Category Archives: Market Manipulation

Portrait Of A Stock Bubble

Just like the Dutch Tulip Bulb bubble, internet stock bubble, and the  mid-2000’s financial asset bubble, the current stock market is no longer  a price-discovery mechanism.   It has deteriorated into a venue in which Central Bank-manufctured liquidity – in the form of printed currency and credit creation – has flooded into the system, enabling investors to chase the few stocks rising in price at the highest velocity (click to enlarge, graph on the left sourced from Jesse’s Cafe Americain).

The drivers of this modern day Dutch Tulip phenomenon are the so-called “Five Horsemen” stocks – AAPL, AMZN, FB, GOOG,MSFT. To that grouping I toss in TSLA.  Among all of those bubble stocks, TSLA has become, by far, the most disconnected from any remote intrinsic, fundamental value.  AAPL alone is responsible for 25% of the YTD gain in the Dow and 13% of the YTD gain in the S&P 500. AAPL’s revenues and operating income have declined over the last three years (2014 to 2016).  More often than not, even on days when the S&P/Dow are red, most if not all of the Five Horsemen + TSLA  seem to close green.

Eventually, the music will stop and this “no-price-discovery-possible” market will become a “can’t find a seat” market.  The abruptness and rate of decline will be breathtaking. Perhaps only matched by the outflow of capital from the cryptos by “investors” who leveraged up their cryptocurrency holdings to throw more “money” at TSLA.

The good news is that a lot of money can be made shorting stocks.  Since April, stocks like IBM, GS, SHLD, BZH and GE presented in the Short Seller’s Journal as shorts have outperformed the SPX/Dow.  SHLD is down 47% in 7 weeks – a home run.  BZH is down 18% in three weeks.  In the next issue, a “funky” financial stock will be featured that has the potential to drop at least 50% over the next 12 months if not sooner.

No one knows what event will trigger the stock bubble collapse.  One possibility is the ongoing financial implosion of the State of Illinois.  In stock bubble periods, all news is imbued with “the glass is half full.”  As an example, Illinois’ credit rating was reduced recently to BB+/Baa3.  That is a junk rating. But the media characterizes it as a “the lowest investment grade” rating – i.e. the “glass is half full.”

Both rating agencies never downgraded Enron to junk until it was weeks from Chapter 7 bankruptcy.  Illinois is on the brink of financial disaster.   See this article as an example:  Illinois Owes Billions.  This problem is absolutely dwarfed by Illinios’ public pension problem, which Illinois underfunded by a couple hundred billion (officially about $130 billion but that’s not on a true mark-to-market basis).

When the music finally stops, the perma-bubble bulls will be looking for that proverbial “seat” in all the wrong places.  But the next stampede of capital will be out of stocks, bonds, cryptos and “investment” homes and into physical gold, silver and mining stocks.

The Government Is Desperate To Re-Stimulate Housing Sales

The Fed printed $2.5 trillion to prop up the mortgage market and the Government “refurbished” all of the mortgage programs it sponsors (Fannie Mae, Freddie Mac, FHA, VHA, USDA) in a way that positioned the Government/taxpayer as the new subprime lender of choice.  The two programs combined inflated a new housing bubble – one that ended up fueling housing price inflation  more than sales volume.   The FHA program was the first program to replace the collapsed subprime mortgage lenders of the mid-2000’s with a 3.5% down payment program. It’s market share of mortgage underwriting rocketed from 2% in 2008 to around 20% currently.

As home sales began to falter in mid-2014, the Government rolled out a revision to the Fannie and Freddie programs in early 2015 that reduced the down payment requirement from 5% to 3% and reduced the monthly cost of mortgage insurance.  The VHA and, believe it or not, the USDA (U.S. Dept of Agriculture) programs provide low interest rate mortgages with zero down payment.

Fannie and Freddie permit the borrower to “borrow” the down payment or receive down payment assistance from a home seller willing make price/fee concessions in an amount up to the 3% down payment.  In other words, under FNM/FRE, a homebuyer can close a conventional FNM/FRE mortgage with zero down payment.   These alterations to the taxpayer guaranteed mortgage programs provided another short-term bounce in home sales volume and sent home prices soaring.

