Tag Archives: Housing bubble

Gold & Silver Soar After The Fed’s Clown Show

Stocks rally as the Fed once again shows how clueless they are at trying to manage the economy. – from @Stalingrad & Poorski

The Federal Reserve’s FOMC predictably nudged the Fed Funds rate up 25 basis points (one quarter of one percent) to set its “target” Fed Funds rate level at .75%-1%.   Nine of the faux-economists voted in favor of and one, Minneapolis Fed’s Neil Kashkari, voted against the meaningless rate hike.

Or is it meaningless?  Ex-Goldman Sachs banker Neil Kashkari was one of the Treasury’s Assistant Secretaries when the Government made the decision to bail out Wall Street’s biggest banks with nearly $1 trillion in taxpayer money.   It was also when the Fed dropped the Fed Funds rate from about 5% to near-zero percent.  Despite Yellen’s official stance that  the economy is expanding and the labor market is “tight” (with 37% of the working age population not considered part of the Labor Force – a little more than 94 million people) Kashkari voted against the tiny bump in interest rates.  This is likely because he is fully aware of risk to the banking system – perched catastrophically on hundreds of trillions in debt and derivatives – of moving interest rates higher.

The Fed’s goal is to “normalize” interest rates.  The financial media and Wall Street analysts embrace and discuss this idea of “normalized” interest rates but never define exactly what that means.  For the better part of the Fed’s existence, the “rule of thumb” was that long term rates (e.g. the 10-yr Treasury rate) should be about 3% above the rate of inflation.  And the Fed Funds rates should be equal to or slightly above the rate of inflation.

Using the Government’s highly rigged CPI index, it implies the Fed Funds rate would be “normalized” at approximately 2.7% and the 10-yr bond around 6% based on Wednesday’s CPI report.  Currently the Fed Funds rate is 3/4 – 1% and the 10-yr is 2.5%.  Of course, since the early 1970’s, the CPI calculation has been continuously reconstructed in order to hide the true rate of price inflation.  For instance, the current CPI index does not properly account for the rising cost of housing, education, healthcare and automobiles.

John Williams’ of Shadowstat.com  keeps track of price inflation using the methodology used by the Government to calculate the CPI in 1990 and 1980.  Using just the 1990 methodology, the rate of price inflation is 6.3%.  This would imply that a “normalized” Fed Funds rate would be around 6.5% and the 10-yr bond yield should be around 9.5%.    So much for this idea of “normalizing” interest rates.  Using the Government’s 1980 CPI methodology, Williams calculates that the stated CPI would be 10.3%.

Most of the hyperinflated money supply has been directed into stocks, bonds and real estate. But based on the cost of a basket of groceries, healthcare and housing alone, price inflation is accelerating.    If the Fed were to “normalize” interest rates at 6.3%, it would crash the financial and economic system.  In other words, the Fed is powerless to  use monetary policy in order to promote price stability, which is one of its mandates.

In today’s episode of the Shadow of Truth, we discuss the insanity that has gripped the markets as symbolized by the Federal Reserve’s FOMC meetings:

What Will Catch The Falling Housing Market Knife This Time?

“There’s so much inventory, and that influx is hitting across all price points, even studios.” – director of leasing at Douglas Elliman (NYC). NYC was one of the first markets hit hard in 2007-2008.

For awhile, any weakness in the NYC housing market was attributed exclusively to the high end. I am on record stating that price dynamic would spread to all price segments. It’s not rocket-science, it’s simple supply/demand/price economics. Studio rents in NYC dropped the most on record in February. This same dynamic is also beginning to happen in many of the other hottest cities across the country. To compound the spreading price weakness in the rental market, a record number of new units will hit the markets coast to coast over the next two years. It would be a mistake to assume that price weakness in the apartment market will not affect the home rental market. Again, the laws of supply, demand, price, income and substitution will once again invade the entire housing market and take sales volume and prices lower.

Eventually the housing market implosion that occurred in 2008 will repeat, only this time it will likely be worse. Why? Because the institutional money that soaked up most of the foreclosed inventory are either fully invested in the asset class or outright selling down their buy-to-rent portfolios. Where will the money come from to catch the falling housing knife again?

Interest rates were dropped from 5% in 2008 to zero percent. This created a reservoir of cheap capital with which to fund new homebuyers with marginal credit. The cheap money and reduced requirements to qualify for a Government-backed mortgage (FHA, FNM, FRE) transformed a subprime borrower in 2008 into a prime/conventional buyer by 2015. While it may not look exactly like the junk mortgages issued by the likes of Countrywide et al during the big housing bubble, most of the low-to-no-to-borrowed down payment agency mortgages issued to the average homebuyer look quite similar in terms of absolute debt to income and income to monthly payment ratios. Just like more than 50% of American households are unable to write a $500 emergency payment check, many of the new homeowners in the last 2-3 years are living on the edge of defaulting on either their car payment, their mortgage payment or both.

