Tag Archives: financial crisis

New Home Sales Plunge 11.4% In April

So much for the jump in the builder’s confidence index reported last week.  The Government reported a literal plunge in new home sales in April.   Not only did the seasonally manipulated adjusted annualized sales rate drop 11.4% from March, it was 6% below Wall Street’s consensus estimate.

Analysts and perma-bulls were scratching their head after the housing starts report showed an unexpected drop last week after a “bullish” builder’s sentiment report the prior day.

The Housing Market index, which used to be called the Builder Sentiment index, registered a 70 reading, 2 points above the prior month’s reading and 2 points above the expected reading (68). The funny thing about this “sentiment” index is that it is often followed the next day by a negative housing starts report.  Always follow the money to get to the truth. The housing starts report released last Tuesday showed an unexpected 2.6% drop in April. This was below the expected increase of 6.7% and follows a 6.6% drop in March. Starts have dropped now in 3 of the last 4 months. So much for the high reading in builder sentiment.

This is the seasonal period of the year when starts should be at their highest. I would suggest that there’s a few factors affecting the declining rate at which builders are starting new single-family and multi-family homes.

First, the 2-month decline in housing starts and permits reflects new homebuilders’ true expectations about the housing market because starts and permits require spending money vs. answering questions on how they feel about the market.  Housing starts are dropping because homebuilders are sensing an underlying weakness in the market for new homes. Let me explain.

Most of the housing sale activity is occurring in the under $500k price segment, where flippers represent a fairly high proportion of the activity. When a flipper completes a successful round-trip trade, the sale shows up twice in statistics even though only one trade occurred to an end-user. The existing home sales number is thus overstated to the extent that a certain percentage of sales are flips. The true “organic” rate of homes sales – “organic” defined as a purchase by an actual end-user (owner/occupant) of the home – is occurring at a much lower rate than is reflected in the NAR’s numbers.

Although the average price of a new construction home is slightly under $400k, the flippers do not generally play with new homes because it’s harder to mark-up the price of a new home when there’s 15 identical homes in a community offered at the builder’s price. Flippers do buy into pre-constructed condominiums but they need the building sell-out in order to flip at a profit. Many of these “investors” are now stuck with condo purchases on Miami and New York that are declining in value by the day. The same dynamic will spread across the country. Because flipper purchases are not part of the new home sales market, homebuilders are feeling the actual underlying structural market weakness in the housing market that is not yet apparent in the existing home sales market, specifically in the under $500k segment. This structure weakness is attributable to the fact that pool of potential homebuyers who can meet the low-bar test of the latest FNM/FRE quasi-subprime taxpayer-backed mortgage programs has largely dried up.

Second, in breaking down the builder sentiment metric, “foot-traffic” was running 25 points below the trailing sales rate metric (51 on the foot-traffic vs. 76 on the “current sales” components of the index) In other words, potential future sales are expected to be lower than the trailing run-rate in sales. This reinforces the analysis above. It also fits my thesis that the available “pool” of potential “end-user” buyers has been largely tapped. This is why builders are starting less home and multi-family units. The only way the Government/Fed can hope to “juice” the demand for homes will be to further interfere in the market and figure out a mortgage program that will enable no down payment, interest-only mortgages to people with poor credit, which is why the Government is looking at allowing millennials to take out 125-130% loan to value mortgages with your money.  We saw how well that worked in 2008.

Finally, starts for both single-family and multi-family units have been dropping. The multi-family start decline is easy to figure out. Most large metropolitan areas have been flooded with new multi-family facilities and even more are being built. I see this all around the metro-Denver area and I’ve been getting subscriber emails describing the same condition around the country. Here’s how the dynamic will play out, again just like in the 2007-2010 period. The extreme oversupply of apartments and condos will force drastic drops in rent and asking prices for new apartments and condos to the point at which it will be much cheaper to rent than to buy. This in turn will reduce rents on single-family homes, which will reduce the amount an investor/flipper is willing to pay for an existing home. Moreover, it will greatly reduce the “organic” demand for single-family homes, as potential buyers opt to rent rather than take on a big mortgage. All of a sudden there’s a big oversupply of existing homes on the market.

The quintessential example of this is NYC. I have been detailing the rabid oversupply of commercial and multi-family properties in NYC in past issues. The dollar-value of property sales in NYC in Q1 2017 plummeted 58% compared to Q1 2016. It was the lowest sales volume in six years in NYC. Nationwide, property sales dropped 18% in Q1 according Real Capital Analytics. According to an article published by Bloomberg News, landlords are cutting rents and condo prices and lenders are pulling back capital. Again, this is just like the 2007-2008 period in NYC and I expect this dynamic to spread across the country over the next 3-6 months.