The housing market is headed south again.  Just in time, the Government is making it even easier for a potential buyer to load up more debt to leverage into the American dream. Fannie Mae is raising the debt-to-income ratio on its 3% down payment product from 43% to 50%.  DTI is the total household monthly debt payments divided by pre-tax income. While the credit standards are not quite as insane as during the last housing bubble, the current mortgage underwriting standards facilitated by the Government do not allow any cushion for household financial instability. This is especially true considering more than 50% of all households can’t write a $500 check to cover an emergency.

The latest iteration from the Government  reeks of desperation.  But wait, it gets even better. Some mortgage companies are now offering a 1% down payment mortgage that includes a 2% “gift” from the mortgage company in order to conform to the 3% FNM/FRE underwriting convention. The mortgage lender pays the 2% portion of the down payment.

However, this is not a free lunch “gift.” The mortgage lender assesses a higher rate of interest to the borrower than would be otherwise available from a standard FNM/FRE 3% down-payment mortgage. The mortgage lender, as the servicer of the mortgage, keeps the difference between the interest rate on the mortgage paid by the borrower and the amount of interest payment “passed-thru” to FNM or FRE. Over the life of the mortgage, assuming the borrower does not default, the mortgage company makes substantially more than was “gifted” to the borrower.

If a homebuyer does not have enough capital to make a 3% down payment, the odds are that the buyer also does not have the financial strength to maintain the cost of home ownership. Home-buyers who are “gifted” 2% of their down-payment do not need down-payment assistance, they need earning assistance.

This is going to end badly, especially for the taxpayer.  Obama promised after his mult-trillion dollar Wall Street bailout that the Government would not bail out the banks again. This “promise” guarantees that it will happen again.  Only this time the source of financial nuclear melt-down will be many:  mortgages, auto loans, unsecured household debt (credit cards) and student loans.   Oh ya, then there’s the derivatives. The sell-off in the banking sector since March 1st reflects the market’s awareness of the rising degree of risk lurking in the financial system from an orgy of reckless debt creation.

I don’t know when the this giant Ponzi bubble will blow, no one does, I just know that it will be worse than 2008 when it does blow.  The balloon latex is stretched so tight at this point that any systemic “vibration” not anticipated by the Fed could impale the thing.

The above commentary was partially excerpted from IRD’s latest issue of the Short Seller’s Journal.  Two financial sector stocks and one auto sector stock, all three of which have been falling and could easily get cut in half from their current level by year-end with or without a market “accident” were presented.  To find about more, click here:  SSJ Subscriber Information. 

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 – James

 

Gold Has Outperformed The Dow/S&P 500 Year To Date

Although it may not “feel” like it, the price of gold has been in a nice – albeit “controlled” –
uptrend since late December (1-year daily, Comex continuous futures contract):

Gold is up over 12% since 12/22/16. By comparison, the SPX is up 7% and the Dow Jones Industrials index is up 6%. AAPL is responsible for 13% of the SPX move higher and 25% of the Dow move higher. The primary drivers of gold besides elevated geopolitical risk are the expectation of an easing of monetary policy and the fall in value of the U.S. dollar:

While I don’t think the effort will yield any success, the only way the Trump Government can stimulate economic growth other than by printing another few trillion and distributing it across the population, is to attempt to stimulate the demand for U.S. exports globally by devaluing the dollar vs. the currencies of our primary trading partners (Canada, Europe, China).

As with any form of Government intervention, this will further destabilize the U.S. financial system. That said, most other major industrialized countries (except for Russia) are devaluing their currency vs. global currencies in order to bolster their export industries.

After today’s employment report, in conjunction with the negative economic reports released earlier this week, it’s likely the Fed’s next policy shift ease monetary policy and further enable the expansion of credit.  When this reality hits the market, the hedge fund algos will take gold and the mining stocks higher.

The above analysis is an excerpt from the latest issue of the Mining Stock Journal.  The stock featured in this issue is up over 4% today.  Learn more about this newsletter here:  MSJ Info.

BLS B.S.: 93% Of New Jobs Since 2008 Were Birth/Death Model Estimates

A research report from Morningside Hill Capital sourced from Zerohedge shows that 93% of the jobs “created” since 2008 were Birth/Death model estimates.  While some portion of those jobs were no doubt legitimately created, the issue is over-estimation of jobs created by new businesses net of jobs lost from failed businesses.  As it turns out, most of the job growth that has been reported by the Government since 2008 – and which in turn fueled some massive stock rallies – never existed.

