Tag Archives: auto sales

Here’s Why Dow 20,000 Is Meaningless

Central Bank intervention in the markets has completely destroyed the stock market’s value as a reflector of economic activity and business profitability. Rather, like the mainstream media, the stock market has become little more than propaganda tool used in an effort to manage public perception.

I was fooling around with some charts and discovered something interesting. Of the 30 stocks in the Dow index, 21 of them are below to well below their all-time highs despite the fact that Dow hit the 20k milestone and a new all-time high this past week. Only 9 of the stocks are pressing an all-time high along with the Dow:

The Dow index is price-weighted somewhat arbitrarily by Dow Jones & Company, which is now owned by News Corp (Rupert Murdoch). Each stock is assigned a weighting in the index. So for instance, Goldman Sachs – for whatever reason – has been assigned a weighting of 8.16%, which is by far the highest weighting. GE on the other hand has been assigned a weighting of 1.03%. What this means is that if both stocks move up in price by the same percentage, GS has a nearly 8x greater affect on the move in the Dow index than GE.

Of the nine stocks that are at their all-time high, the first four stocks listed are 4 of the 6 stocks with the highest index weightings (3 thru 6 and the numbers next to the symbols represent their respective weightings. Cumulatively these four stocks represent a 21.8% weighting in the Dow index. Goldman Sachs (GS) has the highest weighting in the Dow at 8.1%. IBM is 2nd highest at 6.08%.

In other words, primarily four stocks out of thirty are fueling the Dow’s move to 20,000. In addition, GS did most of the “heavy lifting” after the election, as it hit an all-time on January 13th. GS soared 27% for some reason between election night and December 8th. Think about how easy it would be for the Plunge Protection Team (Fed + Treasury Dept) to “goose” the four stocks on the right side of the list in order to induce hedge fund algos to chase the momentum.

The point of all of this is to show the insignificance of the Dow hitting 20,000. As discussed in a recent Short Seller’s Journal, the indices that represent the critical components of GDP – housing, autos and retail spending – are well below their all-time highs. In fact, the XRT S&P retail ETF is nearly 10% below its 52-week high hit in early December and 14.8% below its all-time high hit in April 2015.

You can read the rest of the accompanying commentary plus see the three short ideas presented in the last Short Seller’s Journal by clicking on this link:  Short Seller’s Journal subscription info.

I present compelling data and analysis of the public reports that explain why the housing and auto markets are getting ready to fall apart.   Just today an article was posted by Wolf Street that describes the impending collapse of the condo market in Miami.  Miami happened to be one of the first markets that cracked when the big housing bubble popped. What’s happening in Miami is also happening in NYC, San Francisco and several other cities (for sure Denver).  In the latest SSJ,  I describe several more indicators which are nearly identical to the pre-collapse signals that emerged in 2006-2007.

The Big Retail Sales Lie

There’s a direct correlation between the scale and quantity of lies coming from Hillary Clinton and the Government. Why? It’s election season, of course. It’s easy enough to dismiss Hillary’s plea for debate viewers to go to her campaign website to see “fact” checking.  We know how easy it is for her to hide the truth when she has assistance from the State Department, FBI and Obama.  If you believe Hillary Clinton, you also believe in the Easter Bunny.

But it’s also easy to fact check the Census Bureau’s retail sales reports.   Now, it’s easy enough to believe that the Government would manipulate the statistics in order to help the incumbent party maintain control the White House.  But it’s also easy to fact-check the Census Bureau’s tabulations for monthly retail sales, notwithstanding the fact that the Census Bureau is caught producing fraudulent statistics on a regular basis.

Today, for instance, they released their “advance estimate” for retail sales for September. The Census Bureau would have us believe that retail sales increased .6% from August to September.  But this was based on the Government’s politically expedient “seasonally adjusted” calculation.

Simple math disproves the validity of the “adjustments.”  The report shows “not adjusted” total retail sales as estimated by the Census.  August was $471.3 billion – or $15.2 billion per day.  September was $445.4 billion – or $14.8 billion per day – down 2.6% from August to September on a per day basis .   In retail sales terms, a 2.6% decline month to month is equivalent to a steep plunge.  (click image to enlarge)

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Theoretically, the seasonal “adjustment” offsets the day-count difference between August and September. But what about the 3-day Labor Day holiday weekend?   This year Labor Day fell on September 5.  Presumably that weekend should have compensated for any “seasonal”differences between August (back to school?) and September.  BUT on a sales/day basis, September retail sales plunged from August.

