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.

How Is Tesla Different From Enron?

Answer:  It’s not. The longer I observe the Elon Musk/TSLA show – and the more I research in-depth the Company’s business model and financials – the more I’m convinced that there’s a striking similarity between Enron and TSLA. The graphic below was sourced from @TeslaCharts on Twitter (with my edits):

By now, I’m sure many of you have seen the report from a Twitter sleuth who discovered a huge fenced-in, gated lot in Lathrop, California where literally thousands of Tesla Model 3’s were being “stored” (@IspyTsla). Recall that Musk had set producing 5,000 Model 3’s by the end of June (Q2) in a week as a holy grail goal. A report from an anonymous insider who works on the production line stated that Musk ordered skipping a critical brake test in order to meet the production goal. Sheer insanity.

A subscriber to my Short Seller’s Journal who designs and builds electrical testing equipment for the auto industry told me that automotive plants shutdown rather than let their stuff go out the door untested. He said it happens quite frequently.  Tesla’s key operational executives have been leaving the Company like survivors jumping off the Titanic.  The latest to leave is the head of sales. Now we know why.  Tesla has entered an irreversible death spiral.

This accounting of Tesla brought back instantly my memories of shorting Enron in early 2001. The stock had been a high-flier and ran up with the tech bubble. The Company had supposedly fused together energy management technology and a Wall Street-style trading floor operation that was supposed be a huge money-generator for the Company. I recall reading some reports that Enron was using off-balance financing and LLC gimmicks to manufacture profitability.

After going thru Enron’s 2000 10-K with a fine-tooth comb, I determined that Enron’s balance sheet was a ticking time-bomb and I shorted the stock. I rode my short from the $40’s to under $15. Obviously I covered to too soon. But little did I know that it would emerge after Enron hit the wall that it had erected a fake trading room at its Houston headquarters. Upper management would have employees man the desks and phones when Wall Street analysts or big investors visited. The entire operation was a scam.

But how is this any different from turning out operationally flawed cars and storing 1000’s of them in a vacant lot? An analyst from Needham & Co reported that, based on his checks, Model 3 refund requests are outpacing deposits and order cancellations are accelerating. A year ago the refund rate (vs orders) was 12%. The analyst believes the refund rate has doubled. I was wondering when the refund rate would begin to place additional stress on Tesla’s liquidity. I believe it is quite likely TSLA will need to admit before Thanksgiving that it has raise more capital. That’s when the real fun for shorts begins.

Enron was able to get away with the fraud it was perpetrating for several years because of the complicity of its auditor, Arthur Andersen. I believe a similar relationship exists between Tesla and Price Waterhouse. There are just too many areas in Telsa’s financials where GAAP accounting standards are pushed beyond the limit of the so-called “gray area.” The irregularities span the entire income statement and balance sheet – from revenue recognition to expense capitalization. The latter enables Tesla to hide current expenses and debt.

Tesla will report Q2 numbers on Wednesday, August 1st after the market closes. In my opinion, shorting TSLA or buying long-dated puts has become unavoidable. In my latest issue of the  Short Seller’s Journal, I share my ideas for using puts to make a bearish bet on Tesla or how to manage the risk of shorting the shares outright. At some point, it will become unavoidable for Tesla’s largest shareholders to liquidate their holdings. It’s a massive breach of fiduciary duty lawsuit waiting to happen.

Just like Enron was emblematic of the fraud and stock market mania that defined the tech bubble, Tesla is the poster-child for the entire U.S. economic and financial system. Like Enron and Tesla, the U.S. is defined by debt, fraud, corruption, greed, entitlement and a blatant disregard for humanity.

Trump’s Fed Comments Sends Gold Soaring

Last week Donald Trump broke the theoretical “Chinese Wall” that is supposed to exist between the Government and the Fed when he offered a stunning rebuke of the Fed’s current policy to continue raising interest rates. Though, it’s really more like “nudging” rates up at a snail’s pace.

Gold shot-up in price immediately after Trump’s ill-advised comments recorded on CNBC it the tape, more than offsetting a vicious sell-off in the gold price that occurred in the paper derivative gold markets in London and New York.

The Office of Management and Budget further revised higher its Federal spending deficit forecast for FY 2018.  The original forecast was under $500 billion.  The latest forecast is nearly $900 billion.  Without a doubt, we believe the spending deficit will top $1 trillion this year.

The point of this is that Trump’s remarks were likely directed at pushing the dollar lower as part of the escalating trade war.  That, combined with a Government budget that will soon spiral out of control – and thereby necessitate a flood of new Treasury issuance – will likely force the Fed to reverse course on its monetary policy which in turn will send gold soaring in price.  We explain why on the latest episode of, WTF Just Happened (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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You can take advantage of undervalued junior mining stocks using the Mining Stock Journal. OR learn how my subscribers and I are making a small fortune shorting the housing market, as homebuilder stocks are already in bear market, with the information and analysis provided in the Short Seller’s Journal. This week’s Short Seller’s Journal also discusses the coming demise of Tesla and how to best play it from the short-side.

