Why Did Obama Bend Over For The Criminal Big Banks?

My good friend and colleague, John Titus, was hosted on the Keiser Report to discuss his film, All The Plenary’s Men, in which Titus documents the process by which the Obama Government enabled the Too Big To Fail Banks to commit crimes in the United States with total impugnity, “which makes them more legally powerful than the Government:”

New Home Sale Reporting Borders On Fake News

Headline monthly reporting of New Home Sales remained of no substance, short term, as seen most frequently here with massive, unstable and continuously shifting revisions to recent history, along with statistically – insignificant monthly and annual changes that just as easily could be a gain or a loss.  – John Williams, Shadow Government Statistics

If anyone has the credibility and knowledge to excoriate the Government’s new home sales reporting, it’s John Williams.  The Census Bureau’s data collection has been marred historically with scandals and severe unreliability.  The reporting for new home sales is a great example.

New home sales represent about 10% of total home sales – i.e. the National Association of Realtors has about 9-times more homes for which to account than the Government.  And yet, the monthly reporting of new home sales has considerably more variability and less statistical reliability.  It is subject to  much greater revisions than existing home sales. How is this even possible considering the task of tabulating new homes sold is far easier than counting existing home sales?

Today’s report is a perfect example.  The Census Bureau reports that new home sales increased 2.9% over April. Yet, at the 90% level of confidence, new home sales might have been anywhere from down 10% to up 15%.   Care to place a wager on real number considering that spread?   April’s number was revised upward by 24k, on a SAAR basis.

Speaking of the SAAR calculation, it’s amusing to look at what that can do to the number. The seasonally adjusted annualized rate number takes a statistical sample, which in and of itself is highly unreliable, and puts it through the Government’s X-13ARIMA-SEATS statistical sausage grinder.  Then it takes the output and converts it into an annualized rate metric. Each step of the way errors in the data collection sample are multiplied.

I’ve never understood why the housing industry doesn’t just work on creating reliable monthly data samples that can be used to estimate sales for a given month and then simply compare the sales to the same month the previous year. There is no need to manufacture seasonal adjustments because the year over year monthly comparison is cleansed of any possibly unique seasonality for a specific month.  Go figure…

To make matters worse, new home sales are based on contracts signed.  Often a down payment, and almost always financing, are not yet in place.  The contract cancellation percentage rate for new homes typically runs in the mid-to-high teens. By the way the Census Bureau does not incorporate cancellations into its data or its historical revisions.

To demonstrate how the seasonal adjustments magically transform monthly data into many more thousands of annualized rate sales, consider this:  the not seasonally adjusted number – which is presented at the bottom of the CB’s report and never discussed by the media or Wall Street, is 58,000.  In increase of one thousand homes over April’s not adjusted number.  And yet, the reported headline fake news number – the SAAR for May – wants us to believe that 610k homes were sold on an annualized rate basis, an increase of 17k SAAR over April.  It’s nothing short of idiotic, especially considering that the reported average sales price was 10% higher in May vs. April.  You can peruse the report here:  May New Home “Sales.”

One last point, if today’s reported number is even remotely correct, how come homebuilders have been cutting back on housing starts for the last 3 months?  The last time starts declined three consecutive months was late 2008.  In short, the new home sales report for May is, in all probability, borderline fake news.  At the very least, it’s yet another form of Government propaganda aimed at creating the illusion that the economy is stronger than reality.

The next issue of the Short Seller’s Journal – published Sunday evening – will focus on the housing market, which is getting ready to head south – possibly at a shocking rate.  Unfortunately, lenders, homebuyers, and the Government failed to learn from the previous housing bubble and now all the attributes of the previous housing bubble top are emerging. I will be reviewing the market in-depth and presenting some ideas to take advantage of historically overvalued homebuilder stocks.

The stock I featured in early April is down 13.2% through today despite a 6.5% rise in the Dow Jones Home Construction index during the same time-period. This particular company will eventually choke to death on debt.  The Short Seller’s Journal is a unique subscription and you can learn more about the Short Seller’s Journal here:  LINK

Anti-Gold Propaganda Flares Up

Predictably, after the gold price has been pushed down in the paper market by the western Central Banks – primarily the Federal Reserve – negative propaganda to outright fake news proliferates.

The latest smear-job comes from London-based Capital Economics by way of Kitco.com.   Some “analyst” – Simona Gambarini – with the job title, “commodity economist,” reports that “gold’s luck has run out” with the 25 basis point nudge in rates by the Fed.  She further explains that her predicted two more rate hikes will cause even more money to leave the gold market.

Hmmm…if Ms. Gambarini were a true  economist, she would have conducted enough thorough research of interest rates to know that every cycle in which the Fed raises the Funds rate is accompanied by a rise in the price of gold.  This is because the market perceives the Fed to be “behind the curve” on rising inflation, something to which several Fed heads have alluded.    In fact, the latest Fed rate hike, on balance, has lowered longer term interest rates, as I detailed here:  Has The Fed Really Raised Rates?

Furthermore, to which “gold market” is Ms. Gambarini referring?  There’s the fractional paper gold markets of NYC and London and the physical importation and bullion trading markets in the eastern hemisphere.   While she does indeed acknowledge the upswing in gold demand coming from India and China, she downplays its significance.  Currently India and China are importing more physical gold than at the same time last year.  Several other smaller markets have been actively importing significantly more gold now than at the same time last year (Turkey, for example).

Finally, Ms. Gambarini – unbelievably – states that “she sees less safe-haven demand supporting the market as geopolitical concerns have started to disappear.”  I don’t even know how to respond to that idiotic assertion considering that Russian and U.S. military jets are antagonistically engaged in the sky over the Middle East as I write this.  Either Ms. Gambarini is tragically incompetent at her chose profession or she is purposely propagating fake news.

If Ms. Gambarini was smart enough to do thorough research on the topic or was interested in reporting the truth, she explain that, at least 80% of the time, the gold price rises during Asian trading hours and falls during NYC/London hours, like today:

The mining stocks have been strong relative to the price of gold this week. My bet is that this reflects the likelihood that the latest price-takedown of gold in the paper market has run its course. The dramatic drop in Comex paper gold open interest, as well as a drop in the net short position of the Comex bullion banks and a drop in the net long position of the hedge funds (per the COT report), reinforces the signal transmitted by the mining stock this week.

Any flinch from the Fed in its alleged desire to tighten its monetary policy, or if a “spark” hits the growing geopolitical powder-keg in the Middle East, and gold will quickly shoot over $1300 on its way to much higher levels.

Oil, Gold and Bitcoin

The falling price of oil did not garner any mainstream financial media attention until today, when U.S. market participants woke up to see oil (both WTI and Brent) down nearly $2.  WTI briefly dropped below $43.   The falling price of oil reflects both supply and demand dynamics.  Demand at the margin is declining, reflecting a contraction in global economic activity which, I believe the data shows, is accelerating.   Supply, on the other hand, is rising quickly as U.S. oil producers – specifically distressed shale oil companies – crank out supply in order to generate the cash flow required to service the massive energy sector debt load.

I am quite surprised by the rapid fall of oil (WTI basis) from the $50 level, because I concluded earlier this year that the Fed was attempting to “pin” the price of oil to $50:

The graph above is a 5-yr weekly of the WTI continuous futures contract.  Oil bottomed out in early 2016 and had been trending laterally between the mid-$40’s and $55.  I read an analysis in early 2016 that concluded that junk-rated shale oil companies would implode if oil remained in the low $40’s or lower for an extended period of time.  Note that some of the TBTF banks who underwrote shale junk debt were stuck with unsyndicated senior bank debt (i.e. they were unable to find enough investors to relieve the banks of this financial nuclear waste).  Thus, the Fed has been working to keep the price of oil levitating in the high $40’s/low $50’s, in part, to prevent financial damage to the big banks who have big exposure to shale oil debt.

The problem for the Fed is that it can’t control the global supply of oil.  There’s too many players.  With oil pinned in that trading range, U.S. oil companies have been pumping out oil as quickly as possible.  The oil drilling rig count has risen for 22 weeks – Oilpro.com – the longest consecutive streak since 1987.  Rising production from the U.S. and elsewhere is keeping global stockpiles high, especially relative to demand.  As a result, you get chart of the price of oil that looks like the one above.  Oil is now well below both the 50/200 dma plus the RSI and MACD are pointing  straight south, indicating a high probability of lower prices for awhile.  Also, note the rising volume in conjunction with the falling price.  This is indicates that market participants have been and continues to be better sellers.

The Fed is thus unable to pin the price of oil to $50 on a sustainable basis.  Why? Because it has no control over the global supply and demand, which prevents control the price of oil for any meaningful period of time (just ask OPEC about that).  Similar to the Fed’s price-management of oil, the Fed has been keeping gold pinned under $1300 since early November in an effort to prevent a rising price of gold from undermining the dollar’s reserves status and signalling the escalating economic and financial distress in the U.S. This is despite rising demand for physical gold coming from numerous eastern hemisphere countries.  As long as the Fed (and western Central Banks) can continue delivering physical gold into the massive demand vortex in the eastern hemisphere, it can somewhat successfully manage the price.

Also similar to oil, the Fed has no control over the supply and demand of gold, except to the extent that the Fed/western Central Banks are still holding gold that can be leased out or custodial gold that can be hypothecated for the purpose of enabling a continuous flow of physically deliverable to gold the east.   But the difference between oil and gold is that the supply of mined gold is relatively fixed (and has been over a long period of time).  At some point the western Central Banks will run out of access to enough gold that can be delivered to buyers who paid to settle their purchases upfront.  At that point, the chart of the price of gold will look like the recent graph of Bitcoin, Ethereum, etc.

This brings up a quick point about the cryptocurrencies.   When the U.S. blocked Iran’s access to the SWIFT trade settlement system, India began to pay for the oil it imports from Iran with gold.  These were very large-dollar transactions. We have yet to hear any reports of sovereign nations using Bitcoin or other cryptos for payment to settle trade agreements. For me, this highlights yet another difference between the use of gold as a currency vs the cryptos.  I want to make it clear that I’m not in the anti-cryptocurrency camp, but I do believe that, ultimately, precious metals (gold and silver) are much more functional as a form of money than the cryptos.   Bitcoin debuted for peer-to-peer transactions in 2009. Gold has functioned for this purpose for over 5,000 years.  My preference in this situation is to bet big on the form of money that has pedigree.

The Housing Market Bubble Is Popping

As with all other highly manipulated data, the financial media has a blind bias toward the “bullish” story attached to the housing market. Understandable, as the National Association of Realtors spends more on special interest interest lobbying in Congress than any other financial sector lobby interest, including Wall Street banks.

New home sales were down last month, according to the Census Bureau, 11.3% and missed Wall Street’s soothsayer estimates by a rural mile. Strange, that report, given that new homebuilder sentiment is bubbling along a record highs. Existing home sales were down 2.3%. You’ll note that the numbers reported by the Census Bureau and NAR are “SAAR” – seasonally adjusted annualized rates. There is considerable room for data manipulation and regression model bias when a monthly data sample is “seasonally adjusted/manipulated” and then annualized.  You’ll also note that mortgage rates have dropped considerably from their December highs and May is one of the seasonally strongest months for home sales.

It’s becoming pretty clear to me that the housing market’s “Roman candle” has lost its upward thrust and is poised to fall back to earth. I believe it could happen shockingly fast. Fannie Mae released its home purchase sentiment index, which FNM says is the most detailed of its kind.

The report contained some “eyebrow-raising” results. The percentage of Americans who say it’s a good time buy a home net of those who say it’s a bad time to buy a home fell 8 percent to 27% – a record low for this survey. At the same time the percentage of those who say its a good time sell net of those who say its a bad to sell rose to 32% – also a new survey high. In other words, homeowners on average are better sellers than buyers of homes relative to anytime since Fannie Mae has been compiling these statistics (June 2010).

Currently the prevailing propaganda promoted by the National Association of Realtors’ chief “economist” is that home sales are sagging because of “low inventory.” He’s been all over this fairytale like a dog in heat. The problem for him is that the narrative does not fit the actual data – data compiled by the National Association of Realtors – thereby rendering it “fake news:”

The graph above shows home inventory plotted against existing home sales from 1999 to 2015 (note:  when I tried to update the graph to include current data, I discovered that the Fed had removed all existing home sales data prior to 2013).   As you can see, up until Larry Yun decided to make stuff up about the factors which drive home sales, there is an inverse correlation between inventory and the level of home sales (i.e. low inventory = rising sales and vice versa).   I’m not making this up, it’s displayed right there in the data that used to be accessible at the St Louis Fed website.

Furthermore, if you “follow the money” in terms of new homebuilder new housing starts, you’ll discover that housing starts have dropped three months in a row. The last time this occurred was in June 2008.   IF low inventory is the cause of sagging home sales – as Larry Yun would like you to believe – then how come new homebuilders are starting less homes? If there’s a true shortage of homes, homebuilders should be starting  as many new units as they can as rapidly  as possible.

Although the Dow Jones Home Construction Index is near a 52-week high – it’s still 40% below it’s all-time high hit in 2005.  Undoubtedly it’s being dragged reluctantly higher by the S&P 500, Dow, Nasdaq and Tesla.   Despite this, I presented a homebuilder short idea to subscribers of the Short Seller’s Journal that is down 13.6% since  I presented it May 19th.  It’s been down as much as 24.2% in that time period.   It is headed to $7 or lower, likely before Christmas.  I also  presented another not well followed idea that could easily get cut in half by the end of the year.

The next issue of the Short Seller’s Journal will focus on the housing market.  I’ll discuss housing market data that tends to get covered up by Wall Street and the media. I have been collecting some compelling data to support the argument that the housing market is rolling over…you can find out more about subscribing here:  Short Seller’s Journal info.

In the latest issue released yesterday, I also reviewed Amazon’s takeover of Whole Foods:

I just read it and the analysis on Amazon is awesome. This has the potential to be the short of year when the hype wanes and reality sets in – subscriber, Andreas

GDXJ: Myth vs. Reality

Many of you have contacted me about the sell-off in GDXJ and upcoming re-balancing that will occur at the end of this week (I think). First of all, thank you for your inquiries and please feel free to email me with questions/ideas. The only “dumb” question regarding gold, silver and mining shares is, “should I own any?”

First I wanted to highlight the difference between fact and “propaganda.” The propaganda has led many to believe that the rebalancing of the GDXJ has exerted undue pressure on the mining stocks as a whole and on the GDXJ components specifically. However, a simple graphic analysis differentiates fact from fiction:

The graph above compares GDXJ, the HUI (green line) and GDX (purple line) since the GDXJ rebalancing was announced to the market on April 17th. As you can see, over the time since the GDXJ rebalance was announced, GDXJ has performed in-line with rest of the sector. I was a bit surprised when I ran that chart. In fact, on a YTD basis, GDXJ’s rate of return is almost identical to that of the HUI and GDX:

So where does this leave us? The entire sector has moved lower since early February. Maybe this was in anticipation of the GDXJ rebalancing “whispers” and maybe not. Often the miners will be hit before a manipulated take-down of the gold price is implemented. That narrative fits the chart above as well.

It’s important to distinguish the difference between the propaganda and truth, because that’s where money can be made in the markets. The truth is that the sector has sold off after a nice move from the mid-December 2016 low. But I also believe that the market is setting up for another big move into the 3rd and 4th quarters. It may take all summer for this to materialize, but the economic, financial and geopolitical fundamentals, as they are unfolding, weigh heavily in favor of big move higher in the precious metals sector.

One other point I would like to make – something that you WILL NOT HEAR from Wall Street or from Rickards or from the financial media: since bottoming in mid-December, the HUI is up 14.7%, GDX up 16.1% and GDXJ up 15.3% vs the S&P 500 which is up 7.7%. The mining stocks, since bottoming in mid-December, have outperformed the S&P 500 over the same time period through today (June 15, 2017).

Several of you have asked for ideas on the stocks in the GDXJ index that are “oversold” due to the rebalancing. As I’ve just demonstrated graphically and with ROR numbers, GDXJ has not really sold off since mid-April anymore than the larger-cap mining stocks in the HUI index and in GDX. Those are the numbers. I can’t make those up. It’s “narratives” that are fabricated.

Having said that, I did present two ideas in the Mining Stock Journal which happen to be in the GDXJ.  One is up 6% since May 4th – and it has a lot higher to move – and the other is up 20% since June 1st, with a lot more left in the move.

A subscriber told me yesterday that a well-known subscription service that costs $1500/year is promoting 3 ideas from GDXJ.  This is probably one of the services that is promoting the idea that the GDXJ has been hit unusually hard. I’ve shown above that idea is a false narrative.  The Mining Stock Journal is $20/month with no minimum commitment.  Subscriber turnover is exceptionally low for a reason.  You can find out more about it here:  MSJ Subscription Info.

Has The Fed Actually Raised Rates This Year?

The answer is debatable but it depends on, exactly, to which rates you are referring.  The Fed has “raised,” more like “nudged,” the Fed Funds target rate about 50 basis points (one-half of one percent) this year.  That is, the Fed’s “target rate” for the Fed Funds rate was raised slightly at the end of two of the four FOMC meetings this year from 50 to 75 basis points up to 1 – 1.25%.  Wow.

But this is just one out of many interest rate benchmarks in the financial system.  The 10-yr Treasury yield – which is a key funding benchmark for a wide range of credit instruments including mortgages, municipal and corporate bonds, has declined 30 basis points this year.  Thus, for certain borrowers, the Fed has effectively lowered the cost of borrowing (I’m ignoring the “credit spread” effect, which is issuer-specific).

Moreover, the spread between the 1-month Treasury Bill and the 10-yr Treasury has declined this year from 193 basis points to 125 basis points – a 68 basis point drop in the cost funding for borrowers who have access to the highly “engineered” derivative products that enable these borrowers to take advantage the shape of the yield curve in order to lower their cost of borrowing:

In the graph above, the top blue line is the yield on the 10-yr Treasury bond and the bottom line is the rate on the 1-month T-bill.  As you can see the spread between the two has narrowed considerably.

Thus, I would place the news reports that the Fed has “raised in rates” in the category of “Propaganda,” if not outright “Fake News.”

One has to wonder if the Fed’s motives in orchestrating that graph above are intentional. On the one hand it can make the superficial claim that it is raising rates for all the reasons stated in the vomit that is mistaken for words coming from Janet Yellen’s mouth;  but on the other hand, effectively, the Fed has managed to lower interest rates for a widespread cohort of longer term borrowers.

Furthermore, this illusion of “tighter” monetary policy serves the purpose of supporting the idea of a strong dollar and enabling a highly orchestrated – albeit temporary – manipulated hit on the gold price using paper gold derivatives.

To borrow a term from Jim Sinclair, the idea that the Fed has “raised rates” is nothing more than propaganda for the primary purpose of “MOPE” – Management Of Perception Economics.  On that count, I give the Fed an A+.

The Public Is Getting Pissed – Ignoring Rule Of Law

“If liberty means anything at all, it means the right to tell people what they do not want to hear.”   – George Orwell

There’s a narrative here that the Government, the Fed, the Trump Administration, etc conveniently ignored.  Here’s the headline list this morning:

  • GM Extends Plant Shutdowns
  • 2nd Quarter GDP Hit As Inventories Tumble In April
  • Retail Sales Tumble Most Since January 2016
  • Pension Crisis Escalates
  • House Majority Whip Shot At Congressional Baseball Practice

Real Clear News reported that Representative De Santis stated to police that the shooter asked “whether Republicans or Dems were on the field before shooting.”  Fox News has confirmed  the report.

The public is getting pissed.  It is told daily, on no uncertain terms, by the White House that the economy is rapidly improving.  The Fed confirms that the economy is improving.  Wall Street chimes in confirming that “narrative.”

The public is told that the unemployment rate is under 5% and the labor market is tight.  But 95 million people in the working age population don’t have jobs.  They are not considered part of the “Labor Force” and have been removed from the statistics altogether by some BLS bureaucrat’s pencil eraser. To be sure, maybe 1/3 or even 1/2 of those people don’t want to work or need to work for some reason (wealthy, wealthy and lazy, inherited income, public assistance of some form, etc).  But 1/2 to 2/3’s of those people would like to find a job that doesn’t entail delivering pizza or washing dishes – in other words, jobs that pay to support a family.

A growing portion of the population understands the underlying truth about the economy that exists behind the propaganda and lies. And they are getting pissed. It’s become clear to anyone desperate enough in their fight to get by that the politicians, corporate elitists and Wall Street crooks are no longer beholden to Rule of Law.   The conclusion for the growing legion of desperate is obvious:  “why should we adhere to Rule of Law?”

At least this time the Deep State can’t shove the “it was ISIS” narrative down our collective gullets.