Ronald Reagan’s administration was the “culprit” behind the creation of the Birth/Death model because apparently Reagan was complaining that the BLS was undercounting the jobs he “created” (from the link above, pg 11).

The source of estimation error derived from the methodology used by the Census Bureau is highly flawed because it extrapolates B/D growth estimates based on historical experience.  When the economic activity in the current period is below the historical rate of economic activity (real economic activity, not inflation-generated growth or growth fashioned from data manipulation), the slow-down in new business formation that occurs in reality is not picked up by the B/D model.

BLS Admits High Error Potential – If you bother to sift through the section of the BLS website that describes the Birth/Death model methodology – something which Wall Street analysts and financial news reporters have never bothered to do – the BLS admits the high potential for error.  From the BLS website:

The primary limitation stems from the fact that the model is, of necessity, based on historical data. If there is a substantial departure from historical patterns of employment changes in net business births and deaths, as occurred from 2008 into 2009 during the 2009 benchmark, the model’s contribution to error reduction can erode. As with any model that is based on historical data, turning points that do not resemble historical patterns are difficult to incorporate in real time. Because there is no current monthly information available on business births, and because only incomplete sample data is available on business deaths, estimation of this component will always be potentially more problematic than estimation of change from continuing businesses.

Perhaps the biggest source of error comes from the Census Bureau’s estimate of jobs from workers not covered by UI tax reports (employers required to pay out unemployment insurance). These are part-time workers (primarily independent contractors). As the BLS admits:

There are some types of employees that are exempt from UI tax law, but are still within scope for the CES estimates. Examples of the types of employees that are exempt are students paid by their school as part of a work study program; interns of hospitals paid by the hospital for which they work; employees paid by State and local government and elected officials; independent or contract insurance agents; employees of non-profits and religious organizations (this is the largest group of employees not covered); and railroad employees covered under a different system of UI administered by the Railroad Retirement Board (RRB). This employment needs to be accounted for in order to set the benchmark level for CES employment.

Over time some sources from which CES draws input data have become unreliable.

Thus, even the BLS admits that the B/D model is B.S. Furthermore, in all probability, the “Death” component of the B/D model likely has outweighed the “Birth” component of the B/D guesstimates, as new business formation is at a 40-yr low based on two studies, one from the Census Bureau and one from Gallup.  Per Gallup, the rate of firms closing began to exceed the number of new businesses in 2008.  Thus, by the BLS’ and Census Bureau’s own admission, the B/D model has grossly over-stated the number of net jobs created since 2008.  In fact, in all probability, the number of jobs from business “births” and “deaths” has declined.

It is likely that the U.S. economy has lost jobs since 2008.  This would explain why the Labor Force Participation Rate has declined to a level not experienced since the late 1970’s when household’s were primarily composed of one income providers.   The concept that the number of jobs since 2008 has, in reality, declined is reinforced by the fact that 94.98 million of the 254.77 million civilian non-institutional population – over 37% of the 15-yr old to 64-yr old population – is no longer considered to be part of the Labor Force.

There IS No B.S. Like The BLS

Bureau of Labor Statistics. It has an Orwellian ring to it. I guess it should stand for “Bureau of Lying Statistics.” A quick glance at today’s non-farm payroll report suggests that the economy likely lost hundreds of thousands of jobs in May. The headline 138k number was well below Wall St’s consensus estimate and below even the lowest estimate (140k).

The highly deceitful “Birth/Death” model gave the BLS 238k “newly created” jobs from alleged new business formation in excess of jobs lost from failed businesses in May. This number is shown before it’s sent through the BLS’ “X‑13ARIMA‑SEATS software developed by the U.S. Census Bureau.” No one knows exactly how that statistical sausage grinder produces the alleged jobs added and lost by new business formation – not even the Census Bureau. Then that number is blended into the overall headline number.

In truth, it’s quite likely that the U.S. economy lost jobs in May. A report showing less working age people employed would be a better fit with the state of the economy as reflected by private-sector reports, such as retail sales and construction/capital formation spending. The BLS covers up this fact by “finding” a large number of “new” part-time jobs to offset the loss of 367,000 full-time jobs.

