Category Archives: Market Manipulation

Housing Heads South – Precious Metals Getting Ready To Soar

“We’re now forecasting slower revenue growth for the third quarter based on an unexpected drop in Redfin’s bookings growth in the past three weeks, slowing traffic growth in a weakening real estate market.” – CEO of Redfin (RDFN) on the earnings conference call. Redfin stock plunged 22% after it reported its latest quarter this past Thursday after the market closed. I’ve been recommending RDFN as a short for several months in my Short Seller’s Journal.

I joined Elijah Johnson and Eric Dubin on SD Bullion’s weekly Metals & Markets podcast  to discuss the popping housing market bubble and to explain why the risk of missing a big move higher in the precious metals market is much greater than the risk of more downside from here:

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I just released my latest issue of the Short Seller’s Journal in which I explain why Tesla’s days may be numbered and I offer ideas for speculating that TSLA goes to zero sometime in the next two years. I also update my homebuilder short-sell ideas. You can learn more about this newsletter here:  Short Seller’s Journal information

WTF Just Happened: Gold Forms A Bottom And 420-Time For Elon Musk

Perhaps the most baffling aspect of the Elon Musk “Funding Secured” tweet is the number of financial media outlets and so-called “analysts” that are taking it seriously. The idea is a complete joke. Any valuation in excess of potential asset value minus the debt and other liabilities (included in “liabilities” will soon be a flood of lawsuits). Some bucket-shop stock analysts issued reports explaining why a buyout of Tesla could occur at an even higher price. We’re beginning wonder if the Tesla buyout idiocy will mark the end of the valuation insanity that has permeated the entire U.S. stock market…Meanwhile, hedge funds assumed a record short position in Comex paper gold futures. This along with the worst sentiment toward the precious metals since early 2001 and late 2015 suggest the potential for a bottom in gold, silver and mining shares.

In this episode of “WTF Just Happened?” we discuss these issues plus offer a view on the correlation between the dollar-price of gold and the $/yuan (WTF Just Happened is a produced in association with Wall St. For Main Street – Eric Dubin may be reached at  Facebook.com/EricDubin):

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Tesla is on its way to bankruptcy.  I don’t know how long it will take that to occur but the Company will be insolvent if it can’t raise money before the end of the year.  I explain why a buyout of the Company is next to impossible in the next issue of the Short Seller’s Journal and offer several ideas for using put options to express a bearish view of Tesla stock.

Visit these links to learn more about the Investment Research Dynamic’s  Mining Stock Journal and Short Seller’s Journal.   

Elon Musk Turns U.S. Capital Markets Into A Complete Farce

“Nobody, when they’re looking at a privatization, dangles this way and does this sort of teasing dance of choreography. Somebody only does this when they are trying to distract us with a shiny new thing…There’s a lot of problems here. He can’t afford to build the new factory that he says he wants to build. This is a distracting strategy like attacking the press” – Jeffery Sonnenfeld, Yale School of Management on CNBC

Elon Musk has turned the U.S. capital markets into a complete farce. He’s made of mockery of the fact that the regulators no longer enforce rule of law. The idea that any financial institution on earth would fund the largest leveraged buyout in history at a level that values Tesla on par with Volkswagen – the world’s larges car manufacturer – is beyond absurd.

We should hope and pray that some truth-seeking entity will hold Musk accountable for what is likely a highly fraudulent claim. Or, then again, perhaps Musk took one of his flying automobiles and went to Mars on Monday to “secure funding” from his Martian financiers.

A careful dissection of Tesla’s latest 10-Q reveals a Company with negative working capital and an unmanageable level of debt and other fixed commitments headed for eventual insolvency.

Beyond ranting about the obvious here, I’m posting an insightful, if not poignant, comment from a friend and colleague:

I am pretty amazed/disgusted that we haven’t come to terms (as a society) with social media. It is in this grey area where leaders of Government and corporations can walk a tight rope of truth/fiction without any consequence or regard for the affect of the immorality and illegality.  Narcissistic psychopaths like Musk utilize cult of personality to harness the power of the hopelessly ignorant looking for a guru; looking for a reason to justify their worst impulses and implausible fantasies. From a social science standpoint: it is interesting. From a person of the society: it is mindblowingly frightening.