This is exactly what happened in 2008 as the financial crisis was hitting. I would suggest that we’re on the cusp of this scenario repeating. Mortgage applications (refi and purchase) have declined in 6 out of the last 9 weeks, including a 2.7% drop in purchase mortgages last week. Please note: this is the seasonal portion of the year in which mortgage purchase applications should be rising every week.

The generally misunderstood nature of housing oversupply is that it happens gradually and then all at once. That’s how the market for “illiquid” assets tends to behave (homes, exotic-asset backed securities, low-quality junk bonds, muni bonds, etc). The housing market tends to go from “very easy to sell a home” to “very easy to buy a home.” You do not want to have just signed a contract when homes are “easy to buy” because the next house on your block is going to sell for a lot lower than the amount you just paid. But you do want to be short homebuilders when homes become “very easy to buy.”

The above analysis is an excerpt from the latest Short Seller’s Journal.  My subscribers are making money shorting stocks in selected sectors which have been diverging negatively from the Dow/S&P 500 for quite some time.  One example is Ralph Lauren (RL), recommended as short last August at $108.  It’s trading now at $67.71, down 59.% in less than a year.  You can find out more about subscribing here:  Short Seller’s Journal information.

The Foundation Of The Stock Market Is Crumbling

The S&P 500 and Dow have gone nowhere since March 1st. The SPX had been bumping its head on 2400 until Wednesday. The Dow and the SPX have been levitating on the backs of five tech stocks: AAPL, AMZN, FB, GOOG and MSFT. AAPL alone is responsible for 25% of the Dow’s YTD gain and 13% of the SPX’s.  Connected to this, the tech sector in general has bubbled up like Dutch Tulips in the mid-1630’s. The Nasdaq hit an all-time high (6,169) on Tuesday.

But, as this next chart shows, despite a handful of stocks trying to rain on the bears’ parade, there’s plenty of stocks that have been selling off:

The chart above shows the S&P 500 vs the SOX (semiconductor index), XRT (retail index), IBM and Ford since the election. The SOX index was used to represent the tech sector. You can see that, similar to the culmination of the 1999-early 2000 stock bubble, the tech stocks are bubbling up like a geyser. IBM is a tech company but its operations are diversified enough to reflect the general business activity occurring across corporate America and in the overall economy. The retail sector has been getting hit hard, reflecting the general decay in financials of the average middle class household. And Ford’s stock reflects the general deterioration in U.S. manufacturing and profitability. Anyone who believes that the unemployment rate is truly 4.4% and that the economy is doing well needs to explain the relative stock performance of the retail sector, IBM and F.

Despite the levitation of the SPX and Dow, the “hope helium” that has inflated the stock bubble since the election has been leaking out since January 1st. While many stocks in NYSE are either below their 200 dma or testing 52 week lows, the price action of the U.S. dollar index best reflects the inflation and deflation of the Trump “hope bubble:”

I’ve always looked at the U.S. dollar as a “stock” that represents the U.S. political, financial and economic system. As you can see, U.S.A.’s stock went parabolic after the election until December 31st. Since that time, it’s deflated back down to below its trading level on election day. This has also been the fate of the average stock that trades on the NYSE. In fact, as of Friday’s close, 55% of the stocks on NYSE are below their 200 day moving average. Nearly 62% of all NYSE stocks are below their 50 dma. Just 4.37% of S&P 500 stocks are at 52-wk highs despite the fact that the SPX hit a new all-time high of 2402 on Tuesday. These statistics give you an idea of how narrow the move higher in the stock market has been, as the average stock in the NYSE/SPX/Dow indices is diverging negatively from the respective indices. The foundation of the stock market is crumbling.

The above analysis was a portion of the latest Short Seller’s Journal released last night. SSJ recommended shorting IBM in the April 23rd issue at $160.  It’s down 4.6% since then. The primary short idea presented in the latest issue was down 2.3% today despite the .5% rise in the SPX.  This idea is a stock trading in the mid-teens that will likely be under $5 within a year.  You can find out more about the Short Seller’s Journal here:  LINK

Is Gold Signaling The Next Financial Crisis?