And for its coup de grace, the BLS reports that 608,000 people in the working age population decide to stop looking for a job, for whatever reason, and quit working. They are no longer considered to be part of the labor force. This concept makes absolutely no sense when privately-generated surveys show that less than 50% of all households do not have the ability to write a check for $500 in the event of an emergency. Perhaps 608,000 people just decided that they were tired of buying food and paying bills and quit working altogether.

Regardless of how you want to slice and dice the phony numbers, the “labor force participation rate” fell to 62.7% of the working age population. This means that 37.3% of the entire U.S. population between the ages of 15 and 64 decided that they couldn’t be bothered with working or looking for a job. That metric alone completely invalidates anything the BLS reports about the U.S. “employment situation.” Perhaps a better title for the monthly report would be “The Government’s Interpretation of U.S. Employment.”

Is Bitcoin Standing In For Gold?

Paul Craig Roberts and Dave Kranzler

In a series of articles posted on www.paulcraigroberts.org, we have proven to our satisfaction that the prices of gold and silver are manipulated by the bullion banks acting as agents for the Federal Reserve.

The bullion prices are manipulated down in order to protect the value of the US dollar from the extraordinary increase in supply resulting from the Federal Reserve’s quantitative easing (QE) and low interest rate policies.

The Federal Reserve is able to protect the dollar’s exchange value vis-a-via the other reserve currencies—yen, euro, and UK pound—by having those central banks also create money in profusion with QE policies of their own.

The impact of fiat money creation on bullion, however, must be controlled by price suppression. It is possible to suppress the prices of gold and silver, because bullion prices are established not in physical markets but in futures markets in which short-selling does not have to be covered and in which contracts are settled in cash, not in bullion.

Since gold and silver shorts can be naked, future contracts in gold and silver can be printed in profusion, just as the Federal Reserve prints fiat currency in profusion, and dumped into the futures market. In other words, as the bullion futures market is a paper market, it is possible to create enormous quantities of paper gold that can suddenly be dumped in order to drive down prices. Everytime gold starts to move up, enormous quantities of future contracts are suddenly dumped, and the gold price is driven down. The same for silver.

Rigging the bullion price prevents gold and silver from transmitting to the currency market the devaluation of the dollar that the Federal Reserve’s money creation is causing. It is the ability to rig the bullion price that protects the dollar’s value from being destroyed by the Federal Reserve’s printing press.

Recently, the price of a Bitcoin has skyrocketed, rising in a few weeks from $1,000 to $2,200. Two explanations suggest themselves. One is that the Federal Reserve has decided to rid itself of a competing currency and is driving up the price with purchases while accumulating a large position, which then will be suddenly dumped in order to crash the market and scare away potential users from Bitcoins. Remember, the Fed can create all the money it wishes and, thereby, doesn’t have to worry about losses.

Another explanation is that people concerned about the fiat currencies but frustrated in their attempts to take refuge in bullion have recognized that the supply of Bitcoin is fixed and Bitcoin futures must be covered. It is strictly impossible for any central bank to increase the supply of Bitcoins. Thus Bitcoin is standing in for the suppressed function of gold and silver.

The problem with cryptocurrencies is that whereas Bitcoin cannot increase in supply, other cryptocurrencies can be created. In order to be trusted, each cryptocurrency would have to have a limited supply. However, an endless number of cryptocurrencies could be created that would greatly increase the supply of cryptocurrencies. If entrepreneurs don’t bring about this result, the Federal Reserve itself could organize it.

Therefore, cryptocurrency might be only a temporary refuge from fiat money creation. This would leave gold and silver, whose supply can only gradually be increased via mining, as the only refuge from wealth-destroying fiat money creation.

For as long as the Federal Reserve can protect the dollar by bullion price suppression and money creation by other reserve currency central banks, and as long as the Federal Reserve can keep the influx of new dollars out of the general economy, the Federal Reserve’s policy adds to the wealth of those who are already rich. This is because instead of driving up consumer prices, thus threatening the US dollar’s exchange value with a rising rate of inflation, the Fed’s largess has flowed into the prices of financial assets, such as stocks and bonds. Bond prices are high, because the Fed forced up the price by purchasing bonds. Stock prices are high, because the abundance of money bid prices higher than profits justify. As the US government measures inflation in ways designed to understate it, the consumer price index and producer price index do not send alarm systems into the markets.

