U.S. Labor Market Reports: Someone Is Lying

The propaganda laced with bold lies is enveloping the media. The JOLTS report (Job Openings and Labor Turnover)  released today alleges that the number of job openings in April hit a record.   Of course, the April number was based on large revisions to previous data.  The number reported is also “seasonally adjusted” and predicated on statistical inferences.   In fact, 6.7 million allegedly vacant jobs is not only an all-time high but it also exceeds the number of “unemployed” in the Government’s monthly employment “report.”

How do we know both the reported job vacancies and unemployed are an outright fabrication?  Because wages would be soaring.  It’s simple supply/demand economics.  According to the Government, the demand for employees far exceeds the supply of workers.  But if this were case, the price of workers would be rising quickly.  It’s not.

Last Friday the Government reported Friday morning that the economy added 223,000 jobs, exceeding the Wall St. estimate of 190k. I go from general indifference to outright disgust with the payroll report. But Friday’s report was jaw-dropping horrification. Early Monday before the report hit the tape, Trump – who was briefed on the numbers Thursday evening – tweeted that he was “looking forward to seeing the employment numbers at 8:30 a.m.” I assumed the day before that the report would be rigged, but that confirmed it.

Here’s the problem with the 3.8% narrative: a “tight” labor market at theoretic “full employment is not confirmed by the “price of labor” – i.e. wages.

A 4% unemployment rate is considered “full employment.” The alleged unemployment rate has been running at 4% or lower for several months. But this story-line is not confirmed by wage growth. If the economy were at full employment accompanied by a “tight labor market,” wages should be soaring. Not only is wage growth dropping toward zero, it’s lower than the average wage growth shown in the chart going back to 1998.

The numbers and narrative as presented by the Government are simply not credible. The BLS statisticians removed another 170k from the labor force. The number of working age people not counted as part of the labor rose to 95.92 million – an all-time high. The labor force participation rate is 62.7%. Outside of Sept 2015-November 2015, this is the lowest level for the labor force participation rate since February 1978. Back then most families had one wage-earner per household.

Additionally, there are 102 total working age people who are either unemployed (6.1 million) or “not in labor force” (95.9 million). That’s 31.3% of the total U.S. population (Census Bureau: 2017 U.S. population 325.7 million). Of the 155 million people reported to be employed, 27 million are part-time. This means 39.2% of the total U.S. population works full-time, assuming that number is remotely accurate. Good luck to the Government keeping the Social Security Trust funded…

As for the most glaringly fraudulent aspect of the report, the BLS reports that “retail trade” was the 2nd largest producer of jobs in May. How is that heavenly possible? Retail sales are sagging and serial bankruptcies in brick/mortar retailing are dumping retail labor onto the market. There are other glaring inconsistencies with economic reality on Main Street. One number, however, that might be realistic: Health care/social assistance is credited with providing 31.7k new jobs. That is possible because the category is primarily Government jobs.

One last point. The birth/death model – which is reported before seasonal adjustments – is credited with throwing in 215,000 jobs into the total pool, which is then statistically “adjusted.” The BLS statistical sausage grinder spit out 223k jobs, of which the Birth/Death model contributed the majority on a non-adjusted basis. It’s just not a credible statistic. As we know, the Govt uses the birth/death “model” as a “plug” to create jobs that exist only on paper.

The chart above is the employment-population ratio. It shows the number of people “employed” as a ratio of the total working-age population. Prior to the 2008 financial crisis, the current employment-population ratio is the lowest going back to 1985. The ratio appears currently to be peaking. As it turns out, the four previous peaks in this ratio were followed by an economic/financial crisis and a severe stock market sell-off. My guess is that you will not see this graphic presented on CNBC, Fox Business, Bloomberg or any of the other mainstream financial media outlets.

Economic Collapse, Overvalued Stocks And The Stealth Bull Market In Gold

The narrative that the economy continues to improve is a myth, if not intentional mendacious propaganda. The economy can’t possibly improve with the average household living from paycheck to paycheck while trying to service hopeless levels of debt. In fact, the economy will continue to deteriorate from the perspective of every household below the top 1% in terms of income and wealth. The average price of gasoline has risen close to 50% over the last year (it cost me $48 to fill my tank today vs about $32 a year ago). For most households, the tax cut “windfall” will be largely absorbed by the increasing cost to fill the gas tank, which is going to continue rising. The highly promoted economic boost from the tax cuts will, instead, end up as a transfer payment to oil companies.

The rising cost of gasoline will offset, if not more than offset, the tax benefit for the average household from the Trump tax cut. But rising fuel costs will affect the cost structure of the entire economy. Furthermore, unless businesses can successfully pass-thru higher costs connected to high the er fuel costs, corporate earnings will take an unexpected hit. Rising energy costs will hit AMZN especially hard, as 25% of its cost structure is the cost of fulfillment (it’s probably higher because GAAP accounting enables AMZN to bury some of the cost in the inventory account, which then becomes part of “cost of sales”).

Gold is holding up well vs. the dollar. The dollar is at its highest since mid-November and the price of gold is trading 2% higher than it was at in November. Also, don’t overlook that the Fed began its snail-paced interest rate hike cycle at the end of 2015. Gold hit $1030 when the Fed began to tighten monetary policy. I thought gold was supposed to trade inversely with interest rates (note sarcasm). Gold is up nearly 30% since the Fed began nudging rates higher. Despite that it might currently “feel” like the price of gold is going nowhere, beneath the surface gold (and silver) have been staging a very powerful bull market pattern.

Kerry Lutz invited me onto his Financial Survival Network Podcast to discuss these issues and more. We have a good time catching up on a diverse number of topics – Click on the link below to listen or download:

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

Mining Stocks Are Historically Undervalued

The mining stocks are more undervalued relative to the S&P 500 than at any time since 2005:

The mining stocks, especially the juniors, are more undervalued relative to the price of gold than at anytime in the last 18 years except late 2000 and December 2015. The poor sentiment and the constant price-capping of the sector by official entities has destroyed investor sentiment toward the sector. But the good news is that there are some incredible to be found right now. One of the stocks I recommended in my Mining Stock Journal is up 35% since May 17th, when I recommended purchasing it.

Bill Powers of MiningStockEducation.com invited me on to his insightful podcast show to discuss, among other topics, the precious metals sector and some specific mining stock ideas:

I truly believe that investing in certain stocks right now is the equivalent of buying into the internet stocks that survived the Dot.Com bubble. You can learn more about the Mining Stock Journal by following this link –   Mining Stock Journal information.

WTF Just Happened? Elites Scramble to Disable the Italian Economic Landmine

Italy is financially disintegrating.  The banking world would not care except for one small detail:  If Italy defaults in its debt obligations, it will set off a daisy-chain of OTC derivative credit default swap defaults resembling a financial nuclear holocaust.  This chart of Deutsche Bank’s stock price reflects the growing risk of this event:

Deutsche Bank has been hitting all-time lows since its listing on the NYSE in October 2001. The systemic risk posed by a financial collapse of Deutsche Bank is enormous. Yet, it should be allowed to occur to prevent the continued transfer of U.S. and European taxpayer money to fund DB’s payroll and large bonuses. The schizophrenic volatility of the stock markets is further reflection of the underlying financial volcano in danger of erupting.

In the latest episode of WTF Just Happened, Eric Dubin and Dave Kranzler discuss ongoing financial collapse of Italy and the likely method employed by the Fed, ECB, and BIS to keep the banking system corpse on life support (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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Visit these links to learn more about the Investment Research Dynamic’s Mining Stock Journal and Short Seller’s Journal.  I recommended Almadex Minerals at 28 cents in April 2016 – it closed Friday at $1.13.  I recommended shorting Hovnanian at $2.88 in January  – it closed at $1.89 on Friday and has been as low as $1.70.

No Virginia: The Falling Housing Market Isn’t About Tight Inventory

The National Association of Realtors released its monthly  “Pending” home sale report for April this morning.  It fell 1.3% from March.  The Wall Street analytic “brain trust” was looking for a 0.4% gain.  The housing data is repetitively coming in well below Wall Street forecasts. This is emblematic of the unrealistic amount of “hope” built into the psychology of the American investor, who wants badly to believe anything he is told by “experts.”  A cynic might say it’s adverse denial of reality…

The NAR’s chief pimp, Larry Yun, once again is blaming the bad numbers on shortages of homes across the country.  This narrative is the pinnacle of mendacity.  Too be sure, in certain “hot” areas, there is a shortage of sub-$500k homes.  Blame the Government, which has made available Taxpayer-backed mortgages to anyone who can fog a mirror – see this article, for instance.  And blame the flippers, who are snapping up low-priced homes on the hope that they can turn it around and sell it to one of the fog-the-mirror buyers using a Government subsidized mortgage.

In truth, a recent survey showed that more than 50% of the inventory nationwide is in the high-priced (over $750k) price segment.  And prices are falling in most markets in this category, led by New York City (all five boroughs), which is starting to get decimated.

XHB is an ETF that tracks the S&P Homebuilders Select Industry Index. Lowes and Home Depot are the largest holdings. Pulte (PHM), NVR Inc (NVR) and DR Horton (DHI) are the next three largest holdings. Like the DJUSBH, it’s a mix of homebuilders and housing market-related stocks (building construction suppliers, etc).

Recently there’s been some extraordinarily large put positions purchased on XHB (XHB closed at $39.11 on Friday). For instance, on Monday and Tuesday last week, someone bought 2,200 and 2,500 June 15th $40-strike puts. There’s 4,551 June 15th $38-strike put open interest as well. These numbers substantially outnumber the open call options for the June 15th expiry. There’s 15,033 of open interest in the September $35’s, with 4,400 of those purchased this past Thursday. The largest September call open interest is 1,393 $42’s.

The point here is that some entities – probably a few hedge funds – are making a rather large bearish bet on the housing sector. It’s hard to know if the puts are being used to speculate or as a hedge. Either way, the sheer volume of puts purchased reflects heavy bearish sentiment toward the sector.

Peak flipping? I also strongly suspect that the NAR skews its data-sample toward the lower-price market segment. In other words, if it included a higher percentage of over $750k homes in its data-collection and sales calculation, the existing home sales number for April would have been lower. It’s the magic of statistics. I would also suggest that there was probably some sales “pulled forward” out of fear of rising interest rates. Typically there’s a surge in homebuying when interest rates begin to rise. Certainly the mortgage brokers are pitching the “buy now before rates go higher” story.

On a seasonal basis, home sales should be rising from March to April, even on a seasonally adjusted annualized rate basis. Furthermore, the prospect for May – assuming the NAR does not pull any statistical chicanery – is not good. How do I know? Because mortgage purchase applications have been down 5 weeks in a row. Four of the past five weeks, purchase apps were down 2% each week and one week was down 0.2%. This is why the XHB is down 15.6% since peaking in late January. Some of the homebuilders I’ve been recommending as shorts are down north of 20%. They still have a long way to drop.

My Short Seller Subscribers and I are raking in easy money shorting and buying puts on individual homebuilders. I discuss timing and options strategies. I also disclose my trades.  I also present data and analysis that you won’t find in the mainstream or alternative media.  You can learn more about this newsletter here:  Short Seller’s Journal information.

SSJ provides outstanding practical advice for translating a company’s bottom line fundamentals into $$’s. Whether you’re a buy and hold long term investor or short term trader (or both), you’ll find all kinds of helpful advice on portfolio management, asset allocation and short term/long term options strategies. Really can’t recommend SSJ enough! Thanks Dave for your great service!   – John

Getting Rich On Taxpayer-Backed Subprime Mortgages

A branch manager gets home loans for borrowers with weak credit or low incomes—and taxpayers back him up.Bloomberg.com

Bloomberg News featured a story today that I find to be an outrage. It seems that some punk kid in Houston – Angelo Christian – has recreated the Jordan Belfort story (“The Wolf Wall Street”) using subprime quality, Government-backed mortgage.

The Government now guarantees mortgages which require no money from the buyer’s pocket for a down payment, a 50% DTI (monthly total debt payments = 50% of pre-tax personal income), no income restrictions and will finance down to a 580 credit score. Someone with a 580 score has a track record of debt default, serial delinquency and, quite likely, a recent bankruptcy:

This would-be homeowner has a 596 credit score, putting him in the subprime range. His car has been repossessed, something that would likely disqualify him at the Bank of America branch next door.

“Usually a repo that’s like three years old, we’re not really going to sweat that,” he assures the caller. “We’re pretty lenient here.” He steers his prospect to several $400,000 homes with swimming pools. “Have your wife check that out,” he says, referring to a remodeled kitchen with granite countertops. “She’s going to love it.”

Christian works for American Financial Network, which underwrites, funds and services the entire spectrum of Taxpayer-guaranteed mortgage programs:  Fannie Mae, Freddie Mac, FHA, VHA and USDA (yes, the USDA guarantees “rural area” zero-percent down mortgages).  AFN receives fees up to 5% – or $15,000 – a on $300,000 mortgage.  This in and of itself is an outrage because it takes zero skill to underwrite a Government-backed mortgage.

“Zero-skill,” that is, unless fraud is involved.  I’m not accusing AFN of fraudulent activity, however, as we witnessed during the Big Short housing bubble, fraud was oozing from every crevice in the U.S. mortgage underwriting industry.   And subprime mortgages pumped and dumped by a character like Angelo Christian are usually the standard breeding ground for unscrupulous behavior.

Even Bloomberg expressed skepticism:  “This kind of lending echoes the subprime mortgage boom that preceded the credit crisis of 2008.”

In civil fraud complaints, the Department of Justice has accused many companies, including Quicken and Freedom Mortgage, of improperly underwriting FHA loans and then filing claims for government insurance after borrowers defaulted. In 2016, Freedom Mortgage settled for $113 million, without admitting liability.

Angelo Christian and American Financial Network use Taxpayer guarantees to underwrite mortgages with an elevated probability of default and yet, they bear zero risk.  They pocket a big fee-skim upfront and face no consequences when the 580 FICO score borrower declares bankruptcy – again.  Just for the record, after accounting for a 0-3% down payment plus all transactions costs – which approximate 10% of the cost of the home – these mortgages are upside-down vs. the value of the “net” value of the house at close.  Not a good business deal for the Taxpayers.  

FHA loans are now experiencing a 30-day or more delinquency rate with nearly 10% of its loans.  Fannie Mae and Freddie Mac combined wrote-down over $15 billion worth of loans in Q4 2017.  They required a $4 billion cash infusion from the Government (taxpayer) as a result of both accounting and cash losses.

This is going to get worse.   But until this collapses again – and it will – mortgage brokers like Angelo Christian are proliferating.  They employ a salesmanship resembling that of dirty boulevard used car salesmen (“we finance any credit / bankruptcy o.k.”) as a means of transferring a massive amount of money from the Taxpayer to their own pockets.

I would urge everyone to read this Bloomberg article so you can read about how Angelo uses taxpayer-funded fees to pay for his fancy sports cars in exchange for pushing subprime mortgages destined to blow-up onto people who have no hope of supporting the cost of home ownership on a sustainable basis.

 

Is Emerging Market Turmoil Deutsche Bank’s “Black Swan?”

Rising energy prices and collapsing emerging currencies are two developments that are not receiving much attention in the mainstream propaganda narrative. But either development which could end up “pulling the rug” out from underneath the markets.

I pieced together the graphic to the right from an article on Zerohedge about the developing currency and debt crisis in emerging markets and, specifically, Latin America. This topic is not receiving much attention from the mainstream financial media. I guess facts that undermine the “strong economy” narrative go unreported. If it’s not reported, it doesn’t exist, right?

The top chart shows the abrupt plunge in an index of emerging market currencies. But most
of that decline is attributable to the plunging currencies in Latin America. Currently the Brazilian real is in free-fall, followed closely by the Mexican peso.

The bottom chart shows an index of emerging market debt prices. The index has plunged over 6 points, or nearly 7% since mid-April. In terms of bond prices, that’s a mini-crash. And that’s an index. Individual bond issues are getting massacred.

I was trading junk bonds in 1994 when the emerging market debt crisis hit hard in late January. Prior to that, emerging market debt issuance had just been through a mini-bubble. The money pumped into the system by Greenspan to “save the markets” from the collapse of Drexel Burnham and the related S&L collapse, plus to save the markets from the blow-back from the collapse of Russia, precipitated a mini-boom in high yield and emerging market debt.

The crisis started with a loss of confidence in the Mexican banking system and quickly spread like the flu throughout Latin America. The effects soon spilled-over into the U.S. markets. Between January and the end of March 1994, the Dow plunged 10.6%. The credit markets were a mess, especially the junk bond market. A friend of mine on the EM desk at BT was worried about losing his job.

It’s impossible to know the extent to which Central banks are working to prevent the current EM crisis from spreading, but at some point there will be a spillover effect in our markets.

As everyone knows, Deutsche Bank has resumed the collapse that started in 2008 before the Fed, ECB and Bundesbank combined to keep DB from collapsing.  Why was DB saved? Because DB’s balance sheet likely represents the largest systemic risk to the global financial system.   It has been burning furniture for years and now the bank is unloading more than 10% of its workforce as well as dismantling its North American and Investment Banking operation.  25% of the equity sales and trading personnel are being elimated.

No one outside of DB has any possibility of understanding DB’s OTC derivatives book. It’s highly probably that DB insiders do not understand the scale of counter-party risk exposure.   When DB acquired Bankers Trust, Anshu Jain took the emerging market derivatives business and injected it with steroids. Why? Because the fees were enormous.

On top of this, DB has enormous exposure via credit default swaps to the risky southern European financial systems.   A good friend of mine has reason to believe that if Italy goes into a tail-spin, it could take DB down with it.

In truth, we don’t know how bad the situation is inside DB because the financial reporting requirements imposed on banks have been substantially rolled-back over the last several years.   However, really bad news began to leak out on DB about the time the LIBOR-OIS spread began to rise and the dollar began to rise quickly.   The misdirection propaganda attributed this to corporate dollar repatriation connected to the Trump tax cuts.   Now the cost to buy credit protection on DB debt is starting to soar.  Credit default swaps have become the financial’s new “smoke alarm.”

DB’s stock is down nearly 39% since December 18, 2017. Since mid-January 2014, DB stock is down 78%.  Not sure why this fact doesn’t get coverage from the mainstream financial media other than the fact that it throws a wet blanket on the warm and fuzzy “synchronized global recovery” fairytale.

Gold And Silver Are Extremely Undervalued

Patrick Vierra of Singapore Bullion invited me to discuss precious metals, the stock market and the fiat currency-fueled asset bubbles that will blow-up sooner or later.  I explain why investing in gold requires a long term perspective on investing and wealth preservation, why gold and mining stocks are extremely undervalued right now and why the world wants out of the U.S. dollar.

Singapore Bullion is Singapore-based bullion dealer and bullion storage facility with a wide-array of products and services – the podcast is ad-free:

01:37 Gold – A Long Term Perspective
08:14 Was 2015 the bottom for gold price?
13:14 Gold – One of the Best Performing Assets
14:45 Bullion vs Mining Stocks
17:10 Gold is very undervalued right now
19:20 The COMEX cycle that impacts the gold price
21:47 Silver will outperform gold
25:00 How overvalued are the stock markets
30:11 How every U.S pension funds will ‘blow up’
32:40 The ratio of paper to physical gold
35:01 Housing bubble rearing its head again
39:51 “Trump loves debt!”
41:09 Fed rate hike to prick the housing bubble?
45:25 The world wants out of the dollar

You can learn more about my research and stock idea newsletters here:

MINING STOCK JOURNAL                                     SHORT SELLER’S JOURNAL

The Mining Stock Journal is twice per month, every other Thursday evening. The Short Seller’s Journal is weekly, every Sunday evening. The last mining stock purchase recommendation (May 17th issue) is up 10.5% in the last five trading days. It’s going higher – a lot higher.  My Short Seller’s Journal subscribers have been raking in the profits in my homebuilder short ideas.

Homebuilder Stocks: A Short-Seller’s ATM

Someone or some entity – likely a hedge fund – bought 4500 September $35-strike puts on XHB on Thursday last week when XHB was trading just above $39. That’s a $225,000 speculative bet that the XHB drops more than 15% by mid-September.

This morning Toll Brothers stock plunged over 7% this morning after reporting its FY Q2 earnings, missing the Wall Street brain trust consensus estimates on both revenues and income. Deliveries are slowing down, expenses are soaring (energy and lumber)and asset write-downs are accelerating. On top of this, TOL’s debt and inventory levels continue to rise.

Typical of developers, TOL will continue to use other people’s money to speculate on real estate until the market crashes, leaving creditors and shareholders holding the bag. The Company bought back 1.8 million shares. TOL has repurchased 6.2 million in its fiscal YTD. Into this buyback, insiders have dumped nearly 800,000 shares. Not one share was purchased by insiders.

I’ve been recommending shorting the homebuilders in my Short Seller’s Journal for several months. Many of my subscribers and I are making a lot money with both short term scalps and longer term puts. The best part of about this is that very few market players trade the homebuilders. This makes it easier to take advantage of inefficient price-discovery. As an example, Zack’s Equity Research was looking for an upside surprise and spike-up in the stock as recently as yesterday.

TOL’s contract cancellation rate, which has been historically well below average, rose substantially (at least for TOL) in its latest quarter, as explained by Aaron Layman, of Aaron Layman Properts:   TOL Trips On Higher Cancellation Rate.

The homebuilders are historically overvalued, especially in relation to the level of unit sales, which are still about  50% below the peak in 2005.  They also have a lot more debt and inventory relative to the unit rate of sales.  Shorting the homebuilders is the easiest area of the market to make money right now.

You can learn the truth the about the condition of the housing market and why homebuilders are down double-digits percentages this year by clicking here:  Short Seller’s Journal information.   In addition to shorting shares, I make suggestion on using puts and market timing (I use puts).  I also report every put trade I make in each issue.

 

WTF Just Happened? Gold, The Dollar And Interest Rates

What’s going on with gold, the dollar and interest rates – especially gold?  All of the variables that fundamentally support much higher gold prices are lined up perfectly.  Why isn’t gold moving higher?  The popular narrative in the mainstream financial media would leave one to believe that the dollar is soaring.  Eric and Dave put a big dent in that notion.  Additionally, in a long-term historical context, the recent rise in interest rates is tiny, yet marginally higher interest are already wreaking havoc on the economy (retail, auto and home sales).   What’s going to happen to the economy when the 10-yr Treasury hits 4%, which is still well below its long-run historical norm? (click on image to enlarge)

Eric Dubin and Dave Kranzler dig into these topics in the next 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):

Visit these links to learn more about the Investment Research Dynamic’s Mining Stock Journal and Short Seller’s Journal.  I recommended Almadex Minerals at 28 cents in April 2016 – it closed Friday at $1.13.  I recommended shorting Hovnanian at $2.88 in January  – it closed at $1.89 on Friday and has been as low as $1.70.