A fairly large proportion of the home “buyers” over the last couple of years have been mom and pop speculators looking to “get in” on flipping or buying and renting. A large percentage of that cohort has been using debt to finance their flips/investments. When the music stops, many of these buyers will be left without a buyer or renter. Again, this is similar to the dynamic that unfolded in the housing market leading up to the 2008 collapse.

The above analysis is an excerpt from the latest Short Seller’s Journal, released earlier today.  There’s a lot more information and analysis, most of it not found in your primary alternative media websites or in the mainstream media.  The issue also has two primary short ideas and a couple other ongoing short trades highlighted plus ideas for using options.  SSJ is a weekly, email-delivery based subscription service.  Subscribers also have the option of subscribing to the Mining Stock Journal for half-price.  To learn more, click here:   Short Seller’s Journal

Chris Martenson: The Mother Of All Bubbles

The Daily Coin sat down with Chris Martenson to discuss the hijacking of the system by the wealthy insider elites and the banks:

The system is rigged against each of us. If you are not a member of the “big club” then you, like myself, have to live with the fact that we are nothing more than an ATM for the uber wealthy. We supply all their toys, entertainment and wealth. The sad part is, we do it willingly.

Here’s how bad it is. You wanna know how bad this is? They don’t even care about optics any more. JP Morgan yesterday announced for the last four years they have only experienced two days of trading loses. There’s about 200 trading days a year. So, out of 800 days only 2 days were loses, but 2016 that number was zero. No day loses and their average take, “from trading the markets” was $80 MILLION a day. Chris Martenson, The Daily Coin

On Thursday March 2 silver was monkey-hammered to the tune of more than a 4% drop in under an hour. There was more than $2 BILLION of digital contracts dropped on the “market” during this time to achieve this massive drop. Gold was, to a degree, spared and only suffered about a 2% drop. Silver was the focus of the bullion banking cartel.

Here’s the thing. These criminal banksters do NOTHING to produce wealth. Their job is stealing. If you or I were to commit a crime, like market rigging, we would be in federal prison on several felony charges, including conspiracy, and would be treated like the criminal we are. The banksters, on the other hand, are treated like royalty for committing the same crime on a global scale. Their crimes should actually be considered crimes against humanity as these crimes impact millions upon millions of people.

Demise Of The American Farmer Reflects The Demise Of The Middle Class

Too much debt, poor capital allocation decisions (McMansions, expensive leased cars, spending to “keep up with the Jones’) and declining disposable income.  It’s hitting the general middle class in America similarly to the way in which it is hitting the American family farmer.

The Wall Street Journal posted an article titled, “The Next American Farm Bust Is Upon Us” earlier this past week.  The bubble in farm land, just like the general real estate bubble, was precipitated by the Fed’s money printing and general easy money policies.  The cover story was that the policy was directed at stimulating economic activity.  But the actual result varies, with banks, corporations and ultra-wealth elitists benefiting to the detriment of the rest of the country.

A friend and colleague of mine who happens to be a wheat farmer shared with me his real life experience with trying to compete against the Monsanto-driven corporate farms in this country.  He’s working to move the production of his farm from wheat to industrial hemp but will need legislative help in his State to accomplish this:

Where some farmers get in trouble is spending too much for new equipment, and/or not fertilizing enough (or at all)… and/or not being good farmers in general.

For farmers carrying a high debt load, it’s challenging right now. Prices for wheat and corn will rebound eventually, but I’m not sure these grains are the best crops for farmers to grow going forward.

Russia is the world’s largest exporter of wheat, with Canada and the US tied for #2. Russia is also increasing their corn production (non-GMO) to be competitive with American farmers. Although demand for wheat and corn will never go away, these reasons are why I’m bearish on grain farming… and bullish on industrial hemp.

That’s why I’m cautiously optimistic about the industrial hemp bill becoming law in my State this year (fingers crossed).

Make no mistake, the plight of the farmer parallels that of the general middle class.  While some portion of the middle class is doing the proverbial celebratory end zone dance right now over the few thousands in paper profits they are making in the greatest stock bubble in U.S. history.   Most if not all of them will hang around too long and watch paper profits turn into paper losses when this historic equity bubble pops.

Meanwhile the Establishment elitists are coming out of the woodwork and warning the proletariat to take their profits out of the market and run, like these comments from James Tisch, CEO of Loews Corp, Tisch family scion, member of the Council on Foreign Relations and former director of the NY Fed.  In reference to the average retail investor.

In addition to Tisch, several other Establishment elitists have issued warnings, including Bill Gross, Larry Fink, Ray Dalio, George Soros and Sam Zell.   As my good friend and colleague, John Titus of Best Evidence Videos has said presciently:

One of the rules by which the elite aristocrats abide is they consider it rude to not issue a warning before they do something bad to us. They’re like criminals with manners. In other words, it’s gauche to flush the toilet while the serfs are taking a shower without giving a “heads up.”