Here’s a definitive “fact check” on the Census Bureau retail sales report.  The retail sales report is showing a 1% increase per the “adjusted” number from August to September. However,  Black Box Intelligence, the best source for both private and public company restaurant industry data, is reporting that restaurant traffic fell 3.5% in September from August.  In fact, traffic counts have dropped at least 3%  in four of the last six months. Same-store-sales dropped .5%.

This private sector source of data is consistent with data that I have been presenting in the Short Seller’s Journal for trucking and freight shipments for August and September and for actual auto sales numbers, which are declining at an increasing rate, along with the rise in auto loan delinquencies.   In fact, according to Fitch the default rate in subprime auto loans is now running at 9% and is expected to be at 10% by year-end.  Fitch is usually conservative in its estimates.  I would bet the real default rate will be well over 10% by the end of 2016.

One final significant datapoint released last week was auto sales for September. The “headline” report showed a 6% SAAR (Seasonally Adjusted Annualized Rate) gain in September over August for domestically produced autos. However, auto sales typically increase from August to September as Labor Day sales drive September car sales. Year over year, domestic car sales plunged 19% and truck sales were down 1%.

Now for the reality-check. As reported by the Wall Street Journal, September sales for GM, Ford and Chrysler declined 0.6%, 8.1% and 0.9% respectively. Toyota and Nissan reported gains while Honda’s sale dropped. Moreover, it took heavy discounting to drive sales. In fact, incentive-spending by OEM’s on a per-unit average basis set a single-month record, topping the previous single-month record set in December 2008. Think about that for moment.  – from the October 9 issue of the Short Seller’s Journal

The bottom line is that most, if not all, data coming from private-sector sources conflicts and undermines the “seasonally adjusted” garbage data reported by the Government. Just like all other news reported by the media that is sourced from the Government, the Government economic reports are yet another insidious form of propaganda tailored for political expedience.  But propaganda does not create real economic activity and the middle class is becoming increasingly aware that it’s being told nothing but lies from the Government.  Today’s Government generated retail sales report for September is a prime example.

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The Economy Is Tanking

The FOMC can raise interest rates any time it desires, without prior approval from anyone outside the Fed. Accordingly, the ncreased hype primarily has to be aimed at manipulating the various markets, such as propping the U.S. dollar. Separately, it remains highly unusual, and it is not politic, for the FederalReserve to change monetary policy immediately before a presidential election. – John Williams, Shadowstats.com

The March non-farm employment report originally reported that 215,000 jobs were created (ignore the number of workers who left the labor force).  But five months later the BLS released “benchmark” revisions which took that original number down by 150,000.  However, the BLS reports a 74,000 upward revision to Government payrolls, which means that non-Government payrolls were down 240,000 in March.  So much for the strong jobs recovery…

A report out on August 19th that received no attention in the financial media showed that Class 8 (heavy duty) truck orders fell 20% from June and 58% year over year. This is after hitting a four-year low in June. The big drop was blamed on a high rate of cancellations. This is consistent with regional Fed manufacturing reports out two weeks ago that showed big drops in new orders. Again, the economy is starting contract – in some areas rather quickly.   Heavy trucking is one of the “heart monitors” of economic activity.

Another datapoint that you might not have seen because it was not reported in the mainstream financial media: the delinquency rate for CMBS – commercial mortgage-backed securities – rose for the 5th month in a row in July. The rise attributed to “another slew of balloon defaults.” Balloon defaults occur when the mortgagee is unable to make payments on mortgages that are designed with low up-front payments that reset to higher payments at a certain point in the life of the mortgage. This reflects an increasing inability of tenants in office, retail and multi-family real estate to make their monthly payments.

Again, I believe that evidence supporting the view that housing and autos are starting to tank is overwhelming. Last week Zerohedge featured an article with data that showed that prices in NYC’s lower price tiers are starting to fall, following the same path as the high-end market there LINK. I want to reiterate that I’m seeing the exact same occurrence in Denver in the mid/upper-mid price segment. Furthermore, I’m seeing “for sale” and “for rent” signs pile up all over Denver proper and I’m seeing “for sale” signs in suburban areas where, up until July, homes were sold as soon as a broker got the listing. NYC, Denver and some other hot areas in the last bubble began to fall ahead of the rest of the country.  I don’t care what the National Association of Realtors claims about the level of existing home inventory, their numbers are highly flawed and the inventory of homes on the market is ballooning – quickly.