Gold and silver have been sold down pretty hard since April 18th. But the structure of the weekly Commitment of Traders report, which shows the long and short positions of the various trader classifications (banks, hedgers, hedge funds, other large investment funds, retail) had been flashing a short term sell signal for the last few weeks. The net short position of the Comex banks and the net long position of the hedge funds had reached relatively high levels. Except Thursday (May 4th), almost all of the price decline action was occurring after the London p.m. gold fix and during the Comex floor trading hours, exclusively. This tells us all we need to know about the nature of the selling, especially given the enormous amount of physical gold currently being accumulated by the usual eastern hemisphere countries. The table to the right  calculates the Comex banks’ paper gold positioning going back to 2005.  As you can see, currently the net short position and the net short position as a percent of total open interest has reached a relatively high level. This typically happens when the banks engage in raiding the Comex by unloading massive quantities of paper gold in bursts in order to trigger hedge fund stop-loss selling. It serves the dual purpose of pushing down the price of gold and providing a relatively riskless source of profits for the banks.

This is the cycle that has repeated numerous times per year since 2001. This time, however, more than any other time since 2001, the sell-off in the price of gold is counter-intuitive to the collapsing financial and economic condition of the United States, specifically, and the entire world in general. The likely reason for the current price take-down of gold is an attempt by the elitists to remove the batteries from the “fire alarm” mechanism embedded in a rising price of gold. An alarm that lets the populace know that there’s a big problem that will hit the system sooner or later; an alarm that lets the public know systemic failure is beyond Government and Central Bank Control.

A similar manipulated take-down of the price of gold and silver occurred in the spring of 2008, ahead of the great financial crisis. Gold was pushed down to $750 from $1050 and silver was taken down from $20 to $10. This price decline was counter-intuitive to the collapsing financial condition of the U.S. financial system, which had become obvious to anyone not blinded by the official propaganda at the time. Of course, after the financial collapse occurred and was addressed with money printing, the price of gold ran up to an all-time high.

It’s likely that a similar situation is taking place now. Only this time around all “assets” are in price-bubbles fomented by record levels of fiat money creation and the interminable expansion of credit. The debt portion of this equation is getting ready to hit the wall, the only question is timing. This explains the parabolic move in the price of Bitcoin. Bitcoin is nearly impossible to manipulate. Once the western Central Banks lose the ability to manipulate the price of gold in the derivatives markets, the price of gold and silver will go on their own parabolic price journey – one that will leave the price of Bitcoin in the rear view mirror.

If you are interested in getting unique, insightful gold/silver market analysis and mining stock investment ideas ahead of the market, subscribe to the Mining Stock Journal.  You can get more information about this here:  MSJ subscription info.

Gold & Silver Slammed At Comex Open: Something Bad Is Coming

This is starting to smell a lot like 2008.  By nearly all private sector reported economic data series, the economy is starting to tank hard.  Just today the employment component index of the NY ISM manufacturing report plunged at its fastest pace in history and hit a 7-yr low.  A bevy of private sector reports yesterday showed similar trends.  Most notably construction spending fell in August – vs. a .7% gain expected.  It was the second month in row construction spending declined after a big downward revision pushed July into a decline vs. June.  Construction spending is now contracting for the first time in 5 years.

But there’s an even bigger problem to throw in the mix.  It’s called “Deutshce Bank.” Despite inexorable pleas to the market by CEO, John Cryan, DB is exhibiting ALL of the characteristics displayed by Lehman in the months leading up to Lehman’s collapse.  If DB were forced to undergo an independent – and by independent I mean non-Central Bank, impartial outside third party – audit and a bona fide mark to market of its off-balance sheet “assets,” the bank would be catastrophically insolvent.  As it is now, the stock market values DB stock at just 26% of DB’s stated “book value.”  It’s true book value is likely negative by at least few $100 billion.

Just for the record, I did “back-of-the-envelope” mark to market analysis on the balance sheets of Lehman, JP Morgan, Washington Mutual and Wells Fargo at the beginning of 2008.  This was before I had a blog but I had shared my work with Bill “Midas” Murphy’s Le Metropole Cafe.  My work showed that each one of those banks were hopelessly insolvent if accurate mark-to-market accounting would have been enforced on those banks by the regulators.  Wash Mutual and Lehman collapsed that year.  JP Morgan and Wells Fargo also would have collapsed if the Government had not ripped over $800 billion away from taxpayers and gave it to the big Wall Street banks plus Warren Buffet’s bank.

