you can see, the last time the VIX trended sideways around the 11 level was from 2005 to early 2007. On Monday (May 8) the VIX traded below 10. The last time it closed below 10 was February 2007. The VIX often functions as a contrarian indicator. As for the predictive value of a low VIX reading, there is a high correlation between an extremely low VIX level and large market declines. However, the VIX does not give us any information about the timing of a big sell-off other than indicate that one will likely (not definitely) occur.

In my opinion, an extremely low VIX level, like the current one, is signaling an eventual sell-off that I believe will be quite extreme.

The true fundamentals underlying the U.S. economy – as opposed the “fake news” propaganda that emanates from uncovered manholes at the Fed, Wall Street and Capitol Hill – are beginning to slide rapidly.   The primary reason for this is that the illusion of wealth creation was facilitated by the inflation of a massive systemic debt and derivatives bubble.  Government and corporate debt is at all-time highs.  The rate of debt issuance by these two entities accelerated in 2010.  Household debt not including mortgages is at an all-time high.  Total household debt including mortgages was near an all-time high as of the latest quarter (Q4 2016) for which the all-inclusive data is available.  I would be shocked if total household was not at an all-time high as I write this.

The fall-out from this record level of U.S. systemic debt is beginning to hit and it will accelerate in 2017.  In 2016 corporate bankruptcies were up 25% from from 2015.   So far in 2017, 10 big retailers have filed for bankruptcy, with a couple of them completely shutting down and liquidating.    Currently there’s at least 9 more large retailers expected to file this year.   In addition to big corporate bankruptcies, the State of Connecticut is said to be preparing a bankruptcy filing.

The household debt statistics show a consumer that is buried in debt and will likely begin to default on this debt – credit card, auto, personal, student loan and mortgage – at an accelerated rate this year.  The delinquency and charge-off statistics from credit card and auto finance companies are already confirming this supposition.

In the latest issue of the Short Seller’s Journal, I review the VIX and the deteriorating consumer debt statistics in detail and explain why the brewing financial crisis will be much worse than the one that hit in 2008.  I also present a finance company stock and a housing-related stock as ways to take advantage of the crumbling consumer.   You can find out more about subscribing to the Short Seller’s Journal here:  Subscription information.   There’s no monthly minimum require and subscribers have an opportunity to subscribe to my Mining Stock Journal for half-price.

I look forward to any and every SSJ. Especially at the moment as I really do think your work and thesis on how this plays out is being more than validated at the moment with the ongoing dismal data coming out, both here in the U.K. and in the U.S.  – U.K. subscriber, James

 

Silver Demand Shows A Consumer In Trouble

Global demand for silver declined from 2015 to 2016 by 123 million ozs per numbers from the Silver Institute presented in an article on The Daily Coin yesterday.   In fact, for the demand categories primarily driven by the consumer, demand plummeted 125 million ozs, or 15.3%.   Industrial demand for silver increased slightly but this was because of the global expansion in the solar panel industry, primarily in India and China.

The consumer portion of global silver demand is derived from jewelry, coins and bars (investment), silverware and electronics.  The 15.3% plunge in demand reflects the fact that consumer disposable income is drying up.   After making required monthly expenditures – food, mortgage/rent, debt service, healthcare – consumers, especially in the United States, are out of money.

Disappearing disposable income explains only part of the equation.  The illusion of economic improvement in the U.S. was created by debt issuance.   Between Q3 2012 and now, total household debt expanded by $1.38 trillion dollars.  In fact, total household debt is now at an all-time high, driven by auto, student, credit card and personal loans.  The truth is that “discretionary” consumption was fueled by the Fed enabling the average U.S. household to accumulate a record level of debt.

The economy likely hit a wall in late 2016 and is now contracting.   Today’s retail sales report – to the extent that the numbers have any credibility – showed a .4% gain in retail sales for April vs. March.  But these are nominal numbers.   On an inflation-adjusted basis, retail sales declined.

While demand for silver products reflects the fact that the average consumer is out of money, restaurant sales confirm this.   April restaurant sales declined 1% in April and foot traffic into restaurants dropped 3.3%.  This was the 12th month out of the last 13 that restaurant sales fell.  Restaurant sales have dropped five quarters in a row.  The last time a streak like this occurred was 2009-2010.   Sound familiar?