I like to describe housing as “chunky,” low liquidity assets. It takes a lot of “energy” to get directional momentum started. Once it starts, it eventually turns into a “runaway freight train.” We saw the upside of this dynamic culminate over the last 6-9 months. But now that freight train is slowly cresting and will soon be headed “downhill.” I don’t think this dynamic can be reversed without extraordinary interventionary measures, even larger than 2008, from the Fed and the Government.

As for autos, I detailed the case that auto sales are heading south in previous blog posts. However, Ford disclosed in its 10-Q filing that charges for credit losses on its loan portfolio increased 34% in the first half of 2016 vs. 2015. GM’s credit loss allowances increased 14% vs. 2015. As credit losses pile up in auto-lender portfolios and in auto loan-backed securities, lenders will begin to constrict their auto sales lending activities. It will be an ugly downward spiral that will send negative shock-waves throughout the entire economy.

I find it highly improbable that the stock market will not continue lower unless the Fed steps in to prevent it.  The Fed is playing “good cop/bad cap” with its rate hike theatrics.  As John Williams points out, it does not require a formal FOMC meeting for the Fed to raise or lower interest rates.  In fact, there’s precedence for inter-FOMC pow wow interest rate changes.   This entire Kabuki theater is designed to support the dollar ahead of yet another meeting in which Fed stands still on rates.   Honestly, even a quarter point hike could act like dynamite on the financial weapons of mass destruction hidden on and off bank balance sheets.  The fraud at Wells Fargo is just the tip of the ice-berg.

The short-sell ideas I present in IRD’s Short Seller’s Journal have worked out of the gate four weeks in a row.  The last time SSJ had a streak like this was during the early 2016 sell-off.  Although my ideas are meant to be long-term fundamental shorts based on flawed business models and deteriorating business conditions, a couple of those ideas are down over 10% in less than a month.  I’m also sharing my strategies with the homebuilders, all of which will be trading under $10 within the next 18-24 months (except maybe NVR.

You can access the Short Seller’s Journal here:   SSJ Subscription.  This is a weekly report in which I present my view of the markets, supported with economic data and analysis you might not find readily in the alternative media and never in the mainstream media.  It’s a monthly recurring subscription you can cancel anytime.   Subscribers can access IRD’s Mining Stock Journal for half-price.

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As The Stock Market Levitates, Economic Activity Deteriorates

In my latest issue of the Short Seller’s Journal, I predicted a weak showing for July auto sales.  Both GM and Ford missed Wall Street’s forecast.  With the magic of seasonal adjustments, the industry data overall was presented to show a .7% increase in overall sales vs. June.  GM sales dropped 2% and Ford’s sales fell 3%.  Again, any overall industry gains can be attributed to mysterious “seasonal adjustments.”  June auto sales dropped 3.4% from May.

When Ford reported its Q2 earnings, Ford’s auto finance division reported a decline in profits that reflected lower values realized at auction on cars returned after the lease expired.  Auto market weakness typically shows up first in the resale/used market (I traded the auto supply sector junk bonds when I traded on Wall Street in the 1990’s, which is why I’m familiar with auto cycle dynamics).  In addition, Ford Credit reported higher than expected credit losses.

My point here is that the auto industry, after being hyper-stimulated by the Fed with $100’s of billions of subprime quality car loans and leases, is going  to head south – probably rather quickly.   Our financial system is about to feel a huge shock from delinquent and defaulted car financing extended to people who could never really afford the payments.   Ford is already feeling it.   Carmax also reported bigger than expected losses in its car loan portfolio.

Housing is the other economic sector that has been hyper-stimulated by the Fed and the Government with artificially low interest rates and taxpayer-sponsored low to no-down payment mortgages.  Housing is going to head south quickly as well.  This was evident with yesterday’s construction spending report:   June private construction spending fell .6% from May, non-residential construction dropped its most since December, April construction spending was revised to down 2.9% from down 2%.

Not only is construction spending declining, previously reported construction spending is being revised to show that it was weaker than originally reported.