Tesla’s Phony Quarterly Numbers

Tesla reported its Q2 numbers this past Wednesday. It reported $4 billion in revenue, up 43.4% year over year. Its net loss widened to $742 million, or $4.22 per share (some of you may have seen lower net loss and loss per share numbers but the numbers I’m using come directly from the SEC-filed 8-K, which means those are the “official” numbers).

The market was excited and the stock soared because the cash “burn” was lower than expected and Elon Musk reassured everyone that the Company is still on track to show positive net income and cash flow in Q3 and Q4. I can assure you that you have a better chance of standing on the eastern shoreline of Egypt and seeing the Red Sea part for Moses.

The cash balance of $2.23 billion that is presented on TSLA’s balance sheet was higher than expected – with an alleged implication that TSLA burned less cash than expected. But this was accounting sleight of hand. TSLA achieved this feat by stiffing its suppliers as evidenced by the ballooning of the accounts payable entry on the balance sheet. From Q4 2017 to Q1 2018, TSLA’s accounts payable rose $213 million, or 8.2%, to $2.603 billion. But from Q1 to Q2 this year, TSLA’s payables rose $427 million, or 16.4%.

In other words, TSLA slowed down the rate at which is pays suppliers by a considerable amount, which enables TSLA to hold the cash it owes to suppliers on its balance sheet, thereby giving the appearance of a higher cash balance.

Netting out customer deposits of $942 million, TSLA actually only has $1.29 billion in cash. That said, there are some other balance sheet items on the liability side of the balance sheet that increased and will require the use of cash, like “other long term liabilities,” that I won’t be able to analyze until the 10-Q is filed, which is when I can study the footnotes. Furthermore, the 8-K does not contain a full statement of cash flows – it’s missing the details of the “cash from operations” – which will enable me to determine other areas on its balance sheet TSLA stretched in order keep cash net of deposits above $1 billion.

All of that said, I have discovered a clever manner in which TSLA has rigged its financials to look better than they should by keeping cash expenditures it will have to incur off the income statement and balance sheet in Q2. To my knowledge, I am the only analyst who has figured out this devious form of accounting manipulation.

The commentary above is an excerpt from the latest Short Seller’s Journal, which was released today.  Tesla shares several traits with Enron and some parallels with Bernie Madoff.  Elon Musk is a gifted con-man.

In the latest Short Seller’s Journal I layout the methodical manner in which Musk’s financial architects manage to defer cash expenditures for the purpose of making the Q2 financials appear better than expected.  I suspect the scam was used to set-up an attempt to raise more money later this year.  You can learn more about my newsletter here:  Short Seller’s Journal information.

The Trading Action In Gold

There’s no question in my mind that the intervention in the gold market is similar to the intervention that occurred in 2008 ahead of the financial crisis. However, I believe that,
because of the massive physical off-take in the eastern hemisphere, the western Central
Banks and bullion banks will be unable to push the price gold down on the same scale as it
was taken down in 2008 from March to October. Currently, gold is 15% above the low it hit at the end of 2015. It’s 7% above the interim low it hit at the end of 2016.

As of last week, money managers (hedge funds primarily) held the biggest net-short position in futures and options in records going back to 2006. A measure of gold volatility is near the lowest since January.

My good friend and colleague, Chris Marcus, invited me onto his podcast show that he produces for Miles Franklin.  We discuss the gold market, the deterioration U.S. economy and the reasons I believe that the trading action in gold and silver is preceding another financial collapse similar to 2008 only worse:

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In the latest issue of the Mining Stock Journal, which was released this afternoon, I present data that suggests the current decline in the price of gold is beginning to bottom and is setting up for a big move in to the fall. Also discuss my view of the theory that China has pegged the price of gold to the yuan and I present a gold stock idea that has dropped price to a level that makes it “stupid cheap.” You can learn more about this newsletter here: Mining Stock Journal information

Wash, Rinse, Repeat: The Big Short Mortgages Are Back

This almost makes me wonder if Angelo Mozilo is running NASA Federal Credit Union.