Many Americans Are Living In A Financial/Economic Nightmare

The following is guest post from a Mining Stock Journal subscriber who runs a family business in the northeast part of the country:

Our family has been in business here for over 100 years. Presently we run a collection of consumer-based businesses, including a hotel, restaurant and an apartment complex. We have very well run businesses with tight controls. All my top managers have been with the company for well over two decades.

Because of the nature of our businesses and related customer base, I have a first-hand, “front row view” of the economic condition of the average household. I can say with direct knowledge that the average American has entered an income and debt nightmare.

I’m writing you because the entire area where I live and work has finally hit a wall of debt. It’s gutted our customers, our businesses, and the entire economy in my area…Everybody including small and mid-size businesses use debt to maintain their daily existence.

It finally showed up in ALL of our business starting this spring…our customers are BROKE and not coming thru the doors. Everyone up here lives by increasing their credit card balance each month, except for the very few that have their entire life savings in overvalued stocks. Before I wrote this, I asked my managers about their friends, family, and our employees. All are broke, living paycheck to paycheck.

Even in the alt-media, there is plenty written about the consumer being tapped out, but few are mentioning small and mid size businesses. Most are in the EXACT shape as the general public – just the numbers are bigger.

The drug use…heroin/meth is OUT OF CONTROL, a huge percentage of people up here can only survive with State and Federal assistance.

Dave, I’m not a gloom and doom’er, but starting the spring of this year…something changed…it’s like a wall was hit. You can bet your ass this area of the county is a mirror image of what I see in my businesses and the surrounding communities. Something is close Dave, very close. I have never seen anything like it in my 60 years. We both know what’s coming, and it’s not good.

Sorry I don’t have positive news……but it’s the truth!!

Prelude To A 2008 Event: Paper Gold Manipulation Intensifies

The trading action in the paper gold markets of London and NY this week further convinces me that gold is being pushed down in price by the western Central Banks similar to the take-down in the paper price that occurred in 2008.  The motive is to prevent a soaring gold price from signalling to the markets that a big problem is percolating in the global economic and banking systems.

Once again, in the early morning the price of gold was slammed just after the London a.m. price Fix (3 a.m. EST) and again at the open of the Comex gold pit (8:20 a.m. EST) – click on image to enlarge:

This pattern has been persistent over the last two months.  It’s not about gold being “pinned” to the SDR, as Jim Rickards is now promoting.  And it’s not about some mystical gold peg to the yuan.  It’s about western Central Bank desperation to keep the dollar alive in order to defer the inevitable collapse of the record level of dollar-denominated debt and the associated derivatives.

It’s no coincidence that Rickards has floated this theory about the gold price and the SDR recently.  Rickards was rolled out several years ago to promote the idea that the SDR would be the next reserve currency. The Deep State knows the dollar’s life-span is limited. The U.S. dollar is 58% of the SDR, making the SDR the best replacement of the dollar which thereby enables the U.S. Deep State to maintain some semblance of global hegemony.

For the time being, gold is trading almost in perfect inverse correlation with the dollar. The dollar currently is rising vs. all fiat currencies. Therefore, of course it might look visually like gold and the yuan or gold and the yen are trading in tight correlation. But at the root it’s all about the dollar and the effort to prevent the dollar from collapsing.

As for the brewing collapse of the financial system, here’s an interesting chart comparing Deutsche Bank’s stock price with the gold since the beginning for February. The idea here is that the Fed/ECB/BoE began to work on the gold price when it became obvious that the world’s most systemically dangerous bank was in a state of collapse:

Certainly the mining stocks are generally “skeptical” of gold’s price action since April:

And has anyone checked gold lease rates lately?  Currently the lease rate curve for gold and silver in London is inverted. In fact, lease rates gold from 3 months to a year are negative.  Negative lease rates mean the Central Banks will pay bullion banks to lease gold and silver.  Long-timers like me know that this means there’s an immediate and anticipated shortage of physical gold and silver available for delivery, where “delivery” means the metal is removed from the London vaults and shipped to the entitled buyer.

Both gold and silver are backwardated.  It took 11 iterations in the LBMA p.m. fix on Tuesday to balance out the heavy demand for physical gold from bidders. 11 iterations is rare occurrence. 5-6 iterations is rare. 1 or 2 is typical. Metal is tight in London.

If you are monitoring the Comex Hong Kong kilo bar vaults, you are aware that the movement in and out of the vaults there suggests that metal is also tight in Hong Kong, which means it is likely tight in Shanghai.

The point here is that the paper price behavior of gold right now is not what it seems.  I’d be more worried about the motives behind the take-down of the gold price using derivatives than I would about where the price of gold will be in 3-6 months.  I’ve always said that the occurrence of events triggering the price of gold to soar  will make life unpleasant for everyone.

The explosive questions the gold riggers won’t answer-and the press won’t ask

Over the years, I’ve asked several skeptics of the idea that Central Banks and Governments, using the bullion banks as their agents, manipulate the gold price this question:   The Big Banks have been convicted and fined numerous times for manipulating interest rate and currency markets.  Is it realistically conceivable given this fact that they would leave the gold market alone?  The question, of course, is rhetorical and I’ve yet to receive an answer.