Deutsche Bank is at least as underwater as each of those banks – and probably more underwater than Lehman and Wash Mutual combined.   If the western Central Banks can’t find all of the hidden skeletons in DB’s derivatives closet and clandestinely monetize them, DB will collapse.

Gold is being taken down just like it was in 2008 ahead of some type of systemic disaster coming at us.  Gold hit $1020 in March 2008 just as Bear Stearns was collapsing.  It was taken down even more during the summer, ahead of Lehman’s collapse.  These events should have pushed gold over $2000 back then.  Gold eventually almost did hit $2000 by late 2011.  The same price management effort is being implemented now and the elitists will do their best to keep gold from broadcasting a loud warning signal to the markets that something is wrong.

Unfortunately, if the masses were allowed to see gold’s “canary” die in the “coal mine” behind the elitists’ “curtain,” it would enable the ones paying attention to get their money out of banks and other monetary custodians before their money is vaporized by whatever financial hurricane is brewing.

Today gold was smashed right when the Comex floor opened.  This is standard operating procedure:

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In the first 30 minutes of Comex floor trading, 3.2 million ounces of paper gold “bombs” were dropped on the Comex. Currently the Comex is showing that 2.5 million ozs of gold have been made available in Comex custodial vaults for delivery. Naked short-selling of futures contracts this extreme only occurs in the gold and silver markets. If selling of this magnitude relative the amount of underlying available for delivery occurred in any other commodity, the CFTC would immediately investigate. Not so in gold because the CFTC is part of the elitist team that is charged with price management of gold.

The common “muscle” reaction to a day when gold, silver and the mining stocks are down as much they are now is to sell and run.  But this is the wrong reaction.  If you want to do something to try and protect what’s your’s, days like today are when money should be removed from banks – especially Deutsche Bank – and moved into the precious metals sector.  This may not be the bottom – but it’s close enough for Government work.  If you liked mining stocks in early August when the HUI index hit 284 , you should love them now with the HUI at its 200 dma.   The HUI has nearly completed a 200 day moving average correction.  It might go lower from here but you’ll never pick the bottom.

I use Goldmoney (Bitgold) to accumulate gold on days like today – because I can buy fractionals of an ounce at price that’s close to spot.  I moved a fair amount of cash from my checking account into my Goldmoney account today:  GOLDMONEY/Bitgold.

20 Tonnes Of Gold So Far

Today is the Shadow of Truth’s 100th show.  We cover our favorite topics:  Ponzi scheme U.S.A., gold market manipulation and the fraud underlying the stock market.  In addition, we discuss a development that Rory has uncovered concerning the IMF’s SDR and the gradual removal of the dollar as the world’s reserve currency.  You read Rory’s analysis here:  Global De-Dollarization  and here:  SDR vs the Dollar.  In the meantime, we hope you enjoy this “anniversary” episode of the Shadow of Truth:

Propaganda And Precious Metals

As gold reaches for higher prices and gains more attention, the propagandists are flooding the news outlets with articles on the virtues of investing in the stock market and the evils of precious metals – Silver/devil. The Ponzi must continue at all costs. The U.S. dollar, at present the worlds reserve currency, is a corrupt, blood-soaked instrument of debt. The privately owned Federal Reserve, who gets it’s marching orders from the Treasury Secretary, is working overtime to destroy the value of the dollar, enabling the elitists to use it as wealth confiscation tool. We find ourselves in the end game for this currency. How long can the end game continue? As long as it suits the corrupt banking cabal and corrupt politicians. Once these two groups of criminals have themselves positioned properly outside the U.S. dollar, the plug will be pulled. Until then, gather as much gold and silver as your budget will allow.

SoT Market Update: Fed Market Intervention And Stock Market Fraud

The Shadow of Truth presents a “Market Update” in which we discuss the extreme fraud and deception that has engulfed the stock market – see below for our audio discussion:

The governments in my view, with their agents the Federal Reserve and other central banks and with the treasury department, they will do anything not to let asset prices go down…If the stock markets go down, I’m convinced all the central banks will buy stocks. All of them. – Mark Faber on CNBC

The S&P 500 has clawed back nearly 80% of its 250 plunge that occurred at the beginning of 2016.  The pervasive “muscle reaction” of mainstream investors is to behave as if the nascent bear market in stocks is already over and we’re headed to 30k on the Dow.  This tendency is epitomized by Cramer’s latest “c’mon on back in, the water is fine and stocks are cheap” declaration about a week ago.  This graphic below exemplifies the current  mainstream financial media narrative (sourced from Twitter with SoT edits) click to enlarge image:

This graph shows the number of stocks in the Russell 2000 index which have gained 50% Untitled11for more in the last month of trading since October.  As you can see, up until the current bear market dead-cat bounce, the market is “hot” when 20-30 stocks move up 50% in a month.  In the current market nearly 80 stocks have moved up in the last month.   This graph shows the omnipresent footprints of both the Plunge Protection Team and HFT trading.   It’s gotten to the point at which every time the stock market seems ready to sell-off hard, some sort of “invisible hand” comes in and scoops up stocks, driving the market back up.