 

The Apartment Glut Cometh – Adios Housing Market

Driving by the west-side border of downtown Denver (on I-25), I can count 9 cranes in air plus one semi-finished high-rise building.  What’s amusing about this is that there’s already an oversupply of rental apartments and condos as the 1-2 month free + free parking incentives reflect.   What will happen when all these new projects hit the market?

This is not unique to Denver.   I witnessed it first-hand in New York City over the holidays. Douglas Elliman, the high profile NYC real estate brokerage, issued a report which showed that NYC real estate prices plunged in Q4, with the median sales price dropping nearly 9% from Q3. Days on the market increased 14.6% and the number of sales dropped 3.7% I can recall from the demise of the big housing bubble that the impending housing bust started first in NYC.  I remember walking around NYC in late 2006 and seeing several apartment complexes under construction on which work had been abandoned. I would
suggest that the current bubble is already popping in several bubble areas per this canceled contract data: LINK.  I also am confident that the weakness that is developing in NYC will soon spread to the rest of the country.  – from the  Jan 15th Short Seller’s Journal

Miami was the leading indicator of the demise of the mid-2000’s housing bubble.  An apartment glut quickly appeared as speculators took almost free money and put deposits on apartments being built by reckless builders.  Builders always get reckless when other people’s money is cheap. Greenspan and Bernanke made sure there was plenty of cheap capital for developers.   Wolf Richter details the current apartment market implosion occurring in Miami – LINK – and coming to city near you soon.

Ditto for San Francisco/Bay Area, which was right behind Miami during the big housing bubble and is concomitantly blowing up with Miami.  The SF/Bay Area market was driven by big foreign money laundering and a massive private equity tech bubble in Palo Alto. The foreign money has dried up and the PE tech bubble is fading quickly.  It’s like the cheap money rug has been pulled out from under reckless speculators and developers.  Mark Hanson describes the situation here:  Adios SF Housing Market.

Even some of the industry associations are starting to report the truth -something we’ll NEVER get from the National Association of Realtors, as the National Multifamily Housing Council reported a week ago that, “weaker conditions are evident across all sectors of the apartment industry.”  Its sales volume index dropped for the second quarter in a row.

At the same time that a glut in apartment/condo buildings is appearing everywhere, the luxury high-end market is falling apart as well, the latter of which was also a leading feature of the demise of the big housing bubble. Douglas Elliman reported recently, “that prices in the Hamptons real estate market dropped nearly 30% in Q4, with sales volume down 14.5% But in the luxury end of the market – homes with an average price of $7 million – prices were down 42.6% in Q4. This is an all-out crash in housing in one of the most high-end areas of the country. This is exactly what began occurring in 2006/2007 in the Hamptons.

CNBC reported last week that “luxury home sales continued to slump in Q4.” It cited the
Hamptons but also Aspen and Beverly Hills. I reported in SSJ a few months ago that Aspen
was starting to go into a price freefall. Prices and volume started collapsing in the summer.
Apparently in Q4 sales volume fell another 25% and prices were down another 11%. Beverly Hills sales volume plummeted 33%, though prices were flat. Again, the affects of the bursting big mid-2000’s real estate bubble was first felt in these same markets.

Record low mortgage rates combined with the U.S. Government’s providing the easiest, most accessible borrowing terms and credit standards in the GSE program history has enabled the greatest misallocation of financial resources in history.  It’s been manifest in every asset class but is particularly prevalent in stocks and the housing market.  While it may be somewhat easy to unload stocks when they are dropping out of the sky, housing is a different matter.  It’s easy to sell a home when the buying frenzy is rampant.  But as the market begins to head south, the entire real estate becomes “offered with no bid,” meaning that everyone stuck with an “investment” is looking to dump and buyers scatter like cockroaches when the kitchen light is switched on.

The home construction market is over-ripe with short opportunities.  I have been focusing on the sector (plus retail and autos) in the Short Seller’s Journal.  Since August,  shorting the retailers has been a lay-up.

In the SSJ, I present in detail the ways in which the industry associations, Wall Street – with the help of mainstream media cheerleading – distort the facts about the housing and auto markets.    As the reality of what I described above sinks in to the market, the price path of least resistance for home builders, home construction suppliers and auto-related equities will be down.   The same is true for the companies that provide financing to these industries.

In every issue of the Short Seller’s Journal I provide what I believe somewhat unique market analysis and commentary along with dependable research sources to back-up my assertions.  I also typically provide at least 2 or 3 short ideas, accompanied by suggestions for using options (although I first and foremost recommend shorting stocks outright).  I also disclose when I’m trading an idea presented, including which options contract if applicable.   You can subscribe to the weekly newsletter with this link:  Short Seller’s Journal

You certainly do provide research and with that, Value. But also… YOU actually are there responding to emails which says a TON about you, your commitment to your products, company, and us….the subscribers. For that, I thank you.  – Subscriber, Larry

 

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.

Goldman to Trump: Situation Assessment, Government Bail-ins, Precious Metals Threat: Systemic Collapse

A guest post from Stewart Dougherty. Stewart included some thoughts in his email to me that I thought should be shared as a preface to his essay:

——————–

Hi Dave:
Some pretty heady stuff, particularly the part about the Fed’s balance sheet being a lie. (I am 100% convinced of this, but cannot prove it, at least not yet.) And remember, Bernanke was caught issuing $10 trillion in swaps to foreign banks, all of which was supposed to remain a complete secret. It is not as if they haven’t been caught doing what I am saying they are still doing, to an even larger degree.

I’ve stated that the “conversation” is imagined, intuited and fictional, so the small living parts of the shredded Constitution might actually protect my freedom of speech; wouldn’t that be amazing.

I believe “government bail-ins” is fresh terminology … people hear about bank bail-ins all the time … but they don’t hear about government bail-ins, which are going to affect far more people and are inevitable. (As I’ll explain in Part 2, government bail-ins are not going to be about taxes … tax increases are too slow, and oftentimes don’t even work.) Since it’s new, the term government bail-ins might gain a lot of attention.

——————–

Despite Goldman’s avid support for Hillary Clinton, fewer than three weeks after the election, Gary Cohn, the number two executive at Goldman Sachs met privately at Trump Tower with the President-elect. Ten days later, he was named to one of the most powerful financial positions in the world, Director of the National Economic Council of the United States of America.

As they say, knowledge is power, and power is knowledge; both open doors, ears and minds when they decide to. What could Cohn have said to Trump that resulted in his near-immediate hire? Using the Inferential Analytics methodology, we have synthesized a message a visitor of Cohn’s stature might have conveyed to Trump on November 29, 2016. And while it is inferred, intuited and fictional, the following transcript is deeply grounded in the nation’s current and prospective fiscal, financial, monetary and economic situation.

The Visitor: “I appreciate your invitation and it is a pleasure to meet with you today. Permit me to convey Lloyd’s congratulations. He would like to assure you that you have Goldman’s full support going forward.

“Our time is short, so I will give you a very high level situation assessment. Thousands of person hours and millions of dollars’ worth of research and analysis stand behind each of the themes I will touch on, and we can provide additional details if you wish. As one of the U.S. government’s closest financial allies for decades, particularly when it comes to the placement of the nation’s sovereign debt, we have a deep understanding of the financial dynamics at work. When I use the term “we,” it is because Goldman and the United States government have been close business partners for many years.

“As you correctly stated to the American people during your campaign, the situation is not good. It is containable at this time, but only if we continue to run substantial deficits and create large sums of new dollars, in other words, debt. With all due respect, we believe the U.S. government is going to need our help as never before in the coming months and years.

“I will briefly touch on nine topics. There are others we could discuss, but these tell the most important part of the tale. They are: 1) Deficits; 2) Debt; 3) Reporting; 4) War; 5) Perception; 6) Stocks; 7) Money Creation; 8) Currency; and, 9) Precious Metals.

“As you may know, I started my financial career as a Comex trader, and Lloyd began his as a gold dealer at J. Aron, which was acquired by Goldman. We both have extensive experience in the Precious Metals markets, and believe they are going to be of incalculable significance in the near future. I will review this topic later.

“All I ask is that you not shoot the messenger. Much of what I tell you is troubling.

“First, the deficits are structurally non-containable. The OMB itself confirms this, projecting escalating deficits for the next 50 years, with not one year of surplus during that entire time. The aggregate deficit during the next decade alone will be at least $10 trillion. If there is a slowdown or recession, it will be greater or even much greater. The deficits can only be reined by a massive political reset and wholesale reneging on the entire social contract, including Medicare, Social Security, public pensions and welfare. Such a reset would result in an economic collapse. Therefore, it is not feasible, although it could be forced upon us by endogenous or exogenous events that would take the situation out of our hands.

“The debt has gone vertical, rising from $10 to $20 trillion in eight years. Obama created more debt than all other presidents in the previous 230 years, combined. This amount does not include the federal government’s net, unfunded liabilities, which are an additional $150+ trillion, and growing by trillions per year on a GAAP accounting basis. Please understand that his shadow, unfunded debt is net of projected tax receipts; in other words, it is completely out of control.

“Debt is now increasing at an accelerating rate, with $1.4 trillion added last year alone. This debt can never be paid in future dollars having value anywhere even close to today’s, but for now at least, we are still able to peddle it. We do know that for us to successfully distribute the debt in the future, interest rates will have to go higher, which will compound the fundamental deficit and debt problems. Otherwise, we will have to print money on a scale never before seen, which will further damage the value of the dollar. There is a limit to how badly currencies can be damaged; they can and do go into freefall. Several are, as we speak.

“The so-called economic recovery has been false. The Obama administration, with the full support of the Fed created $10 trillion in counterfeit dollars and threw them at the economy, funding everything including non-stop wars, Food Stamps, a vast expansion of government, subsidized Obamacare, solar panel cronies, fund-raising and golf trips, you name it. It’s all included in the nation’s deliberately and, frankly, fraudulently inflated GDP. We understand; it had to be done, and we helped make it happen by being expert debt pushers.

“Some like to think that we can grow our way out of the deficits and debt, but our analysis disagrees. Assume 4% GDP growth. Given an $18 trillion economy (ours is not, as explained above, but let’s say it is), 4% growth means a GDP increase of $720 billion in Year 1. Let’s say the federal government is able to collect in taxes 25% of the gross GDP increase, a wildly optimistic assumption. That would produce $180 billion in incremental revenue. But the structural deficits, as reflected by the increases in debt, exceed $1 trillion per year. Even 4% GDP growth will hardly make a dent in the fiscal hemorrhaging. And to prime the pump for such growth, the government will have to spend a few hundred billion dollars per year on infrastructure spending and the like. This will fully negate the incremental taxes. So we have to dig a deeper fiscal hole for the privilege of digging an ever deeper fiscal hole.

“This leads to topic #3, Reporting. At this point, out of necessity, virtually every government economic statistic ranges from being “massaged” to outright false. GDP is particularly misleading. If we deducted government deficit spending and the multiplier effects it creates, the United States economy would immediately collapse. If that were to happen, we cannot credibly forecast a scenario that would restore it to growth. Economically, it would constitute an existential event.

“Obviously, we cannot openly admit the reality of the situation, or even let it become known. Therefore, the government must doctor the reports. Given the interrelationships among economic reports, we now have to lie about everything. If we just lied about certain metrics, say, GDP and employment, then the other metrics, if not similarly fabricated, would contradict the fabricated reports. We would be unable to explain the inconsistencies and contradictions. We have to lie about unemployment, GDP growth, retail sales, wages, money supply, the cost of Obamacare subsidies, current deficits, current debt, the true fiscal trajectory of Medicare, Medicaid and Social Security, government pension underfunding, projected deficits and debt, and all the rest. When it comes to false reporting, we’re in a box; there’s no alternative to it.

“This is one reason why the Alternative Media are so dangerous to us, and why we need to eliminate them. There are many talented analysts in that domain. They know the truth, and that we’re not telling it. The fact is that fake news comes from us, not them, as they are revealing to a growing army of citizens.

“In addition to false reporting, there is War. War is just like the Fed; it is never audited. This deliberate lack of oversight is how $6 trillion can go missing at the Army, alone. The Army’s missing funds are a small portion of the total amount that has disappeared into the military spending vortex. War spending is critical to topline GDP, and we can play a lot of non-detectible games with it. The saying, “War is the health of the state,” was coined for us. If we stopped fighting wars, GDP would crater. Wars are a necessary constant going forward, even if we have to invent them.

“This brings us to Perception, one of the most important factors of all. In reality, the economy and dollar have become a confidence game. We know that if confidence in an inherently dysfunctional system is lost, only a reset plus time can restore it. But as we discussed earlier, a reset is socially, politically and economically impossible. If the 200,000,000 U.S. citizens currently dependent upon the government to some degree were deprived of even a fraction of their payments, economic and social entropy would result. In fact, the people want more, not less. Free college; free or massively subsidized health care; a $15 minimum wage; the list goes on. Politicians have told them they can have these things, so there is a vast disconnect between popular expectations and fiscal reality.

“Stock market indices are one of the few tools we can use to create positive perceptions. We have successfully created a false perception of economic health by taking stocks to new highs. We have also deliberately engineered a “wealth effect,” which has artificially spurred spending and GDP, and boosted the so-called “animal spirits.” Doing these things has disguised reality and bought us a lot of time.

“But the real reasons we have manipulated stock markets higher go further. First, without a levitated stock market, the pension funds would collapse. Which would ripple through the economy in a massively destructive way.

“Second, federal, state and local governments need the capital gains-related tax revenue produced by the artificially propped-up stock markets. Dow 20,000 will produce a 2017 tax windfall, which is required to offset the damaged economy’s tax shortfalls. The stock markets are a crucial money machine when it comes to tax generation.

“Now to money creation, which takes us deep into the Dark Side. To fund the massive deficits and levitate the stock market, we have had to create trillions of new dollars. But if the actual amount were revealed, confidence in and the value of the dollar would collapse. So we have to lie about this, too. The Fed’s balance sheet is actually trillions more dollars than what is reported.

“We inject newly digitized currency into the system by crediting trusted, proven collaborators such as the BOE, BOJ and Bank of Israel with dollar amounts that can range into the trillions, depending upon circumstances. These collaborators use a portion of these credits to buy our stocks and bonds, in accordance with strict timing, allocation and dollar amount instructions. They funnel the remainder of the funds to trusted, third-party actors, including hedge funds, merchant banks and dark pool operators, providing them, too, with specific deployment instructions. Therefore, the buying comes from many different markets and locations, which makes it look normal and legitimate.

“What exists is a small club of trusted players who deploy enormous sums of money, all of it counterfeit and undocumented, to support the positive perception, healthy GDP and strong stock market agendas. This money costs our partners nothing; we create it for them, out of nothing. The fact is that management of the dollar is far more clandestine than any of the operations conducted by the CIA or NSA, and the Fed is the most secretive and sophisticated intelligence agency on earth. Geo-financial hegemony is its mission, and dollars are its spies, operating, misdirecting and deceiving from the shadows every minute of every day, all over the world.

“While a large and increasing number of citizens now demonstrate broad skepticism about government institutions, they still have blind faith in the statistics reported by the Fed. Which is upside down, because the Fed’s figures are the most dishonest of them all. It proves the power of propaganda, particularly when billions of dollars are spent on it. If the Fed were subject to audit, which of course it deliberately and necessarily is not, none of this would be possible. And if the true size, composition and deployment of the Fed’s balance sheet were known, the entire global financial system would implode.

“That is the situation, in a nutshell. As you can see, it is fragile and untenable. We can continue to manage it in the current context, but if the context were to change, even in small ways, it could all come down. We have to prevent that at any cost because if it does come down, even our most sophisticated computer simulations cannot posit a scenario by which it could be propped back up.

There is a subtle knock on the office door. Trump realizes he is out of time. He says to his guest, “I understand what you have said, and need you to come back and finish.” They arrange for the visitor to return in three days, December 2nd. Trump asks, “So we can move as fast as possible then, please give me a brief outline of what we will discuss.”

The visitor responds: “Most people do not think about these issues at all, but the sophisticated ones do. We have deliberately misdirected that cohort’s attention. We have distracted them with talk of bank bail-ins and other financial gossip to keep their thinking off of what is actually a much more profound and necessary outcome: government bail-ins. We have before us a complex, four dimensional puzzle, in which the puzzle pieces represent events wrapped in time. Both the controlling elite and the people are putting the puzzle pieces in place as fast as they can, because they know their futures depend on it. The side that first completes and comprehends the puzzle will win; the other side will lose. Two of the most important puzzle pieces are currency and precious metals, both swaddled in time. Which is running out for one side or the other.”

[To be continued in Part 2]

Stewart Dougherty is the creator of Inferential Analytics (IA), a forecasting method that applies to events proprietary, time-tested principles of human instinct, desire and action. In his view, forecasting methods not fundamentally based upon principles of human action are unlikely to be reliable over time. He is a graduate of Tufts University (BA) and Harvard Business School (MBA), is a 35+ year veteran of the business trenches and has developed IA over a period of 15+ years.

Housing Starts Crash – Sales Volume And Prices To Follow

In many areas of the country prices are already down 5-10%.   I know, you’re going to say that offer prices are not reflecting that.  But talk to the developers of NYC and SF condos who are trying to unload growing inventory. Douglas Elliman did a study of NYC resales released in October and found that resale volume was down 20% in the third quarter vs. Q3 2015.  A report out in November published by Housing Wire said that home sales volume in the SF Bay area fell 10.3% in the first 9 months of 2016 vs. 2015. Price follows volume and inventory is piling up.

NYC led the popping of the big housing bubble.  It will this time too.  Prices in the “famed” Hampton resort area down 20% on average and some case down as much as 50% from unrealistic offering prices.  Delinquencies and defaults are rising as well.  While the mainstream media reported that foreclosures hit a post-crisis low in October, not reported by the mainstream media is that delinquencies, defaults and foreclosure starts are spiking up. Foreclosure starts in Colorado were up 65% from September to October.

Housing starts for November were reported today to have crashed 18.7% from October led by a 44% collapse in multi-family starts.  No surprise there.  Denver, one of the hottest marekts in the country over the last few years with 11k people per month moving here, is experiencing a massive pile-up in new building apartment inventory.   I got a flyer in the mail last week advertising a new luxury building offering 2 months free rent and free parking plus some other incentives.   Readers and subscribers from all over the country are reporting similar conditions in their market.  Yes, I know some small pockets around the country may still be “hot,” but if you live in one of those areas email me with what you are seeing by June.

Here’s a preview of some of the content in Sunday’s Short Seller’s Journal (click to enlarge):

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The graph above is from the NAHB’s website that shows its homebuilder “sentimement” index plotted against single-family housing starts. You’ll note the tight correlation except in times of irrational exuberance exhibited by builders. You’ll note that starts crash when exuberance is at a peak. Exuberance by builders hit a high in November not seen since 2005…here’s how it translated in the homebuilder stocks:

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Note the crash in housing stocks a few months after homebuilder “sentiment” index peaked.  From a fundamental standpoint, the homebuilders are more overvalued now than they were in 2005 in terms of enterprise value to unit sales.  This because debt and inventory levels at just about every major homebuilder is as high or higher now than it was in 2005 BUT unit sales volume is roughly 50% of the volume at the 2005 peak.  The equities are set up of another spectacular sell-off.

Refi and purchase mortgage applications are getting crushed with mortgage rates up only 1% from the all-time lows.  What will happen when mortgage rates “normalize” – i.e. blow out another 3-5%?

The next issue of the Short Seller’s Journal will include a lot more detail on the housing market and some surprisingly bearish numbers on retail sales this holiday season to date. You can find out more about the SSJ by clicking on this link: Short Seller’s Journal subscription link. 

Adios To The Housing Market

That popping sound you just heard is the Fed popping the housing bubble.  The housing bubble that it inflated with ZIRP and zero-bound credit requirements to qualify for a mortgage.    But first, let’s get this out of the way:  Goldman’s Jan Hatzius – apparently the firm’s chief clown economist commented that the Fed’s “faster pace” of rate hikes reflects an economy close to full employment.  That statement is hand’s down IRD’s winner of “Retarded Comment of the Year by Wall Street.”

I guess if an economic system in which 38% of the working age population is not working can be defined as “full employment” then monkeys are about to crawl of out Janet Yellen’s ass.  I guess we’ve witnessed more stunning events this year…

Before we start assuming the Fed will raise rates three times in 2017, let’s consider that Bernanke’s “taper” speech was delivered in May 2013.  3 1/2 years later, the Fed Funds rate has been nudged up a whopping 50 basis points – one half of one percent.

I hope the Fed does start raising rates toward “normalized” rates, whatever “normalized” is supposed to mean.  Certainly there’s nothing “normalized” about an economic system in which real rates are negative – that is to say, an economic system in which it’s cheaper to borrow money and spend it than it is to save.

Having said all that, put a big pitch-fork into the housing market.  Notwithstanding the highly manipulated “seasonally adjusted annualized rate” data puked on a platter  and served up warm by the National Association of Realtor and the Census Bureau – existing and new home sales data, respectively – the housing market in most areas of the country is deteriorating at an increasing rate.    I review this data extensively and in-dept in my Short Seller’s Journal.

Even just marginally higher mortgage rates will choke off the ability of most buyers to qualify for anything less than an conventional mortgage with 20% down and a 720 or better credit score.   With a rapidly shrinking full-time workforce – the Labor Department reported that last month the economy lost 100,000 full-time jobs – the percentage of the population that has a 720 credit rating and can afford 20% is dwindling rapidly.

The Dow Jones Home Construction index is down 2.5% today.  What will happen to the stocks in that index when the Fed cranks back up it’s “we’re raising again” song and dance?

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Despite the rampant move in the Dow/SPX since the election = while the Dow and SPX were hitting all-time highs almost daily – the momentum was not enough to propel the homebuilder stocks even remotely close to a 52-week high.  Hell, the 50 dma (yellow line) has remained well below the 200 dma (red line) and has not even turned up.  THAT is the market sending a message.

Here’s a weekly version of the same graph that goes back to 2005, when the DJUSHB hit an all-time high:

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When looked at it in that context, one has wonder where this great housing boom has been hiding? The stock market certainly didn’t price in a booming housing market. That’s because the truth is that the housing market since 2008 has been driven by massive Fed and Government intervention. The intervention enabled a segment of the population to buy a home that could not have otherwise afforded to buy a home. It was really not much different than the previous bubble fueled by liar loans and 125% loan-to-value mortgages. As I detailed yesterday, the system is now re-entering a cycle of delinquencies, defaults and foreclosures.

If you are thinking about buying a home – primary, vacation or investment – wait.  You will be happy you waited.  Prices have been pushed up to near-record levels by 3% down payment mortgages and credit assessment that gears the amount of mortgage available to a buyer based on maximizing the monthly payment based on monthly gross income.  That system is over now.  Prices and volume are going to spiral south.

If you need to sell your home, you better list it as soon as possible.  You will find that you will be competing with a surge in new sellers that descend like locusts.  “Price reduced” signs will blossom everywhere.  Just like 2008…

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A Bearish Signal From Housing Stocks

The yield on the 10-yr Treasury has blown out 109 basis points since July 3rd – 70 basis points since October 30th.   30yr fixed rate mortgage rates for 20% down payment buyers with a credit score of at least 720 are up 90 basis points since October 1st.

Interestingly, the Dow Jones Home Construction index has diverged from the S&P 500. While the DJUSHB index is up since election night, it has been lagging the S&P 500 since the beginning of the year:

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The graph above is a 1yr daily which compares the ROR on the SPX with that of the DJ Home Construction Index.  I use the DJUSHB because it has the heaviest weighting in homebuilders of any of the real estate indices. As you can see, the DJUSHB has been in a downtrend since late August, almost as if stock investors were anticipating the big spike in interest rates that started about 6 weeks later. You can see that, while the volume in the DJUSHB spiked on December 5th, it’s been declining steadily since then. The SPX volume spiked up on December 5th and has maintained roughly the same daily level since then. Note: volume often precedes price direction.

Here’s another interesting graphic sourced from the Mortgage Bankers Association:

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The data is through December 2nd, as mortgage application data lags by a week.  As you can see, mortgage application volume – both refinance and purchase – has been negative to highly negative in 9 of the last 12 weeks.

A report by Corelogic was released today that asserted that foreclosures had fallen to “bubble-era” lows.  This is not unexpected.  Historically low rates have enabled a lot mortgagees who were in trouble to defer their problems by refinancing.  Unfortunately, the Marketwatch author of the article did not do thorough research – also not unexpected.

As it turns out, mortgage delinquency rates are quickly rising:

Black Knight Financial Services, which provides data and analytics to the mortgage industry, released its Mortgage Monitor report for October. It reported that the 30+ day delinquency rate had risen “unexpectedly” by nearly 2%. The overall national delinquency rate is now up to 4.35%. It also reported a quarterly decline in purchase mortgage lending. The highest degree of slowing is among borrowers with 740+ credit scores. The 740+ segment has accounted for 2/3’s of all of the purchase volume – Short Seller’s Journal – December 11, 2016

Even more interesting, it was reported by RealtyTrac last week that home foreclosures in the U.S. increased 27% in October from September. It was the largest month to month percentage increase in foreclosures since August 2007. Foreclosures in Colorado soared
64%, which partially explains the rising inventory I’m seeing (with my own eyes). Foreclosure starts were up 25% from September, the biggest monthly increase since December 2008.

Finally, again just like the mid-2000’s housing bubble, NYC is showing definitive signs that its housing market is crumbling very quickly. Landlord rent concessions soared 24% in October, more than double the 10.4% concession rate in October 2015. Typical concessions include one free month or payment of broker fees at lease signing. Days to lease an apartment on average increased 15% over 2015 in October to 46 days. And inventory listings are up 23% year over year. Note: in the big housing bubble, NYC was one of the first markets to pop.  Short Seller’s Journal – November 13, 2016

Finally, I saw an idiotic article in some rag called “The Sovereign Daily Investor”   that was promoting the notion that another big boom in housing was about to occur because of a surge in buying by millennials.   Unfortunately, the dope who wrote this article forgot to find data that would verify proof of concept.  On the other hand, here’s actual data that applies heavily to the millennial demographic:

The Fed reported on Wednesday that household debt had hit a near-record $12.35 trillion led by new all-time highs in student loan debt ($1.28 trillion) and a new all-time high in auto loans ($1.14 trillion). 11% of aggregate student loan debt was 90+ days delinquent or in default at the end of Q3 2016. Fitch has projected that it expects the subprime auto loan default rate to hit 10% by the end of the year. At the time of the report, it was at 9%.  – Short Seller’s Journal – December 4, 2016.

The point here is that the millennial demographic is overburdened with student loan, auto loan and personal loan debt.  In addition, it’s becoming increasingly hard to find post-college full-time employment that pays enough to support the cost of home ownership, especially with the mortgage payments associated with a 3% down payment mortgage.   This is the dynamic that has fueled the rental market boom (and soon the rental housing bust).

Speaking of which, Blackstone, the largest player in the buy-to-rent game, quietly filed an IPO of its housing rental portfolio about a week ago.  If Blackstone thought there was more value to be squeezed out of its portfolio – i.e. that housing prices and rents had more upside – it would have waited longer to file.  I’m sure that Blackstone would love to get this IPO priced and its equity stake in this business unloaded on to the public before the market cracks.

The housing market data tends to be lagged and extremely massaged by the most widely followed housing data reporters – National Association of Realtors and the Government’s Census Bureau (existing and new home sales reports).  The reports from these two sources are highly unstable, subject to big revisions that go unnoticed and entirely unreliable.   But the fundamental statistics cited above will soon be filtering through the earnings reports of the companies in the DJ Home Construction Index.  I would suggest that the market has already sniffed this out, which explains why the DJUSHB is diverging from the S&P 500 negatively in both direction and volume.

The Short Seller’s Journal is a subscription-based, weekly publication.  I present in-depth detailed data, analysis and insight that is not presented by the mainstream financial media and often not found on alternative media websites.  I also present short-sell ideas, including recommendations for using options.   Despite the run-up in the broad market indices, there’s stocks everyday that blow-up.  Last Restoration Hardware plunged 18% after reporting its earnings.   You can subscribe to the Short Seller’s Journal by clicking on this link:  SSJ Subscription.   It’s monthly recurring and there is not a minimum number of months required.