Tag Archives: market crash

U.S. Labor Market Reports: Someone Is Lying

The propaganda laced with bold lies is enveloping the media. The JOLTS report (Job Openings and Labor Turnover)  released today alleges that the number of job openings in April hit a record.   Of course, the April number was based on large revisions to previous data.  The number reported is also “seasonally adjusted” and predicated on statistical inferences.   In fact, 6.7 million allegedly vacant jobs is not only an all-time high but it also exceeds the number of “unemployed” in the Government’s monthly employment “report.”

How do we know both the reported job vacancies and unemployed are an outright fabrication?  Because wages would be soaring.  It’s simple supply/demand economics.  According to the Government, the demand for employees far exceeds the supply of workers.  But if this were case, the price of workers would be rising quickly.  It’s not.

Last Friday the Government reported Friday morning that the economy added 223,000 jobs, exceeding the Wall St. estimate of 190k. I go from general indifference to outright disgust with the payroll report. But Friday’s report was jaw-dropping horrification. Early Monday before the report hit the tape, Trump – who was briefed on the numbers Thursday evening – tweeted that he was “looking forward to seeing the employment numbers at 8:30 a.m.” I assumed the day before that the report would be rigged, but that confirmed it.

Here’s the problem with the 3.8% narrative: a “tight” labor market at theoretic “full employment is not confirmed by the “price of labor” – i.e. wages.

A 4% unemployment rate is considered “full employment.” The alleged unemployment rate has been running at 4% or lower for several months. But this story-line is not confirmed by wage growth. If the economy were at full employment accompanied by a “tight labor market,” wages should be soaring. Not only is wage growth dropping toward zero, it’s lower than the average wage growth shown in the chart going back to 1998.

The numbers and narrative as presented by the Government are simply not credible. The BLS statisticians removed another 170k from the labor force. The number of working age people not counted as part of the labor rose to 95.92 million – an all-time high. The labor force participation rate is 62.7%. Outside of Sept 2015-November 2015, this is the lowest level for the labor force participation rate since February 1978. Back then most families had one wage-earner per household.

Additionally, there are 102 total working age people who are either unemployed (6.1 million) or “not in labor force” (95.9 million). That’s 31.3% of the total U.S. population (Census Bureau: 2017 U.S. population 325.7 million). Of the 155 million people reported to be employed, 27 million are part-time. This means 39.2% of the total U.S. population works full-time, assuming that number is remotely accurate. Good luck to the Government keeping the Social Security Trust funded…

As for the most glaringly fraudulent aspect of the report, the BLS reports that “retail trade” was the 2nd largest producer of jobs in May. How is that heavenly possible? Retail sales are sagging and serial bankruptcies in brick/mortar retailing are dumping retail labor onto the market. There are other glaring inconsistencies with economic reality on Main Street. One number, however, that might be realistic: Health care/social assistance is credited with providing 31.7k new jobs. That is possible because the category is primarily Government jobs.

One last point. The birth/death model – which is reported before seasonal adjustments – is credited with throwing in 215,000 jobs into the total pool, which is then statistically “adjusted.” The BLS statistical sausage grinder spit out 223k jobs, of which the Birth/Death model contributed the majority on a non-adjusted basis. It’s just not a credible statistic. As we know, the Govt uses the birth/death “model” as a “plug” to create jobs that exist only on paper.

The chart above is the employment-population ratio. It shows the number of people “employed” as a ratio of the total working-age population. Prior to the 2008 financial crisis, the current employment-population ratio is the lowest going back to 1985. The ratio appears currently to be peaking. As it turns out, the four previous peaks in this ratio were followed by an economic/financial crisis and a severe stock market sell-off. My guess is that you will not see this graphic presented on CNBC, Fox Business, Bloomberg or any of the other mainstream financial media outlets.

Mining Stocks Are Historically Undervalued

The mining stocks are more undervalued relative to the S&P 500 than at any time since 2005:

The mining stocks, especially the juniors, are more undervalued relative to the price of gold than at anytime in the last 18 years except late 2000 and December 2015. The poor sentiment and the constant price-capping of the sector by official entities has destroyed investor sentiment toward the sector. But the good news is that there are some incredible to be found right now. One of the stocks I recommended in my Mining Stock Journal is up 35% since May 17th, when I recommended purchasing it.

Bill Powers of MiningStockEducation.com invited me on to his insightful podcast show to discuss, among other topics, the precious metals sector and some specific mining stock ideas:

I truly believe that investing in certain stocks right now is the equivalent of buying into the internet stocks that survived the Dot.Com bubble. You can learn more about the Mining Stock Journal by following this link –   Mining Stock Journal information.

WTF Just Happened? Elites Scramble to Disable the Italian Economic Landmine

Italy is financially disintegrating.  The banking world would not care except for one small detail:  If Italy defaults in its debt obligations, it will set off a daisy-chain of OTC derivative credit default swap defaults resembling a financial nuclear holocaust.  This chart of Deutsche Bank’s stock price reflects the growing risk of this event:

Deutsche Bank has been hitting all-time lows since its listing on the NYSE in October 2001. The systemic risk posed by a financial collapse of Deutsche Bank is enormous. Yet, it should be allowed to occur to prevent the continued transfer of U.S. and European taxpayer money to fund DB’s payroll and large bonuses. The schizophrenic volatility of the stock markets is further reflection of the underlying financial volcano in danger of erupting.

In the latest episode of WTF Just Happened, Eric Dubin and Dave Kranzler discuss ongoing financial collapse of Italy and the likely method employed by the Fed, ECB, and BIS to keep the banking system corpse on life support (WTF Just Happened is a produced in association with Wall St. For Main Street – Eric Dubin may be reached at  Facebook.com/EricDubin):

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Visit these links to learn more about the Investment Research Dynamic’s Mining Stock Journal and Short Seller’s Journal.  I recommended Almadex Minerals at 28 cents in April 2016 – it closed Friday at $1.13.  I recommended shorting Hovnanian at $2.88 in January  – it closed at $1.89 on Friday and has been as low as $1.70.

Is Emerging Market Turmoil Deutsche Bank’s “Black Swan?”

Rising energy prices and collapsing emerging currencies are two developments that are not receiving much attention in the mainstream propaganda narrative. But either development which could end up “pulling the rug” out from underneath the markets.

I pieced together the graphic to the right from an article on Zerohedge about the developing currency and debt crisis in emerging markets and, specifically, Latin America. This topic is not receiving much attention from the mainstream financial media. I guess facts that undermine the “strong economy” narrative go unreported. If it’s not reported, it doesn’t exist, right?

The top chart shows the abrupt plunge in an index of emerging market currencies. But most
of that decline is attributable to the plunging currencies in Latin America. Currently the Brazilian real is in free-fall, followed closely by the Mexican peso.

The bottom chart shows an index of emerging market debt prices. The index has plunged over 6 points, or nearly 7% since mid-April. In terms of bond prices, that’s a mini-crash. And that’s an index. Individual bond issues are getting massacred.

I was trading junk bonds in 1994 when the emerging market debt crisis hit hard in late January. Prior to that, emerging market debt issuance had just been through a mini-bubble. The money pumped into the system by Greenspan to “save the markets” from the collapse of Drexel Burnham and the related S&L collapse, plus to save the markets from the blow-back from the collapse of Russia, precipitated a mini-boom in high yield and emerging market debt.

The crisis started with a loss of confidence in the Mexican banking system and quickly spread like the flu throughout Latin America. The effects soon spilled-over into the U.S. markets. Between January and the end of March 1994, the Dow plunged 10.6%. The credit markets were a mess, especially the junk bond market. A friend of mine on the EM desk at BT was worried about losing his job.

It’s impossible to know the extent to which Central banks are working to prevent the current EM crisis from spreading, but at some point there will be a spillover effect in our markets.

As everyone knows, Deutsche Bank has resumed the collapse that started in 2008 before the Fed, ECB and Bundesbank combined to keep DB from collapsing.  Why was DB saved? Because DB’s balance sheet likely represents the largest systemic risk to the global financial system.   It has been burning furniture for years and now the bank is unloading more than 10% of its workforce as well as dismantling its North American and Investment Banking operation.  25% of the equity sales and trading personnel are being elimated.

No one outside of DB has any possibility of understanding DB’s OTC derivatives book. It’s highly probably that DB insiders do not understand the scale of counter-party risk exposure.   When DB acquired Bankers Trust, Anshu Jain took the emerging market derivatives business and injected it with steroids. Why? Because the fees were enormous.

On top of this, DB has enormous exposure via credit default swaps to the risky southern European financial systems.   A good friend of mine has reason to believe that if Italy goes into a tail-spin, it could take DB down with it.

In truth, we don’t know how bad the situation is inside DB because the financial reporting requirements imposed on banks have been substantially rolled-back over the last several years.   However, really bad news began to leak out on DB about the time the LIBOR-OIS spread began to rise and the dollar began to rise quickly.   The misdirection propaganda attributed this to corporate dollar repatriation connected to the Trump tax cuts.   Now the cost to buy credit protection on DB debt is starting to soar.  Credit default swaps have become the financial’s new “smoke alarm.”

DB’s stock is down nearly 39% since December 18, 2017. Since mid-January 2014, DB stock is down 78%.  Not sure why this fact doesn’t get coverage from the mainstream financial media other than the fact that it throws a wet blanket on the warm and fuzzy “synchronized global recovery” fairytale.

Are The Wheels Coming Off The System?

The dollar is said to be “soaring,” though I take issue with that characterization for now (see the chart below);  10-yr Treasury yields are also rising, though the yield on the 10-yr is only up about 67 basis points if you measure from January 1, 2017.  What’s really going on?

Ten years of money printing by the Federal Reserve has removed true price discovery from the markets.  The best evidence is the inexorable rise in the stock market despite the fact that corporate earnings have been driven largely by share buybacks and GAAP accounting gimmicks.  Measuring stock values  on the basis of revenue and revenue growth multiples would reveal the most overvalued stock market in U.S. history.

Now that the Fed has stopped printing money used to buy Treasury issuance and prop up the banks, the system is vulnerable to relatively small increases in interest rates.  20 years ago, when I was trading junk bonds on Wall St, a 60 basis point rise in the 10yr or a 200 basis point rise in the dollar index would have be a non-event.  Now those types of moves permeate the current market and policy narrative.

In fact, the Fed is terrified by the Frankenstein stock market is has created to the extent that, since the sharp decline in August 2015, the Fed steps in to prevent the inevitable crash when a draw-down in the Dow/SPX approaches 10%.

With the dollar moving higher, gold is has been sluggish. Now the price is being attacked aggressively in the paper gold derivatives market.  The propaganda is that a rising dollar and rising rates are negative for gold.  However, gold had one of its best rate or return periods from mid-2005 to mid-2006 while the dollar was spiking higher.  More troubling, the trading pattern in gold and the dollar reminds me of the same pattern in 2008 – just before the de facto financial system collapse hit the hardest (click on image to enlarge):

The economy has been in a recession for most households below the top 1% in wealth and income. This chart is one of many examples showing that most households are not even fortunate enough to be living on the economic gerbil wheel. Instead, they are sliding backwards downhill in their debt/lease-saddled vehicle and the brakes are about to go out:

I would argue that the rising dollar – an concomitantly the obvious official attack on the price of gold – is the signal that the wheels are coming off the system. The Government issued nearly half-a-trillion dollars in Treasuries in Q1, thanks to the soaring defense and entitlement budget  combined with the massive tax cuts. The spending deficit and the flood of Treasury issuance is going to get worse from there and well beyond the CBO’s sanguine projections.

Throw in soaring oil and gasoline prices and rising household debt delinquency/default rates against a backdrop of stagnant wages and an accelerating ratio of household debt service payments to personal income and it’s pretty obvious that the wheels are coming off the system.

The U.S. economic and financial system is an enormously fraudulently Ponzi scheme in which record levels of money printing and credit creation have acted as temporary bandages placed over gaping cancerous economic wounds that are soon going to start hemorrhaging.

The homebuilders are already in a bear market, like the one that started in mid-2005 in the same stocks about 18 months before the stock market started heading south in 2007. My Short Seller’s Journal subscribers and I are raking in a small fortune shorting and buying puts on homebuilder stocks. As an example, I recommended shorting Hovnanian (HOV) at $2.88 in early January. It’s trading at $1.78 as I write this – a 38.2% ROR in 4 months. Anyone get that with AMZN in the last 4 months? You can learn more about the SSJ here: Short Seller’s Journal.

Subprime Mortgages: The Dog Returns To Its Vomit

Other people’s money is always more fun to play with recklessly than your own.  As such there’s been a quiet escalation in number of  private capital pools offering mortgage (and auto) financing to subprime quality borrowers.  “Special Circumstance Lending” is one such lender in Denver.  It constantly runs ads on Denver radio.

The proprietor of Special Circumstance Lending was an aggressive participant in the junk mortgage underwriting business and dumped more than his fair share of subprime crap into the Wall Street mortgage securitization scheme that led to “The Big Short.” SCL doesn’t need to see your tax returns.  It will give you a mortgage based on bank account statements.

The big Wall Street banks appear to have retreated from risky mortgage lending.  But have they? Though new regulations are intended to limit the amount risk the big banks take underwriting mortgages , the banks instead extend large lines of credit to private “non-bank” mortgage lenders, like Exeter Finance.  The average credit score of Exeter underwritten paper is 570.   If Exeter doesn’t get repaid, the big banks extending the funds to underwrite that garbage won’t get repaid.

The Government, via Fannie Mae and  Freddie Mac, has been underwriting de-facto  subprime mortgages – though they are still labeled “prime” for securitization purposes – for a couple of years.  Let’s face it, a 3% down payment mortgage – where the 3% does not have to come from the pocket of the homebuyer – with a 50% DTI (50% of pre-tax monthly income is used to service debt) is not a prime-grade piece of paper. I don’t care what the credit score is attached to that underwriting.

But Freddie Mac is taking it one step further down the sewer. A Short Seller’s Journal subscriber who is involved with an investment fund that invests in difficult financings sent me the flyer he received for the new Freddie Mac dog vomit mortgage:  “I occasionally process residential mortgages, so I stay on top of the underwriting guidelines…As of July 29, you can buy a single family / condo (there has to be a first time homebuyer on the deed), with ZERO DOWN AND A 620 CREDIT SCORE, WITH NO INCOME RESTRICTIONS. I had a stroke when I read that!”

There is no minimum borrower contribution from borrower personal funds.  Furthermore, borrowers who put down 5% do not have to have a credit score.

The mortgages now offered by the Federal Government are beginning to look and smell like the same sub-prime sewage that was proliferated by Countrywide, Wash Mutual, etc in the mid-2000’s.  True, as of yet we have not seen a widespread issuance of the adjustable-rate ticking time bombs that triggered the financial crisis. But the U.S. Government, using your taxpayer dollars, has become the new subprime lender of first resort for first time homebuyers who have little financial capability of supporting the cost of home ownership for an extended period of time.

Like the dog returning to its vomit, the U.S. financial system has returned to the business of underwriting the next financial crisis.   Only this time around the Federal Government is providing a large share of the “rope” with which new homebuyers will eventually hang themselves.  The financial explosion that is going occur will be worse than 2008 because the average household has significantly more debt relative to income now, with more than 75% of all households living from paycheck to paycheck.  One small hiccup in the economy will trigger an avalanche of debt defaults.

Despite what seems like a strong housing market and buoyant stock market, the XHB homebuilder ETF is down 15.4% since mid-January. Many individual homebuilder stocks are down a lot more. My subscribers and I are making a small fortune shorting and trading puts on homebuilder stocks.  You can learn more about my subscription newsletter here:  Short Seller’s Journal information

 

Insane Valuations On Top Of Insane Leverage

The recent stock market volatility reflects the beginning of a massive down-side revaluation in stocks. In fact, it will precipitate a shocking revaluation of all assets, especially those like housing in which the price is driven by an unchecked ability to use debt to make the “investment.” This unfettered and unprecedented asset inflation is resting precariously on a stool that is about to have its legs kicked out from under it.

The primary reason the U.S. is now holding a losing hand at the global economic and geopolitical “poker table” is that this country has been committing too many sins for too long for there not to be a price to be paid. With bankrupt Governments (State and Federal), a bankrupt pension system, a broken healthcare system, all-time high corporate and household debt levels and a broken political and legal system, the U.S. is slowly collapsing. This is the “perfect storm” for which you want to own plenty of gold, silver and related stocks.

Eric Dubin and I are producing a new podcast called, “WTF Just Happened?” The inaugural show discusses the topics mentioned above:

“WTF Just Happened?” w/ Dave Kranzer and Eric Dubin is produced in association with Wall Street For Main Street       –       Follow  Eric here: http://www.facebook.com/EricDubin

Why Trump Won: People Vote Their Wallets

This commentary is emphatically not an endorsement of Trump as President.  I have not voted since 1992 because, when the system gives the public a Hobson’s Choice, voting is pointless.

An  age-old adage states that “people vote with their wallets.”  The chart below suggests that this adage held true in 2016:

The graphic above (sourced from Northman Trader) was prepared by Deutsche Bank and the data is from the Fed. It shows that, since 2007 through 2016, U.S. median household net worth declined between 2007 and 2016 for all income groups except the top 10%.

Given that a Democrat occupied the Oval Office between 2008-2016, and given that the economic condition of 90% of all households declined during that period, it follows logically that empty promises of a Republican sounded better to the general population of voters than the empty promises of a Democrat.

In other words, the “deplorables” didn’t vote for Trump because they wanted a wall between the U.S. and Mexico or they wanted to nuke North Korea off the map, they voted for a Republican because the previous Democrat took money from their savings account.

The rest of the propaganda and rhetoric  connected to the 2016 election, which was elevated to previously unforeseen levels of absurdity, was little more than unholy entertainment that served to agitate the masses.  These two graphs explain a lot about the outcome of the 2016 “election.”

Economic, Financial And Political Fundamentals Continue To Deteriorate

I’ve been writing about the rising consumer debt delinquency and default rates for a few months.  The “officially tabulated” mainstream b.s. reports are not picking up the numbers, but the large credit card issuers (like Capital One) and auto debt issuers (like Santander Consumer USA) have been showing a dramatic rise in troubled credit card and auto debt loans for several quarters, especially in the sub-prime segment which is now, arguably the majority of consumer debt issuance at the margin.  The rate of mortgage payment delinquencies is also beginning to tick up.

Silver Doctor’s Elijah Johnson invited me onto his podcast show to discuss the factors that are contributing to the deteriorating fundamentals in the economy and financial system, which is translating into rising instability in the stock market:

If you are interested in learning more about my subscription services, please follow these link: Mining Stock Journal / Short Seller’s Journal. The next Mining Stock Journal will be released tomorrow evening and I’ll be presenting a junior mining stock that has taken down over 57% since late January and why I believe, after chatting with the CEO, this stock could easily triple before the end of the year.

“Thanks so much. It was a pleasure dealing with you. Service is excellent” – recent subscriber feedback.

It’s Not The Trade Wars That Should Worry You

Trade wars historically have been symptomatic of more profound underlying problems. Primarily economic in nature. Any big war in history can be tied to economic roots. The degree to which the U.S. financial and economic system is self-destructing varies inversely with the amplitude of the propaganda promoting the opposite.

Yet, in 2016 based on the latest annual W-2 numbers available (SSA.Gov), 55% of worker earn less that $34k per year; 80% of all Americans earn less than $63k per year. Based on the BLS’ labor force participation rate, 37% of all working-age Americans were not considered part of the labor force. But wait, you’re not considered part of the “labor force” if you have not actively looked for a job in the past four weeks.

Just based on these attributes, how is it all possible that the U.S. economy is “healthy and growing?” I’ve left out the fact that household debt hits a new record every month. The average car loan outstanding is $31k. How does that compare to the income numbers? This means that, on average, 80% with a car loan have an outstanding balance that is about 50% of their annual salary. What would happen to the economy if the Government were unable to issue more Treasury to fund the accelerating spending deficit? Sorry to break the news but the economy is collapsing…

Trump’s solution to this is to give us the three-headed neo-con monster called Bolton, Pompeo and Haspel. All three are drooling to drop nukes, spy on U.S. citizens and torture anyone who disagrees with U.S. imperialism.

Paul Craig Roberts posted a must-read article by Stephen M. Walt:

[T]he departures of Tillerson and McMaster and the arrivals of Bolton, Pompeo, and Haspel herald the ascendance of a hawkish contingent that will tear up the Iran deal, reinstate the torture regime, and eventually start a war with North Korea that goes way beyond a simple “bloody nose.” And with Bolton in the White House, Trump is going to be advised by a guy who never saw a war he didn’t like (when observed from a safe distance, of course)…Let me be clear: Bolton’s appointment is on par with most of Trump’s personnel choices, which is to say that it’s likely to be a disaster

You can read the rest of this here: Welcome To The Dick Cheney Administration

Upon reading that commmentary, you’ll understand why it’s not the trade wars that keep up at night…