Thus, we have a situation in which the Fed’s policy has done nothing for the American population, but has driven up the values of the financial portfolios of the rich. This is the explanation why the rich are becoming more rich while the rest of America becomes poorer.

The Fed has rigged the system for the rich, and the whores in the financial media and among the neoliberal economists have covered it up.

Early Monsoon Season Will Boost Indian Gold Buying

After the concerted western Central Bank  effort, led by the BIS, to squelch Indian gold imports by eliminating the most commonly used currency bills failed, the fake news about Indian gold imports coming from the World Gold Council amplified.  The WGC missed its Q1 2017 forecast for Indian gold imports by a country mile, as Indian gold imports doubled in Q1 to 253 tonnes.   Please note that these numbers do not include the amount of gold smuggled into India, which has been estimated to be 200-300 tonnes annually.

Now the World Gold Council is promoting the narrative that Indian gold imports will average only 90 tonnes per quarter the rest of the year because of a new General Sales Tax scheduled to be implemented on July 1st plus restrictions to be implemented on gold dore bar imports.  However, this is again an ill-fated prediction, likely for the purpose of spreading anti-gold propaganda, which seems to be one of the World Gold Council’s general directives.

First, in April and May, the premiums to world gold paid in India suggest that April/May imports already are well into triple-digits.  And the WGC’s arguments are absurd, as expressed by John Brimelow in his Gold Jottings report:

In JBGJ’s opinion the only way this prediction can be right is if the $US price of gold jumps a couple of hundred dollars. Since Q2 is half gone and premiums have if anything been even more constructive during April and May, imports for the quarter are very likely be deep in triple digits also. The dore point is just ridiculous.  To the extent dore is not available India will just revert to buying kilo bars which are only a few dollars more expensive. How the Authorities will treat the gold trade in introducing General Sales Tax is still uncertain. But using it to increase the rate of tax will just increase smuggling. In any case, fear of a tax increase should be stimulation anticipatory buying, a point the WGC avoids mentioning.

In addition to the current elevated level of gold demand in India, the early arrival of monsoon season to India will further boost demand for gold “by setting up India for higher farm output and robust economic growth” (Economic Times).   Farmers use cash from their harvest sales to buy gold, which is one of the major sources of demand fueling India’s biggest seasonal gold-buying period in the fall through year-end.  The bigger the harvest, the more gold bought by Indian farmers.

For the WGC to forecast 90 tonnes per quarter for the rest of 2017, especially given that Q2 is nearly in the bag and is likely already well over 100 tonnes, is nothing short of motivated anti-gold propaganda.  An increase in the General Sales Tax will likely cause a temporary dip in gold imports.  But, as with sudden moves higher in the price of gold, Indians will “get used” to paying a slightly higher price and normal import patterns will resume. Furthermore, a higher rate of taxation on gold sales in India will likely stimulate increased smuggling, over which the Indian authorities seem to limited control.

I appears currently that the western Central Banks are having a difficult time keep a lid on the price of gold.  The elevated level of Privately Negotiated Transactions and Exchange for Physical transactions – both of which facilitate settlement of Comex gold contracts off-exchange, privately and out of sight – is an indicator the banks are struggling to settle gold contracts with deliveries from the amount of gold available on the  Comex.   For now the price of gold has been successfully contained below $1300.  But it would not surprise me if gold makes a strong run over $1300 heading into, in not before, Labor Day weekend.

A Stock Market Crash: A Matter Of “When,” Not “If”

Given group-think and the determination of policy makers to do ‘whatever it takes’ to prevent the next market ‘crash,’ we think that the low-volatility levitation magic act of stocks and bonds will exist until the disenchanting moment when it does not. And then all hell will break loose, a lamentable scenario that will nevertheless present opportunities that are likely to be both extraordinary and ephemeral.  –  Highly regarded hedge fund manager, Paul Singer, in his latest investor newsletter

Singer has apparently has unloaded $5 billion worth of stock, which is 15% of his funds management.

Anyone happen to notice that several market commentators have argued that Bitcoin is  a bubble but the same stock “experts” look the other way as the U.S. stock market becomes more overvalued by the day vs. the deteriorating underlying fundamentals? Bitcoin going “parabolic” triggers alarm bells but it’s okay if the stock price of AMZN is hurtling toward parity with the price of one ounce of gold. Tesla burns a billion per year in cash. It sold 76,000 cars last year vs. 10 million worldwide for General Motors. Yet Tesla’s market cap is $51.7 billion vs. $48.8 billion for GM.

This insanity is the surest sign that the stock market bubble is getting ready to pop. If you read between the lines of the the comments from certain Wall Street analysts, the only justification for current valuations is “Central Bank liquidity” and “Fed support of asset values.” This is the most dangerous stage of a market top because it draws in retail “mom & pop” investors who can’t stop themselves from missing out on the next “sure thing.” There will be millions of people who are permanently damaged financially when the Fed loses control of this market. Or, as legendary “vulture” investor Asher Edelman stated on CNBC, “I don’t want to be in the market because I don’t know when the plug is going to be pulled.”

A friend/colleague of mine is a point and figure chart aficionado. He sent me an email on Thursday in which he said even with the five horsemen (FANGs + AAPL) and the SPX and Dow up today (and the SPX setting a new all-time high), the bullish percent index (BPI) of the NYSE is negative which means there are more stocks generating a point and figure sell signal than a buy signal. This has been fairly consistent over the past couple of weeks. (Note: the bullish percent index is a breadth indicator based on the number of stocks on point & figure buy signals). When the BPI is negative over an extended period of time, it reflects the fact that a lot more stocks in the NYSE are trending lower than are trending higher. When a declining number of stocks are participating in the move higher of a stock index, it is a bearish signal.

As my friend says, “in reality this will continue until it doesn’t.” He goes on to say: ” what this shows me is that at this time it’s much better to be strategically short than broadly short. This will change too at some point…”

Picking out strategic shorts has been the focus of the Short Seller’s Journal. Not all of the ideas have worked and a couple back-fired – in defiance of the company’s underlying fundamentals – but many ideas are well below the price at which they were presented either the first time or presented again thereafter. One idea that has declined 39% (declined $42) since August 2016 is Ralph Lauren, which was presented on August 14, 2016 at $108.19. It closed Friday at $66.11, down 41 cents on a day when the SPX hit another all-time high. RL has closed lower on 12 of the last 13 days.

One subscriber emailed me earlier this week to let me know he had shorted 200 shares at $108 and covered 100 of it this week. He’s hanging on to the other 100 share short. I mentioned to him that my 12-18 month target was $50 and that he should hold the other 100 short at least until August because it’s only going to get worse for the consumer and retailers.

Currently there’s a a large percentage of stocks trading below their 50 and 200 day moving averages.  Many stocks are close or at 52-week lows.  Some stocks, like Sears Holdings (SHLD) are no-brainer shorts.  Sears is going to file for bankruptcy – it’s down 32% from April 2nd, when it was presented as a short idea in the Short Seller’s Journal.  Similar to the probability of a stock market crash, it’s  a matter of “when,” not “if.”

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.

Beat Your Meat With The “Street”

Best Buy reported its earnings this morning for its Q1.  Revenues were up year over year for the quarter (qtr/qtr) by a scorching $85 million, or 1%.  But this came at the expense of price competition, as its gross profit declined 5.7%.  Operating income plunged 19.4%.  Net income dropped 18%.  Earnings per share declined 15% (share buybacks translated into a lower decline in e.p.s. than net income).  Cash provided by operating activities (from the Company’s “statement of cash flows,” not from the Jeff Bezos “free cash flow” comic book) took a 51% cliff dive, dropping $249 million qtr/qtr.

But because Best Buy “beat the Street” estimates, the stock jumped $8 this morning, adding over $2.4 billion in to BBY’s market cap.  To say this is absurd does an injustice to the word absurd.

When a stock gains $2.4 billion on declining economics and profitability because it “beats the Street,” you know it’s end of days for the stock bubble. This is quite similar to the late 1999 – early 2000 timeframe, when a Maria Bartiromo would breath the name of a tech stock and it would jump $10 almost instantaneously.

Those who cannot remember the past are condemned to repeat it. – George Santayana