The answer is obvious to anyone who has looked at the facts.  I have written several articles with Paul Craig Roberts detailing how the manipulation is executed on the Comex and the motivation behind the manipulating the gold market.  Remarkably, there are public notes of a meeting chaired by Henry Kissinger in 1974  that discusses the importance of removing gold completely from the monetary system which is conveniently ignored.

The following is a re-post of an article posted by GATA’s Chris Powell. Even if you have your had in the sand and refuse to believe that Central Banks and Governments manipulate the global gold market using paper gold derivatives, at least brush the sand out of your eyes and read this carefully:

How easy it would be for any major financial news organization or trade association to confirm, expose, and combat the rigging of the gold market by governments and central banks. Such an effort could start with the documentation, most of it from official sources, collected by GATA and compiled here: Taxonomy

Everything could be nailed down to the present moment by a few specific questions put to the key participants in the rigging. These questions already have been prepared and posed, just not publicized enough.

— Three months ago U.S. Rep. Alex X. Mooney, R-West Virginia, wrote to the secretary of the treasury and the chairman of the Federal Reserve asking what the U.S. government’s policy on gold is and whether it remains, as government records from years ago establish, to drive the monetary metal out of the world financial system. Mooney also asked whether the U.S. government, directly or through intermediaries, like the Bank for International Settlements, trades in gold and gold derivatives and what the purposes of any such transactions are. Mooney’s letter is posted at GATA’s internet site here: Mooney Letter

Mooney has received no response.

– Last November GATA put similar questions to the BIS. What, GATA asked, is the purpose of the gold swaps and derivatives purchased and sold by the bank and the purpose of the bank’s involvement in the gold market generally?

The bank replied promptly but only to say it would not answer the question: BIS Letter

— Five weeks ago your secretary/treasurer and GATA consultant Harvey Organ wrote to the comptroller of the currency in the Treasury Department, Joseph M. Otting, whose office regulates the banking industry, calling attention to the recent explosion in use of the emergency procedure of “exchange for physicals” to settle gold and silver contracts issued on the New York Commodities Exchange by government-regulated banks. The financial risks undertaken by the banks in these transactions, GATA wrote, apparently were not being reported to the comptroller.

GATA’s letter concluded: “Could you review this matter and let us know your conclusions?” The comptroller has not responded.

Please click here to read the rest – it’s worth the time spent:   Unanswered Questions About Official Gold-Rigging

What’s Going On With Gold?

Several of us who stick our neck out in public with analytic opinions on the market have been thinking  that gold has reached a tradable bottom.  I’m sure many would say that view is flawed based on today’s action.  Let me preface my thoughts by saying that, over the last 17 years of daily active involvement in the precious metals sector, I don’t pull my hair out over intra-day or even intra-year volatility.  Measured from the beginning of 2002, gold is up 441% while the S&P 500 is up 158%.

The point here is that, given how easy it is to print up paper gold contracts and flood the market, the price of gold can do anything on any given day. If you want to own gold for the reasons to own gold, you have be play the long game. The mining stocks do not seem to care about the day-to-day vagaries of the gold price right now. You shouldn’t either.

The trading pattern in gold is somewhat similar to its trading pattern in the summer of 2008, right before the great financial crisis (de facto banking system collapse) was set in motion.   The price of gold was taken down from $1020 in mid-March to $700 by October, while the financial system was melting down. That set up gold’s record run to $1900 over the next three years.

It’s becoming obvious to anyone who chooses to not put their head in the sand or become intoxicated with the copious amounts of official propaganda, that the U.S. Government is technically bankrupt and the financial bubbles fomented by a decade of money printing, credit creation and near-zero interest rates are about to explode.  It’s not coincidental that gold was slammed ahead of Congressional testimony by Fed-head Jerome Powell, one of the primary propaganda-spinning hand-puppets.

Gold started rolling downhill after the London a.m. fix. Right after it. The cliff-dive occurred as the Comex floor was opening. This is a pure paper operation. It’s either the hedge funds or the banks piling into the short-side of the market by flooding the market with paper gold and hitting all bids in sight. The managed money category of trader segment in the COT report has been getting net short and more net short the last two weeks. Hedge funds could be shorting even more paper gold, trying to push it further downhill to book profits on their shorts. OR it could be the banks piling into the short side but hide this by booking the trades they report to the CME (daily o/i) and the CFTC (weekly COT) into the managed money trader account in the COT report.

The latter is entirely possible. JP Morgan was already caught once doing this in silver. If you don’t trust the Government to report the truth, why would you trust the banks to report the truth? After all, the banks ARE the Government.

Today’s action has nothing to do with the $/yuan to gold relationship or the $/yen to gold relationship. The dollar is higher and gold usually trades inversely to the dollar. Gold likely is being managed like this to help disguise the coming financial and economic bombs that are set to explode – just like in 2008.

We’re dealing with a system in which banks and other big corporations control the Government and there is no RULE OF LAW whatsoever. Think about what you would do if you completely lacked a moral compass and were in control of the system, to a large degree. You would do exactly what they are doing. And I’m not talking about just gold. It’s everything. They have used debt to put the squeeze on the population.