Tag Archives: Home sales

Jim Cramer’s Christmas Gift To Short-Sellers

Wall Street’s best contrarian indicator has spoken. Jim Cramer issued a strong buy on the Dow last Wednesday. He references the “generals” that are “leading the charge” higher in the stock market.   He sees no end in sight to current move in market leaders. Those will prove, once again for Cramer, famous last words.   It will be more like Custard making his last stand.

Perhaps the most amusing section of his maniacal diatribe was his assertion that Goldman Sachs (GS) and JP Morgan (JPM) are “cheap” because of Trump. A colleague and I were, serendipitously discussing GS as a great short idea last week. Cramer is a bona fide lunatic who must relish the thought of leading the retail stock lemmings to slaughter. The financials have gone parabolic since the election and now the hedge funds who whisper sweet nothings into Cramer’s ear need an exit.   Please don’t give up your chair to the sound of CNBC’s Pied Piper.

The puts on JPM and GS are loaded with premium. I don’t want to recommend any specific put ideas.   If you have an interest in shorting shares, GS and JPM are among the best shorts in the Dow right now.

That was an excerpt from the latest issue of the Short Seller’s Journal.   Shorts are working again.   Four of the five short ideas in last week’s SSJ were down for the week (one was unchanged) – one retail idea was down 13.6% and the puts recommended were up 400%.  In fact, most of the short ideas since early August have been working, some better than others, with one them down nearly 40% since early August.

Beneath the facade of the Dow and the SPX, many stocks and sectors are down for year. For instance, the DJ Home Construction index is down 11.1% from its 52-week high early this year.  It’s 52% below its all-time high in July 2005.  The current SSJ presents an home construction-related stock that is technically and fundamentally set-up to fall off a cliff.  I also presented my for favorite homebuilder shorts along with put option ideas.

The SSJ is a weekly subscription-based newsletter.  It’s billed on monthly recurring basis with no required minimum subscription period.  Each issue is delivered to your email in-box and has at least 2 or 3 short ideas plus put option ideas.   New subscribers will receive a handful of the most recent issues plus a complimentary copy of the Mining Stock Journal.  SSJ subscribers can subscribe to the MSJ for half-price.  You can get more information and a subscription here:  Short Seller’s Journal subscription link.

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.

Home Prices And Sales Are Going To Tank

Mortgage purchase applications dropped 5% last week.  They were down 15% year over year for the same week in May.  This is May.  May is supposed to be the second or third strongest seasonal month for home sales.  Purchase apps have been down 7 of the last 9 weeks.  This is occurring in the strongest part of the year for housing.  There’s no bad weather  “issues” and, as I’ll show below, inventories are starting to climb quickly.

Purchase mortgage applications are based on contract signings.  The Census Bureau measures new home “sales” on contract signings.  93% of all new homes are purchased using mortages.  This means new home sales for May will disappoint when they are released next week.   Existing home sales are based on closings.  Closings take about 30-45 days right now (note:  time to close is shorter than a year ago – less volume to process).  This means June’s existing home sales report in July will be bad.

Flippers are going to be stuck with homes.  They rely on traditional, mortgage-financed buyers in order to flip.  I saw a big sign on a corner of a very busy intersection in a prime are of Denver that said, “investment homes for sale.”  That’s a flipper looking to flip to other flippers.

I just published an article titled:  Are Home Prices About To Tumble on Seeking Alpha.  I have detail four unmistakable signs that tell us the housing market is dying.  It will soon be dead on arrival…

Economists and Wall Street are missing badly now on their forecasts for everything.  Way too optimistic.  Today’s current account deficit was the perfect example.  They missed by a significant amount.   Hack meteorologists like Al Roker are blushing for them.  The economy will show even more of a contraction in Q2 than in Q1.  Housing is leading the way down.

So Much For The “Low Inventory Is Hurting Sales” Narrative

For the last six months we’ve had to listen to Wall St. analysts and homebuilder industry pimps like Larry Yun of the National Association of Realtors feed us the fiction that housing sales have been slow due to bad weather and low inventory.

Well the weather is fine now and Redfin – the online national real estate brokerage fjrm just published this:   Home Listings Hit 4-Year High in May, But Demand Didn’t Keep Pace

Home listings were up 9.1% in May – the highest number of listings in 4 years but homes sales were down 10%. You can read the full report here: Higher Inventory, Lower Sales

So much for the National Association of Realtors’ best imitation of J.R. Tolkien…

The truth is, the economy went negative in Q1 and will prove to have gone even more negative in Q2, led by housing, auto and retail sales decline…

Ebullient Housing Starts Headlines Belie Bearish Market Data

I’m not sure why the market gets excited whenever there’s a seemingly “bullish” housing starts number released.  For sure, in a truly healthy housing market a strong starts number reflects a positive builder outlook and healthy demand.

The details of Friday’s housing starts data showed that single-family home starts were flat from March to April.  This is consistent with the plunge in the builder confidence metric released earlier last week.

The big “jump” in starts was for multi-family rental buildings.  The problem with this is that, as is now evident all around Denver, there will soon be a glut of rental units on the market – both single family homes and apartments.   We know big investment funds have stopped buying homes to rent out and this is why existing home sales are plummeting.  But I’ve also noticed that several new big buildings that have come on-stream in Denver and the surrounding metro area are now offering move-in incentives, indicative that supply is beginning to out-strip new demand.

I published an article for Seeking Alpha which goes over the housing starts data in detail. You can read it here if you are interested in the facts:   The Housing Starts Data Is Bearish.

I have a feeling my interpretation of the data is likely accurate because the homebuilder stocks initially spiked higher on the headline reports but sold off to close flat on the day, despite a .5% move higher by the S&P 500.