A Short Seller’s Journal subscriber heard an ad for this mortgage product on his local radio in Atlanta. NASA Federal Credit Union is offering 0% down payment, 0% PMI (Private Mortgage Insurance. “This is unique because conventional lenders will normally require PMI when your down payment is less than 20% of the home purchase price. So, if that down payment was keeping you from getting into your new home, talk to a mortgage loan professional at NASA Federal!”

Fast closing guaranteed. If you don’t close by the contract data, NASA Federal will give you $1000 toward closing costs. Jumbo Mortgages are included in this offering.

The only thing guaranteed about this product is that a large percentage of the borrowers will eventually default.  With 0% down, the borrower is going to be underwater by at least 10% after all closing costs are factored into the equation.

What could possibly go wrong?  Lending Tree stock, which reflects loan demand, primarily from potential homebuyers shopping online for mortgages, is down 42% since early February:

Lending Tree reported that mortgage products revenue fell 9% from Q1 and 6% from a year ago when it reported its earnings yesterday. Easy-money mortgages offered by the Government have fueled home price inflation. TREE’s numbers tell us that mortgage activity is rapidly declining, which means that homebuyer demand is declining. NASA Federal is offering a subprime product at the top of the market in a desperate attempt to stimulate its mortgage underwriting fees. I can only wonder if the proprietors are counting on another Taxpayer bailout of the banks this time around…

I presented Lending Tree as a short idea to my Short Seller Journal subscribers in early June at $260. In the next issue I’ll update my view on TREE and how to play it with put and call options. One subscriber emailed me yesterday to report that he shorted August $300 calls for $2.92 when I suggested the idea in June and covered them for a dime. You can learn more about this newsletter service here:  Short Seller’s Journal information.

The Q2 GDP Farce, The Big Short 2.0 And Gold

The Bureau of Economic Analysis (BEA) released its “advance” estimate of Q2 GDP on Friday. The Government would have us believe that the U.S. economic growth accelerated to a 4.1 annualized growth rate in Q2. Other than the fact that a one-time jump in soybean exports ahead of the trade war contributed to 25% of the alleged 4.1% growth, nothing about the report is credible. (excerpt from the latest issue of the  Short Seller’s Journal)

Total home sales in SoCal were down over 11% year over year in June (as reported by the California Association of Realtors).   With housing, as goes SoCal, so goes the rest of the nation.  The homebuilders are the short seller’s gift that keeps on giving.

Silver Doctors invited me on the Weekly Metals & Markets podcast to discuss the GDP report, the housing market and gold:

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I just released my weekly issue of the Short Seller’s Journal. In this issue I present more stunning housing market collapse data, I discuss AMZN’s latest earnings report and I talk about Steve “The Big Short” Eisman’s latest short position, which has been one of my SSJ recommendations for a several months.  You can learn more about this newsletter service here:  Short Seller’s Journal information.

Adios Housing Bubble

The homebuilder and related stocks are in an “official” bear market.  For a short-seller it’s the perfect scenario, as the decline in homebuilder stocks has received little to no attention from the mainstream financial media.  The current bubble is a “price bubble” that was fueled by the $2.5 trillion of printed money dumped into the housing market by the Fed and de facto subprime mortgages underwritten by the Government (Fannie Mae, Freddie Mac, FHA, VHA, USDA).

Prices are beginning to fall in many markets and inventory is rapidly increasing.  Many of the new listings are flippers who soon will become desperate to unload.  This is how the mid-2000’s market collapse was triggered.

Meanwhile, the housing market stocks began to collapse in mid-2005 – an omen ignored most.  It would appear that history will once again repeat.  And the homebuilders have a long way still to fall:

My Short Seller Journal subscribers and I are making easy money shorting the homebuilder stocks. I called Hovnanian at the beginning of the year at $2.88. It’s currently trading at $1.53. The homebuilder stocks provide opportunities for profitable short term trades plus positioning for long term short-sell “investing.” In last week’s issue I discussed a strategy for navigating yesterday’s earnings reports for DHI, PHM and BZH. We are already making money on these ideas. You can learn more about this newsletter service here:  Short Seller’s Journal information.

Home Sales Data Show The Bubble Is Bursting

There’s no question in my mind now that the housing “snowball” has started downhill and it won’t take long to develop into an avalanche. In addition to all of the “for sale” and “for rent” signs I’m seeing with my own eyes popping up around Denver, I’ve been receiving emails from subscribers describing the same thing in their area.Short Seller’s Journal, July 22nd issue

The existing and new home sales reports this week were worse than even I expected.  Given the statistical manipulation tools used by the National Association of Realtors (existing home sales) and the Census Bureau (new home sales) – both entities use the same regression software – one can only wonder about the true rate of home sales decline.

Yesterday, CNBC.com featured a report titled, Southern California home sales crash, a warning sign to the nation.  I was surprised to see CNBC issue a bearish report on anything.  This report is similar to what’s occurring in New York City – rising inventory and falling sales.  Apartment rents in NYC are also dropping.  It’s similar in nearly all “bellwether” markets.

The Housing Bubble Blog (thehousingbubble.com), which was around during the mid-2000’s housing bubble, posted an article on Friday titled, “Discount sales can create a snowball effect.” The article featured articles from different cities, Portland, Dallas, Ft Collins (Colorado) and Minnapolis/St Paul which described rising inventory and falling prices.

This explains why the homebuilder stocks are in an official “bear market,” with some homebuilder stocks down over 30% since late January. I have yet to hear or read about this fact from the mainstream financial media or Wall Street.

Today’s new home sales report, along with the serial decline in the housing starts  data, disproves the “low inventory” narrative.  Affordability, rising rates and a shrinking pool of potential homebuyers who can qualify for a conforming mortgage has torpedoed demand.  The latest U of Michigan Consumer Sentiment report featured this chart on homebuying sentiment:


As you can see, the consumer “sentiment” toward buying a home is at its lowest reading since 2008. This is not a fact that would ever show up in the mainstream financial reporting on the housing market.

As for the low inventory narrative. The California Association of Realtors reported that June existing home sales plunged 7.3% from June 2017 and inventory is up 8.1%. A subscriber of the Short Seller’s Journal showed me an email in which Pulte Homes (PHM) was offering up to an unprecedented $20,000 bonus to realtors who sold Pulte homes in new developments in northern Florida.

Housing starts for June reported last Wednesday came in at 1.17 million (SAAR). The Wall Street brain trust was looking for 1.32 million. This was a 12.3% plunge from May.  May’s original report was revised lower. Starts for both single-family and multi-family homes were down sharply across the entire country. If inventory were “low,” housing starts would be soaring, not falling.

I’m sure northern Florida is not the only market in which Pulte is offering large selling bonuses and I’m sure Pulte is not the only homebuilder offering large broker incentives. I look at the inventory numbers across homebuilders every quarter. A lot of the inventory is “work-in-process.” But finished a new home does not necessarily show up in the MLS system unless the builder lists it. This is why, on the surface, new home inventory might look relatively low but the builders are showing huge inventory levels in their SEC-filed financials.

Because of the nature of the asset, and the relative illiquidity of the market relative to actively traded financial assets, change in the direction of the momentum in the housing market is like turning a large ocean-freighter around. The manic phase of the housing bubble is over. The momentum has been turning in the opposite direction since late 2017. Flippers who bought homes in the last 3-6 months will soon become desperate to sell. Some will look to rent and “wait for the market move through this valley and head up again” only find that rental prices in many areas are now below the cost of carry.  They forget to tell you that part in flipper seminars advertised on local radio stations.

Soon the “discount effect” of falling prices will snowball into an avalanche.  If you think this is wrong, take another look at homebuilder stock charts.  The commentary above is partially excerpted from the latest issue of the Short Seller’s Journal.  In this issue I discuss various strategies for building and managing short  positions in the homebuilder stocks in the context of the homebuilder earnings reports due out tomorrow (Thursday, July 26th).  New subscribers get a handful of back-issues, an option trading primer and a copy of my Amazon Dot Con report.