The other highly fraudulent aspect of this market is the way earnings are reported. Companies now report GAAP and “non-GAAP” earnings.  The difference between the two presentation methods can be summed up as, “somewhat fake earnings” and “mostly fake earnings.”

UntitledIn 2015, 20 of the 30 companies in the Dow Jones Industrial index reported non-GAAP earnings.  For 18 of these 20, non-GAAP EPS was higher than GAAP.  On average, non-GAAP earnings were 31% higher than GAAP for these 20 companies.  In 2014, non-GAAP was 12% higher than GAAP for the non-GAAP reporting companies (FACTSET.COM)  This illustrates the degree to which companies are now going to disguise and/or fabricate their earnings.

As if to throw gasoline of the fire of fraud and deception which has engulfed our financial system, most large corporations are now borrowing money in order to buy back their shares.  This benefits no one except the insiders who receive huge stock-laden compensation packages and then turnaround and sell their stock into the company’s buyback program.  At its root, this is nothing more than a massive transfer of wealth from shareholders to insiders.  Why not just ask the shareholders to get out their checkbooks and send insiders a personal check instead?

 Here’s an idea for reform, which of course will never happen:  prohibit insiders from selling shares whenever a company has a shareholder buyback program in place.  But don’t hold your breath waiting for that to happen….

SoT – Peter Schiff: The U.S. Is One Gigantic Bubble Economy

The admission that the economy is so weak that it needs more QE is going to destroy the narrative that the U.S. economy is in great shape and it’s no longer going to be the safe haven for capital around the world…it’s going to prick the bubble in the dollar…and people are going to realize that we’ve never recovered from anything, the economy is sicker than ever, the Fed’s going to make it even sicker with more of its toxic monetary policy, the dollar’s going to tank and the price of gold is going to skyrocket – and people need to prepare for that now.  – Peter Schiff on the Shadow of Truth

When Mt. Vesuvius blew, no one knew when it would happen or how big the eruption would be.  Everyone knew a volcanic event was going to occur and yet, the magnitude of the event caught a lot of people by surprise. The eruption destroyed two Roman cities and several surrounding settlements.  It killed an estimated 16,000 people.  The question is, how come more people didn’t leave the area surrounding Vesuvius when they knew that something was going happen at some point?

The United States financial system – including the viability of the U.S. dollar – is analogous to the eruption of Mt. Vesuvius.  A lot of people know something is wrong – evidenced by the growing support for the Trump candidacy – and yet 99.5% of the population is ignoring the warning signs of a systemic eruption of unknown magnitude.  It’s an event that draws closer with each passing day.

The warning signals of the coming financial markets collapse are in full view.  The warning signal from the junk bond market, triggered by but not limited to the collapsing energy sector, is beginning to spread into and infect the rest of the financial markets like an uncontrollable virus. If you are an investor or a professional money manager, what more of a warning do you need that this:

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That chart resembles a giant tsunami that has coiled offshore and is getting ready to slam into the the nearby beach. Only in this case millions of people remain on the “beach” to watch the horror show unfold without leaving for safer ground. It’s as if everyone knows a catastrophe is about to occur and yet most remain embalmed with the hope that it can’t really happen.

The willingness of people to park their paper in financial assets like bonds is simply a function of their lack of understanding of the problems that exist and their false confidence in Central Banks.  – Peter Schiff

The systemic causes of the financial crisis that hit in 2008 – and which was really a de facto financial system collapse – were never properly treated. Rather, they were medicated by heavy doses of money printing and free money, the latter which is otherwise known as ZIRP. The moral hazards of this monetary policy have fomented in impending systemic eruption which will be the financial market’s equivalent of the historic Mt. Vesuvius volcanic blast. The timing of this is just as unpredictable as the consequences.

The Shadow of Truth hosted a conversation with Peter Schiff to discuss to discuss the impending financial market eruption and the inevitable dollar crisis, which will ultimately rip apart the U.S. financial and economic system: