Tag Archives: Amazon

Short All Retail, Especially Amazon

“Bubbles require ever more money to sustain them. Currently that’s not happening. A severe market selloff could come at any moment.”

The quote above is from Fred Hickey, who writes the The High-Tech Strategist newsletter. Mario Draghi, Chairman of the ECB, is under pressure to reduce the Central Banks’ asset purchases (it’s buying corporate bonds, including junk-rated bonds). Apparently some Dutcn legislators presented Draghi with a tulip in reference to the Dutch tulip mania in the 1630’s.

The Bank of Japan and the Chinese Government are working to reduce their money printing. The Fed is still buying mortgages but it seems determined to slowly tighten monetary policy. The problem faced by these Central Planners is that they’ve created a massive global Ponzi scheme that requires an increasing amount of liquidity (money printing + credit expansion) in order to sustain valuation levels. Once they slow down the liquidity spigot, all fiat currency- driven assets (except physical precious metals) are at risk of collapsing.

The Dow finished the week closing down 4 days in row to close essentially unchanged for week (up 9 pts). The SPX also was flat for the week (up 6 pts). It managed to squeak out a slight gain on Friday to avoid 4 consecutive down days. Both the Dow and SPX started out Friday with a big rally from Thursday’s close but faded over the last 2 hours of trading on no apparent news triggers. This for me is a possible indicator that the stock market losing energy.

Bed Bath and Beyond (BBBY) was hammered Friday, down over 12%, as it badly missed earnings and revenue estimates. I presented BBBY as a short idea in the December 16th SSJ issue at $47.27. I hope some of you jumped on it then, as 4 days later it had closed at $41.38.

Amusingly, Jim Cramer, et al attributed BBBY’s lousy quarter to competition from AMZN. But nothing could be further from the truth. Its sales were up slightly from Q1 2016 and
its digital channel sales grew 20%. If anything, BBBY’s e-commerce business presents intensified competition for AMZN. Why? Because AMZN’s e-commerce operating margin is 0.3% vs. BBBY’s, which was 5.4% in Q1. BBBY has plenty room to go directly at AMZN on pricing.

BBBY’s net income dropped 39% vs. Q1 2016. The primary culprit was that BBBY lowered its free shipping threshold to $29 from $49. which in turn forced BBBY to absorb shipping costs on more orders. AMZN does not properly accrue the cost of its free shipping to its cost of sales (the SEC looks the other way on this one), burying the expense across the income
statement and balance sheet. But we know it has a reported 0.3% operating margin in e-commerce. The hit to BBBY’s operating margin, which declined 242 basis points (2.42%), gives us some insight about true cost inflicted on AMZN from its free shipping program.

My point here is that the overall retail environment is going to get more competitive and margins are going to decline even more. Companies like Walmart and BBBY have taken the gloves off and can afford to undercut AMZN across the board because they have significantly more room to cut prices and attack AMZN’s pricing and free shipping model without driving their operating margins down to zero. AMZN’s e-commerce profit margin, for all intents and purposes, is zero. The bottom line here is that retail in general remains a great sector to short.

I believe BBBY has a lot more downside and can still be shorted, with patience, for some nice gains:

The more interesting short is AMZN. About a month ago, right before completing the check-out process on AMZN, I received a message in which AMZN was offering a $5 shopping credit to fund a gift card with $100. Why is AMZN paying 5% to raise cash? It effectively is taking a 5% operating profit margin hit on the $100, because its overall e-commerce operating margin is essentially zero. And I discovered yesterday that AMZN was offering a $5 shopping credit to Prime members who opted for the slow shipping option rather than the 2-day shipping.

These cash-raising and cash-saving policies make no sense if AMZN is producing the billions in free cash flow as represented by Bezos (on a non-GAAP basis, of course). Something is very wrong beneath the surface. In fact, AMZN burns cash every quarter. I have demonstrated that in previous research I have produced. It’s a fact.

In the meantime, AMZN continues to be, along with TSLA, the greatest Ponzi scheme in history. Bernie Madoff is green with envy. The irony surrounding all of the analyst – and Jim Cramer – noise about AMZN is that its acquisition of Whole Foods makes it more vulnerable to competition. The idea that AMZN will now be a “grocery killer” is absurd. Just like the idea that it’s a retail killer. BBBY’s e-commerce grew at 20% year over year.

If anything is true, it’s that BBBY, Walmart, Target and Kroger present intensified e-commerce competition for AMZN.  And all four of those companies can cut prices to compete and still turn an operating profit.  AMZN does not have that luxury. That’s probably why AMZN is encouraging Prime customers to take the slow shipment option with a $5 shopping credit.

Most of the above analysis is an excerpt from this week’s Short Seller’s Journal, released Sunday evening. I discussed strategies for shorting BBBY. I also discussed shorting Kinder Morgan (KMI) in the context of declining energy price and usage and included for subscribers a somewhat dated, in-depth research report on KMI which details with proof the Ponzi scheme set-up at KMI. You can get more details about the subscription, including a “handful” of back-issues here:  Short Seller’s Journal info.  (Note: new subscribers also get a copy of the somewhat-dated full AMZN research report I wrote).

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

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.

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.”

Stocks Down Because Of Trump? Plus Target’s Earnings Trick

The by-line on Fox Business this a.m. was that stocks were down because of “DC grid-lock.” Is this some kind of joke? How about stocks are down because they are more overvalued than at anytime in history by every single financial metric except the highly manipulated GAAP accounting net income calculations.

Speaking of which, the entire financial reporting apparatus has become one of the biggest jokes – if not an outright fraud – in financial markets history (with all due respect to the Ponzi scheme’s currently in operation at Amazon and Tesla). Target’s earnings report this morning is the perfect example.

Target’s stock “pop” was being attributed by the cable tv financial “reporters” to the fact Target’s sales and earnings per share “beat” Wall Street estimates. That’s not hard to do because the highly exalted “beat” is a rigged game played by company management and Wall Street, as management slowly “guides” Wall Street’s penguins into a series of reduced “estimates” leading up to the earnings release. By the time the results are reported, the earnings bar is low enough for a paraplegic to “jump” over.

The financial tv sock-puppets were reporting that Target’s sales had increased. Well, maybe vs. “guidance” but unfortunately none of these faux-reporters bothered to look at Target’s actual earnings report. There we find that Target’s sales declined year over year by 1.1%.  Gross profit dropped 2.5%, which means Target likely engaged in predatory price-cutting to stimulate its online sales vs. Amazon.

Targets earnings before interest and taxes – its EBIT – plunged 10.2%.   Provision for taxes increased quarter over quarter by $74 million, or 26%.  So how did Target “beat” earnings?

Target’s “interest expense” using GAAP accounting manipulation declined by $271 million, or 65%.   This is despite the fact that TGT’s debt level increased by $55 million year over year for Q1. What gives?  Anyone who bothered to read TGT’s earnings release after seeing the headline report, likely nobody except me, would find this disclosure:

The Company’s first quarter 2017 net interest expense was $144 million, compared with $415 million last year. This decrease was driven almost entirely by a $261 million charge related to the early retirement of debt in first quarter 2016.

Target refinanced debt in Q1 2016 and paid a premium to the par (book) value of the debt. This was added in to Target’s interest expense in Q1 2016. It was a one-time charge that could have just as easily been stripped away and disclosed as a “non-recurring loss” in order to keep the income statements comparable for comparison purposes. Adding the $261 million non-operating GAAP charge back into the Q1 2016 EBIT boosts TGT’s earnings before taxes that quarter to $1.158 billion. In Q1 2017 TGT’s earnings before taxes was $1.034 billion. As you can see, TGT’s “apples to apples” earnings before taxes declined by $124 million. From there Targets net income and earnings per share on the true “adjusted-GAAP” basis would show a decline, not a gain.

This type of earnings gamesmanship that goes on between corporate America, Wall Street and the zombified sock-puppet financial “reporters” is endemic to the giant U.S. Ponzi Scheme.  Using earnings “sleight of hand” and allowable GAAP accounting earnings management gimmicks, Target was able to transform deteriorating revenues and economic profitability into something that is being touted in the fast-food financial reporting machinery as “an earnings POP.”   Bad news was converted into good news and Target’s stock jumped 4.4% at the open today despite a 1.1% drop in the S&P 500.

This is the type of financial analysis that you will find in the Short Seller’s Journal and it’s why subscribers were able ride Sears (SHLD) from $11.92 to $7.89 in 5 weeks and KATE from $23.67 to $17 in 8 weeks.  You can find out more about this unique subscription service here:   Short Seller’s Journal.

You can’t throw darts at the market and win every time just yet. At some point everything will no doubt head south, but for now its great having your analysis to pick the ones with best chance. In all honesty mate, the recommendation I am most looking forward to in the SSJ and the MSJ is what bar we all meet at in a couple of years time for some celebratory brewskis. – subscriber “James” from the UK

Is The U.S Ponzi Scheme About To End?

“How did you go bankrupt?” “Two ways. Gradually, then suddenly.”
– Ernest Hemingway, “The Sun Also Rises”

I was chatting with a friend two days ago who was agitated by the insanity of the markets. Look at TSLA, for instance.   This thing loses $13,000 for every car sold.  Soon the tax credits – i.e. the taxpayer subsidies – will expire and TSLA will lose even more per car because it will have to lower the price to entice buyers.   Its balance sheet is a ticking time bomb in the form of residual value guarantees issued by TSLA used to induce buyers into paying up for a car that has depreciated in value considerably more than the value of the guarantee. Those poor saps don’t realize it yet, but they will be unsecured creditors to a bankrupt corpse of a company.  And yet, the market has pushed the market cap above the market caps of GM and Ford.