Regardless of what the Fed says in public, the U.S. economy is in trouble.  The illusion of economic growth post-2009 was a product of debt issuance.  Now the consumer – 70% of the economy – has hit a wall with regard to its ability to take on more debt – look out below. In today’s episode of the Shadow of Truth, we review the silver demand numbers and discuss the implications for U.S. and global economy:

Macy’s Crushed But Don’t Blame E-Commerce

The economy is collapsing as the credit creation, which has been the device used to cover-up structural economic decay after the official money printing program terminated, has hit a wall.  Retail sales are the first to bear the financial beating consumers are taking, followed by auto sales and, soon, housing.

Macy’s reported its Q1 earnings this morning.  Revenues tanked 7.5% vs Q1 2016 and missed Wall Street’s analysts’ fairytale estimate by a country mile.  Comp-store sales dropped 5.2%.  Operating income collapsed 20.2% year over year.

Retail “Apocalypse” Is Actually Debt “Apocalypse”

More than 8,500 stores are scheduled to be shuttered in 2017. JC Penny, Macy’s, Sears, Kmart, Crocs, BCBC, Bebe, Abercrombie & Fitch and Guess are some of them marquee retailing names that will be closing down mall and strip mall stores. The Limited is going out of business and closing down all 250 of its stores.

The demise of the mall “brick and mortar” retail store is popularly attributed to the growth of online retail sales. To be sure, online retailing is eating into the traditional retail sales
distribution mechanism – but not as much as the spin-meisters would have have you believe.

At the beginning of 2015, e-commerice sales were about 7% of total retail sales. By the end
of 2016, that metric rose to 8.3%. However, looking at the overall numbers reveals that
nominal retail sales have increased for both brick/mortar stores and online. In Q4 2015, total nominal retail sales were $1.186 trillion. Brick/mortar was $1.096 trillion and online was 89.7 billion, which was 7.6% of total retail sales. In Q4 2016, total sales were $1.235 trillion with brick/mortar $1.133 trillion and online $102.6 billion, which was 8.3% of total retail sales. As you can see, there was nominal growth for both brick/mortar and online retailers.

My point here is that the spin-meisters present the narrative that online retailers are eating alive the brick/mortar retailers. That’s simply not true. Part of the problem is is that total retail sales “pie” is shrinking, especially when analyzing the inflation-adjusted numbers. I created a graph on from the St. Louis Fed’s “FRED” database that surprised even me:

The graph above shows the year over year percentage change in nominal (not inflation adjusted) retail sales on a monthly basis from 1993 (as far back as the retail sales data goes) thru February 2017, ex-restaurant sales, vs. outstanding consumer credit. As you can see, since 1994, the growth in nominal retail sales on a year over year basis has been in a downtrend, while the level of consumer credit outstanding as been in a steady uptrend. Since 2014, the rate of growth in debt has exceeded the rate of growth in retail sales. If we were to adjust the retail sales using just the Government-reported CPI measure of “inflation” retail sales would be outright declining.

Economic activity in the United States has relied heavily on an increasing amount of debt issuance for several decades. At some point consumer borrowers reach a point at which they can no longer support taking on more debt, whether in the form of mortgages, auto loans/leases or credit cards. The problem for the U.S. financial system is that there are going to be widespread defaults on the debt that’s already been issued. This is already occurring with sub-prime auto loans and credit cards.

The media and Wall Street want you to believe the “narrative” that online sales are cannibalizing brick/mortar retailing.  This is a lie.  The problem is that the big retailers like Sear’s and Macy’s have entirely too much debt, as do their customers.  It’s systemic Debt Apocalypse that is going to destroy the U.S. economic and financial system, including e-commerce.

The above analysis is the type of content you get in IRD’s Short Seller’s Journal.  In addition to providing an in-depth look at the economic and financial numbers that the media and Wall Street refuse to report, the Short Seller’s Journal provides ideas to make money on stocks like Macy’s which are ultimately headed into history’s dust-bin.  You can learn more about the Short Seller Journal here:  Subscription information.  I guarantee that it’s the best value newsletter on the market because there’s no minimum subscription commitment.  If you don’t like it, you can cancel after the first month.

Economic Demise Breeds Public Unrest

The Government reported its “advance” estimate of first quarter 2017 GDP today.  The data-monkeys at the Bureau of Economic Analysis (BEA) reported that the economy grew at just 0.7% annualized in Q1.  This is down from the alleged 2.1% annualized growth rate in the fourth quarter of 2016.  It was also 36% below the 1.1% forecast of the average Wall Street monkey economist.

Next to the monthly employment report, the GDP report is subjected to the highest degree of statistical manipulation in order to make the reported reality look better than reality itself.  If the Government was willing to release a report showing a 67% decline in economic growth from Q4 2016 to Q1 2017, imagine how bad the real numbers would show the economy to be.

The report itself, like the employment report, serves no purpose other than as tool for political  goal-seeking and propaganda.   The consumer spending component of the report fell to a .23% annualized growth rate.  It was the worst level of consumer spending since 2009.   If the Government were to apply a realistic GDP deflator (price change index) to its numbers, rather than the 2% used to calculate the final number, consumer spending would have been negative.

Worse, the various Government agencies are reporting inconsistent numbers.  The Census Bureau’s monthly retail sales report showed a .4% gain in retail sales for January followed by .3% and .2% declines in February and March, respectively.  To be sure, retail sales do not encompass the entirety of the “consumer spending” category.  But, with average real disposable income declining, it’s difficult to believe that consumers were spending money on anything other than necessities in Q1.

The problem with the phony economic reports is that eventually the public begins to see and feel the truth.  Fake economic news does not create real economic activity or real jobs. The economic separation between the “haves” and “have nots” has never been wider, both in the size of each cohort and the degree of separation.

When someone who is working two menial part-time jobs to make ends meet and reads that 200k jobs were allegedly created in a given month, that person knows and feels the truth. That person also begins to get angry.    In fact, the general level of anger across the U.S. population is rising at an alarming rate.  When 2x part-time jobber is driving in a high-mileage vehicle in need of repairs next to a brand new Ferrari with “FLIPPER” on the license plate, it foments anger.  When this occurs daily across  the country, it foments civil unrest.

If the economy were producing real growth in employment and wealth, as purported by the Government, not many people would care which person or political party occupies the White House.  In fact, the party in power would get credit.  But the growing political discord among the population is a reflection of a middle and lower class that is rapidly transitioning to lower and poverty  class – and they are getting pissed.   The  stock market bubble, which is another form of  propaganda, is only serving to intensify the anger.

The Shadow of Truth discusses the idea that the increasing civil discord is seeded in a collapsing economy in today’s podcast, along with a brief conversation about developments in the precious metals market:

Click on either banner below to find out more about each publicaton:

On The Home-Stretch To Collapse

The warning signs are there but very few look for them or want to see them. But it’s a dynamic in which once you see it you can’t “unsee” it. A teacher I know told me this morning that Colorado school districts are quietly cutting staff across all districts. The only reason this would be occurring is that the State is projecting a decline in tax revenues. The only reason tax revenues would be declining is because economic activity is slowing or contracting. And Colorado supposedly has one of the more “vibrant” State economies.

The soaring level of “hope” that, for some unexplainable reason, accompanied the election of Trump is now crashing. The so-called “hard data” which somewhat measures the level of economic activity never moved higher in order to justify the optimism – an optimism tragically seeded in ignorance. As an example, the Kansas City Fed released its economic survey today. The composite index crashed from 20 to 7. Not surprisingly, Wall Street snake-oil salesmen – otherwise known as “economists” – were expecting a reading of 17 on the index.

As for individual components of the index, the average workweek and number of employees dropped; the production component of the index fell precipitously; and new orders collapsed. In fact, new orders expectations fell below the pre-Trump level. The six-month outlook metric – aka the hope index – plunged to its lowest level since November.

The truth is that all of the regional Fed economic activity surveys were largely driven by “hope,” which registered in the form of new orders for goods that will sit on the shelves of car dealers and non-food retailers and in the form of “expectations” about the level of economic activity in six months.

But there has not been any follow-through in form of actual growth in economic activity to justify the unrealistic level of “hope.” Real disposable income and the real level of retail/auto sales have been declining on the way to a tail-spin plunge. Any pulsations in final retail sales and home purchases have been fueled by the parabolic issuance of sub-prime quality debt. In fact, an increasing percentage of home purchases are from aspiring flippers. We are at the point in the cycle, just like 2007-2008, in which many of these flipper purchases will never end up with end-users and instead will land on bank balance sheets.