The housing market data reported by the National Association of Realtors is tragically corrupted.  Recently the NAR has been reporting an increase in first-time buyers.  Yet, the Census Bureau-measured rate of home ownership continues to decline.   Last week the CB reported the rate had dropped 62.9%, a 51-year low (click to enlarge):

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What this means is that real first time buyers are not showing up as buyers, contrary to the NAR’s manipulated data.  The chart to the left is from the National Association of Homebuilders.  It shows the breakdown of home ownership by age demographic for Q2 2015 vs Q2 2016.  As you can see the first-time homebuyer age demographic has declined.  This graph undermines the data being reported by Larry Yun and the NAR.

My educated bet is that a large percentage of existing home buyers over the last couple years has been speculators – either quick-flippers or “investors” who buy a home with the intent to fix it up and re-sell it six to twelve months later.   There will be a lot of “second” home owners who end up stuck with their “investment.”

I have been theorizing for quite some time that the housing market would get “squashed” from the top.    The first-time buyer is the key component in the housing market sales activity cycle.  If a move-up buyer can’t sell its home to a first-time buyer, the owner with the “move-up” home – the upper price-range home – for sale can’t sell. It leads to a glut at the high end – something that is being reported all over the country.

As I’ve noted several times recently, high-end inventory has been building up across the country for well over a year.  Long-time housing market analyst and consultant, Mark Hanson, said in his latest blog post:

I am getting reports from sources in mid-to-high end regions all over the nation that after a strong June, July sales were down between 15% and 50% with Pendings down as much as 60% from a year ago. One large West Coast brokers with whom I talk said they are recommending to clients with mid-to-high end properties on the market over 30-days with no offers to cut list prices aggressively in order to get in front of the market versus the process of small, frequent price cuts that look bad optically and keep sellers constantly behind the market.  LINK:  Big Trouble Ahead

In other words, the inventory clog at the high end of the market is starting to spill over into the upper-middle price range.  I received a price-change alert yesterday about a $1-million+ home which was taken down over 14% in price.   The “new price” competition is heating up.  I’m seeing “new price” signs in the mid-priced homes now all around Denver.

The point here is that the two primary drivers of economic activity – albeit artificially stimulated economic activity – auto and housing – are heading south.  I believe the U.S. economic system will be engulfed by drop off in economic activity that will shock even those who can see through the economic propaganda being reported by the Government, Fed and industry associations.

In my last couple of Short Seller’s Journals, I have been recommending shorts in the housing and auto sectors.   These are two high-beta sectors that will sell-off more than the overall market once the market heads south again, something which may already be happening.

As you can see from the following 11-year weekly graph of the Dow Jones Home Construction index, the homebuilders and related home construction companies have been trending sideways since April 2013 (click to enlarge):

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The index is down 6.8% since hitting 610 intra-day last Wednesday.  The S&P 500 is down just .7% in that same time-frame.  But this illustrates my point about the downside potential for the housing stocks if the S&P trends lower.

My Short Seller Journal presents facts about economic data not reported by the media and analysis not generally found on most, if any, blogs.  It’s a weekly report in which I also offer ideas for using options to short the market plus trading and capital management strategies.

It’s clear that the Fed is doing what it can to keep the broad market indices from selling off,NewSSJ Graphic but underneath the marquee lights there’s a whole world of stocks that are collapsing in price.  In the next issue I’ll be presenting what I believe is an energy sector debt-induced Ponzi scheme that could drop from $20 to at least $5.  You can access the my short-sell ideas using this link:   Short Seller’s Journal.

30-yr Treasury Yield: “The Economy Is Collapsing”

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We know that inflation is running a lot higher this year – true inflation, that is, and not the phony Government CPI.  Thus, low inflation would not explain the 80 basis point drop in long bond yields since January 1st.   “Flight to safety” would flow either into the very short end of the yield curve or into gold or under the mattress.   Therefore, it is apparent to me that the Treasury bond market is starting to price in economic armegeddon.   This will mean deflation of asset prices (stocks, homes, crappy Wall Street concoctions) but not necessarily deflation of necessities.

With retail sales, auto sales,  and home sales all collapsing, the only explanation left is that the Treasury bond market is pricing in a severe economic downturn.    This would explain also why high yield bond spreads have widened considerably over the past month.  The big drop in oil prices this week would further affirm this.

For anyone who is reading this and has invested in my Easy Trade Idea from the end of July, I used to today’s low volume pullback in the stock to add to our position in the fund by shorting slightly in the money puts that expire tomorrow.  If the price closes below the strike tomorrow, we will take delivery of more shares with a cost-basis reduced by the amount of put premium we collected today.