Tag Archives: Mad Money

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.

New Home Sales: Lumber And Houston Are Crashing

As we well know, the media and Wall Street have been pumping this idea, fraudulently, that the housing market is in recovery.   As part of this bubble-blowing, the homebuilder stocks have run up to valuation levels that are higher now than at the peak of the housing bubble in 2005/2006.

All of them now have as much debt and inventory as they did back at the bubble peak on a current unit sales level that is 1/3 the level of peak bubble unit sales.  It is beyond stunning.  I know the hedge funds that are playing to the long side are all-in.   In other words, the money that is available to move into the homebuilder stocks is already deployed.   Now the hedge fund community needs to generate demand from retail investors in order to complete the “next greater fool” cycle.  Perhaps this is why Jim Cramer was pumping three homebuilders on Mad Money last week:  Cramer LOVES Homebuilder Stocks (link).

Anyone with a brain cell in their skull knows that Cramer has been mathematically proved to be THE best contrarian indicator in the stock market.

Since Cramer ignores all fundamentals in favor of pumping the stocks the hedge funds pay him to pump, let’s look at two perfect fundamental indicators.

First is the price of lumber, which is in virtual freefall – it’s down amost 3% today:

LUMBER

I got news for the housing market bulls, the price of lumber falls because demand for lumber relative to supply falls. If the price of lumber is falling like this – especially given that we’re being told that the economy is doing well – it means homebuilders are not buying lumber to build new homes. Note: a “housing start” does not necessarily mean a home is physically being built to be called a “start.”

Second:  “Houston, look out below.”   Aaron Layman is a real estate professional in Houston, focusing on Katy/West Houston.  He has a blog in which he reports reality about the housing market down there.   As it turns out, new construction sales in Katy/West Houston plunged 40% year over year.  This is not because of bad weather.   You can read Aaron’s work here:  Aaron Layman 

What is occurring in Houston is a signal for what is developing in the rest of the country.   It’s not the “bad weather, dog ate my homework” theory floated by Wall Street.   If bad weather was causing the price of lumber to drop, we should be seeing a bounce now.  In fact, according NOAA, the month of March was warmer than normal over most of the country.

The economy is beginning to deteriorate at an accelerating rate.  Every day the stock market is pushed higher by the Fed, it becomes more dislocated from reality.   The homebuilder stocks are more dislocated from fundamental reality now than they were at the peak of the bubble.   When downside reality grips the stock market, it will be particularly brutal on the homebuilder stocks.

July New Home Sales Tank

July is typically the 2nd or 3rd best month of the year for home sales.  This should especially be true  this year given that mortgage rates are at their lowest in almost a year and the banks are relaxing credit standards.  But today’s new home sales report showed the lowest monthly rate of sales since March and it was well below the sales rates reported during the so-called “polar vortex” months.

I have presented a detailed analysis of new home sales which you can read here:   July New Home Sales

One of the best areas to make money in the stock market right now is in shorting the homebuilder stocks.  These stocks are insanely overvalued based on historical fundamental market metrics.  This is an incredible opportunity to take advantage of a sector of the market that is not widely followed.  The big mutual and retirement funds holding long positions have their head in the sand are not compelled to sell, especially since the general stock market hits new record highs everyday.  HOWEVER, the homebuilder sector per the DJUSHB is down nearly 13% since it hit a peak in May 2013 while the SPX has risen nearly 20% in the same time period.  What does that tell you?

I have two homebuilder short ideas for which I’ve written a detailed fundamental analysis in support of my price targets for these stocks.  Both plays offer significant profits if you are patient with the market and let the fundamentals blow these stocks up.  I have included a section on call and put option strategies in the second report.  You can access them here:  Homebuilder stock short-sell plays  or by clicking on this picture:

HousingBubblePic