Auto sales through the end of March were down 10% since the beginning of 2017, resulting in the steepest decline in auto sales since 2009.  New car inventory at some of the biggest auto dealers around Denver is spilling over into the giant parking lots at vacant malls as OEMs push overproduction onto the dealer network.   Once the debt capacity of those still buying pick-up trucks at record incentive pricing hits the wall, the auto industry will see a spectacular cliff-dive.  The Government is too broke to provide the “cash for clunker” safety-net put in place in 2010.

In addition to trillions in printed (electronically generated) currency, the Fed has been able to fabricate the illusion of economic growth with an enormous amount of credit creation.   Credit is debt-issuance.   The part about debt that is conveniently overlooked by economists is that borrowed money behaves like printed money until it has to be repaid. The problem is that most debt created in the U.S. is never repaid.  For instance, the level of outstanding Government debt has been increasing every day since before Nixon closed the gold window.  This is not “debt” in the traditional sense of a loan that gets repaid.  This is money printing.

Consumer  and corporate debt levels have been rising in parabolic fashion and are at all-time highs.  Given that large chunks of this debt will never be repaid, just like in 2008-2009, the issuance of this debt is the same as printed money.  Amusingly, though not surprisingly, the Fed stopped reporting the total amount of debt outstanding in the system (Government + Corporate + Household) on March 25, 2016.  On that day the total debt outstanding was $63.5 trillion.  It’s likely well over $65 trillion by now.   That debt, until it’s repaid, is no different that printed currency.

This would be great in a pretend world in which debt could be issued to borrowers ad infinitum.  It would be the proverbial money tree on which free lunches blossomed for everyone forever.  Unfortunately, debt can not be issued in increasing amounts to eternity. Currently it would appear as if the non-Government borrower segment of the debt statistic has reached its borrowing capacity.   It happens gradually then all at once.   The United States is getting close to the “all at once” stage.

This is why the Deep State has resorted to the last stage of history’s Empiric life-cycle curve:  when all else fails start a war…

 

Make America Great Again: Buy Extremely Overvalued Stocks

Key Economic Data Continues To Show A Recession

The stock market assumed a decidedly bearish tone last week, in the face of apparent domestic political instability, increasing geopolitical tensions and, most important, a continued flow of hard economic data reflecting an economy that is in recession (click image to enlarge).

The SPX declined 3 out of the 4 trading days this last week to close down 1.1% from the previous Friday’s close. It’s down nearly 3% from the all-time high it hit on March 1st. Thursday’s big red bar took the SPX below the 50 dma. On all four days the SPX closed well below its intra-day high. This indicates to me that, at least for now, stock market traders are better sellers. Also of interest, for the first time in seventeen years, the stock market declined the day before the Good Friday market holiday.

The growth in loan origination to the key areas of the economy – real estate, general commercial business and the consumer – is plunging. This is due to lack of demand for new loans, not banks tightening credit. If anything, credit is getting “looser,” especially for mortgages. Since the Fed’s quantitative easing and near-zero interest rate policy took hold of yields, bank interest income – the spread on loans earned by banks (net interest margin) – has been historically low. Loan origination fees have been one of the primary drivers of bank cash flow and income generation. Those four graphs above show that the loan origination “punch bowl” is becoming empty.

HOWEVER, the Fed’s tiny interest rate hikes are not the culprit. Loan origination growth is dropping like rock off a cliff because consumers largely are “tapped out” of their capacity to assume more debt and, with corporate debt at all-time highs, business demand for loans is falling off quickly. The latter issue is being driven by a lack of new business expansion opportunities caused by a fall-off in consumer spending. If loan origination continues to fall off like this, and it likely will, bank earnings will plunge.

But it gets worse. As the economy falls further into a recession, banks will get hit with a double-whammy. Their interest and lending fee income will decline and, as businesses and consumers increasingly default on their loans, they will be forced to write-down the loans they hold on their balance sheet. 2008 all over again.  (The commentary above is an excerpt from the latest Short Seller’s Journal).