To say this is absurd is an insult to the word “absurd.”  I’m still trying to decide whether TSLA or AMZN is the biggest Ponzi scheme in U.S. history.  I have not had a chance to dissect TSLA’s financials and operations to the extent that I have done so with AMZN.  With AMZN the market doesn’t seem to care that, on a net income basis, in its latest quarter AMZN’s product sales business (it’s non-cloud, or AWS, business) lost money (that’s right, if you subract the operating income of AWS from total net income,  AMZN lost money – AMZN manufactures net income for its non-AWS business via GAAP gimmicks) .  But why focus on the facts?  The operating income of its AWS cloud business dropped 29%.   Once GOOG, MSFT and ORCL have fully implemented their attack on AMZN’s cloud market share, AWS will become irrelevant.   I would bet every single entity that bought AMZN stock since it released its Q1 earnings does not know these facts.  AMZN, pure and simple, is a Ponzi scheme.

Amusingly, there’s a contest on CNBC over whether AMZN or GOOG hits $1000 first.  This is the surest signal that the end of this fiat currency-driven credit and stock bubble globally is about to collapse.

Given the inability to manipulate its market via paper derivative instruments and short selling, this is the message that Bitcoin is signaling:

In the absence of the ability to manipulate the market, this is the same message that gold and silver would be sending to the world, only the scramble for gold and silver bullion in any form would be more frenzied and it would be widespread. There actually is a somewhat frenzied scramble for gold and silver in eastern hemisphere markets based on the premiums to melt being paid for refined products in places like India, China, Turkey and Viet Nam.

At some point the western Central Banks will lose the ability to manipulate the gold and silver price and the Comex will default.  That’s when chaos will break out in the physical gold and silver markets.  That may be what it will take to trigger the collapse of the U.S. Ponzi scheme.   Apparently JP Morgan understands this inevitability.  Prior to 2011, JPM did not operate a Comex vault.  It had zero Comex silver.   Currently JPM is holding nearly 108 million ozs of silver, or 54% of the total silver reportedly held in Comex silver vaults.   This tells us, or at least me, that smart insider money is loading up on precious metals – not Bitcoin – and that silver is a better bet than gold.

Hemingway’s “slowly” method of going bankrupt has nearly run its course.  There’s no way to tell the timing on the “all at once” side of this trade but the price action in Bitcoin is signaling to the world that the obviously inevitable draws near.

AMAZON.CON – ROFLMAO

If this is the case, the true reality beneath Bezo’s fraudulent accounting had to have been horrific:

Amazon’s quarterly profit misses estimates, shares tumble

From Reuters – LINK:  

Amazon.com Inc reported a lower-than-expected quarterly profit on Thursday as expenses rose and the company provided a disappointing fourth-quarter revenue forecast.

The growth of AMZN’s cloud business is rapidly slowing down.  This has been one of my key arguments about the insanity of the market cap attributed to AMZN’s cloud business. It’s tiny compared to AMZN’s overall revenues.  And competition in the cloud space is going to become ferocious as Microsoft, Google and Oracle begin to really flex their muscles.

The only question left for me is to determine which between AMZN and TSLA is biggest Ponzi scheme in history.  AMZN is maybe a $10 stock and TSLA is likely worth $2.

If The Fed So Much As Blinks, The Stock Market Will Collapse

Although the stock market has had several “shock and awe” straight up rallies this year, since the beginning of January the graph of the S&P 500 looks like the infamous “bridge to nowhere:”    (click to enlarge)

SPX5yrs

Up until January, the S&P 500 had risen at a near-continuous 45-degree angle, punctuated with an occasional and very brief 1% sell-off. Every time the stock market attempted to correct, the Fed either rolled out another new QE program in some form or used its regional emissaries to soothe the computer algos and retail investor cattle with sweet nothings designed to jawbone the stock market higher. As you can see from the graph above, the one sell-off prior to this past summer was halted a by a Fed puppet’s call for more QE.

The big plunge that occurred in August was triggered by economic fears and the plunging price of oil, capped by concern about the Fed raising interest rates by one-quarter of one percent.  And of course the Fed rolled out its emissaries to soothe the market and a decision to defer the one-quarter of one percent rate hike.   What does it tell us that  minuscule rate hike threat that looms like a nuclear bomb over the markets?…

The truth is, the markets are so disconnected from the underlying fundamentals that if the Fed were to pause for just a brief moment from its continuous market intervention, the stock market – along with the entire financial system – would collapse.

As you can see from the graph above, while the Fed – for now – has the ability to prevent the S&P 500 from a big sell-off, it’s been unable to push the S&P beyond the upper end of the sideways channel framed in red in the graph above.    And now we find out that the club of inside-connected, highly regarded large hedge fund managers have been unloading their stock holdings into every rally – LINK.

Currently the S&P 500 is being propped up with five stocks – AMZN, GOOG, FB, MSFT and GE.  Collectively these five stocks account for than 100% of the YTD return on S&P 500.  I can’t speak knowledgeably to four of them, but you can find why AMZN is the largest public stock Ponzi scheme in the history of the U.S. stock market in this report:   AMAZON dot CON.    I have an interesting paired traded strategy that I’m working that reduces the risk/volatility of shorting AMZN outright and it will be made available to anyone who purchases the AMZN dot Con report.

Beneath the veneer of those five stocks, there’s a bona fide bear market  going on in many sectors and individual stocks.  We saw this most recently with several retail stocks which went into cliff-dive mode after releasing quarterly earnings.  Some sectors of the market are down 20-50% this year.

Currently just about every possible economic indicator is telling us the economy in the U.S. is starting to collapse.  This is one variable over which the manipulators have no control. The price of oil is about to drop into the $30’s and the price of copper is likely going to go below $2 soon.  By all indicators, retail sales for the holiday season are setting up to be a disaster.  The big retailers know this which is why “Black Friday” sales promotions have already started.

The housing and auto markets are next.  The Fed and Government have once again over-stimulated demand for housing and new cars with subprime lending programs.  Demand has been “pulled forward” and sales in both markets are rolling over.

I don’t know how much longer the Fed can hold up the stock market.  At some point the gravitational force of the collapsing fundamentals will outweigh the Fed’s ability to keep a safety net under the stock market and a lid on the price of gold.  I predict it will get a point in which you won’t be able to get out of the stock market (extended market holiday) and you will have trouble finding physical gold/silver to purchase except in the private market at exceptionally high premiums to the quoted spot price.

The Economy Is Already In A Recession – Holiday Spending Will Be Dismal

The contraction is accelerating and crosses economic lines and industry lines. In fact, one can say 95% of the economy is driven by the consumer. For instance,  Cummins engine is not a consumer stock but if consumer cannot spend the trucking industry dies. – my colleague, Hal

The Government/Fed can print money to keep the banks from collapsing and to keep the financial system “solvent,” but it can’t print economic activity.  To be sure, opening up the easy credit spigot to car buyers caused a temporary bounce in auto sales.  But this is not sustainable.  At a certain point, the availability of car buyers who can support a monthly car loan payment gets exhausted.  Over 30% of all new cars sold to the private sector are now financed with sub-prime and deep sub-prime loans.  Car repo rates are going through the roof according to my sources in the industry.  Recently a high percentage of car sales were “fleet” sales to the Government.

The truth is, nearly all “organic” economic indicators are showing that the U.S. economy is in a recession.  At some point the narrative that entire world is in a nasty recession except the U.S. economy is going to prove to be a fairytale.  The continued collapse in copper and oil prices reflects this.

Most of the major privately-compiled economic series have been declining down to their 2008/2009 levels and heading lower.  Just this morning, for instance, the industrial production report showed an unexpected .2% drop for October.  The Wall Street brain trust was looking for a .1% gain.

I wrote an article for Seeking Alpha in which I discuss three major indicators which show that the U.S. economy is already in a recession similar to the one that hit in 2008/2009:  The Economy May Already Be In A Recession:  Short Retailers.

Last week the stocks of Macy’s, Nordstrom and Advance Auto Parts all took nasty cliff-dives after their earnings reports.  The results and the accompanying management commentary indicated that retail demand hit a wall in August and the outlook is dismal.  Yesterday it was Dillard’s turn to take a digger, as it missed earnings and revenue bogeys already set very low by Wall Street:

Dillards

From the time Macy’s reported on Friday thru yesterday, after Dillards reported, Dillards stock had shed over 14% of its market value.  This tells two things:  1) market expectations built into stock valuations are way too high and 2) the economy is in trouble/retail sales over the holidays will highly disappoint.

The best way to play this is with Amazon.com.  This stock is by far the most over-valued stock in the S&P 500 on a P/E basis.  The hype, hope and manipulation built into AMZN’s stock is at levels not seen since the tech bubble.  The Company is already quietly offering Prime members a $5 “gift card” if they just download the Amazon phone app and log in. It’s just another form of a “pre-Black Friday” sales promotion.

As my report shows, on a true accounting basis, AMZN is still generating negative free cash flow and is using every accounting gimmick under the sun to cover this up.  My latest AMZN report has updated options and capital/risk management ideas.  You can access the report here:   AMAZON dot CON.

Amazon stock has gone parabolic.  It’s one of the most irrationally priced stocks I have ever observed in over 30 years of participating in the financial markets.  There is a lot of money to be made on the downside and my report shows how and why.