Despite the propaganda coming from the media, the housing market is in trouble.  37% of all transactions in 2016 were flips.  A flip double-counts a sale because the house trades twice before it ends up with the end-user.  I would bet that in the $300-$600k price-bucket that close to 50% of all transactions YTD in 2017 have been flips.  This is how the mid-2000’s housing bubble ended.

Today the housing starts report for March registered the biggest drop in four months.  Single family starts plunged 32% in the midwest and 16% in the west.   Both multi-family and single-family starts dropped.  Multi-family is going to be a big problem.  Prices in NYC and Miami are dropping like a rock and vacancies are soaring because of oversupply – just like in 2007.  Apartment rental rates are falling quickly and vacancy rates soaring across all the major MSA’s.   Manufacturing  output plunged in March, likely reflecting bulging car inventories at auto dealers, which are at  a post-2009 high.   OEM auto manufacturers are closing plants and laying off workers.  The latter, no doubt, will miraculously fail to register in the Governments next employment report.

Meanwhile, the stock market continues disconnect from underlying economic reality. Auto, retail and restaurant sales are plunging. The explanation for falling retail sales is simple: real average weekly earnings have dropped two months in a row. The consumer, as I’ve been suggesting, is tapped out on two fronts: disposable income and the capacity to take on more debt.

Despite the obvious intervention in the stock market by the Fed and the Government, via the Treasury’s Exchange Stabilization Fund, plenty of stocks are tanking. As an example, I recommended shorting Kate Spade (KATE) to my Short Seller Journal subscribers about a month ago at $23.50. The stock is trading at $18 this morning – 23% gain if you shorted the stock and even more if you used puts. You can get in-depth economic and market analysis plus ideas for taking advantage of the most overvalued stock market in U.S. history via IRD’s Short Seller’s Journal. For more information, click here:  Short Seller’s Journal Subscription Information.

The Military Complex Has Taken Control Of The White House

“The astonishing reinvention of Donald Trump:”  Washingtonians are still puzzling at the speed with which the man who promised to “drain the swamp” has come to bask in its approval. In the past 10 days, Mr Trump has belied many of the city’s worst fears. Having promised to launch a trade war with China, Mr Trump is rapidly abandoning his protectionist rhetoric. Likewise, having vowed to avoid foreign wars, he has acquired a sudden taste for Levantine missile launches. And having dismissed Nato as obsolete, Mr Trump is now singing the alliance’s praises. – Financial Times, April 13, 2017

It was just a matter of time before the Deep State got its meat-hooks into Trump.   The move to remove Steve Bannon from the National Security Council and replace him with two Deep State operatives who had been formerly removed from NSC was our signal that the Deep State had restored its control of the Oval Office.  Shortly after that power swap was accomplished, missiles started flying in Syria in response to false flag “gas” attack and the world’s largest non-nuclear bomb was dropped on CIA-built underground tunnels in Afghanistan.

Trump has back-pedaled on every single “plank” in his campaign platform – about as quickly as Obama did after he was inaugurated.  Trump’s geopolitical policies now resemble the same policies endorsed by Hillary Clinton, who is a neocon dressed in drag.

When all else fails, start a war.  The opinion ratings on Trump are plunging, along with the major portions of the economy.  Auto sales are down 10% since the beginning to 2017 and JP Morgan, despite “beating” earnings estimates, disclosed a troubling spike in credit card write-offs, which rose to nearly $1 billion in Q1.  Retail sales have now declined two months in a row.  It’s no coincidence that the dismal sales report was released on Good Friday when the market was closed.  The original .1% gain reported for February was revised down significantly to a decline of .3%.   Restaurant industry sales have declined for 11 of the last 12 months in a row on a year over year monthly basis.

The economy is been fueled on money printing and credit creation for the better part of 40 years.  That artificial stimulation went parabolic in 2009.   The tech and housing bubbles have been reinflated along with every other asset class into an “everything” bubble.  Real weekly earnings have declined two months in a row. The consumer is tapped out on two fronts:  disposable income and the capacity to take on more debt.  Now comes the part where the average household begins to default on the debt it’s taken on over the last 8 years.  Hence the big jump in credit write-offs disclosed opaquely by JP Morgan last week.

Today’s Shadow of Truth discusses the role played by the Deep State in ushering in the inevitable economic collapse of the United States which will lead to the implementation of Totalitarianism and a dystopic political system: