Tag Archives: real estate

The Friday Avalanche In Vail Resorts Stock

I recommended shorting MTN to my Short Seller’s Journal subscribers in my December 2nd issue.  While I expect MTN to lose at least $200 over time, I did not expect nearly 25% of that price-decline expectation to occur in 5 trading days after I presented the idea.

After I sent out my newsletter last Sunday, a subscriber sent me a link to a Motley Fool article titled, “Why You’re Smart To Buy Vail Resorts Now.” I had to laugh. I certainly hope that report didn’t deter any of my subscribers from shorting MTN or buying puts. I booked a 4-bagger on the puts I bought last Friday. I had several subscribers email me with thanks, most reporting gains anywhere from 2x to 5x (I always advise that shorting shares gives you the best probability of success shorting but I use put options and present put option ideas with every short idea). Here’s an excerpt from this idea presentation last week:

Shorting MTN was an idea I had been thinking about for a few months. About two weeks ago I heard a radio ad from a Denver-based, national mortgage firm (American Financing) which pitched the idea of using a home equity loan to raise money for a down payment to purchase a ski resort condominium or house. At that instant I knew the top was in for both the mortgage underwriting business and mountain real estate. Shorting Vail Resorts is pretty much the only avenue for expressing a bearish view on mountain resort real estate.

The insiders at MTN must agree with my view. Over the last three months there have been 23 open market stock sale transactions and zero purchases. Over the last 12 months, there have been 38 open market stock sales and 1 purchase. The purchase was for just 225 shares in December 2017.

With the help of Fed money printing and highly accommodative bank commercial real estate lending policies, MTN went on a large resort acquisition spree. The highly accommodative Government mortgage programs helped MTN capitalize on 2nd home resort home sales. The stock ran from $16 in early 2009 to an all-time high of $301 on September 4, 2018.

The stock trades at a 30 p/e, which is absurd for a business with a top line that grew just 5% year over year for its fiscal year 2018, which ended at the end of September. As the falling economy begins to take a wrecking-ball to the resort industry, Vail Resorts revenues will tank and the Company will begin to take big asset write-downs (real estate and building values). This will send the stock mercilessly lower.

Having studied, researched and traded the real estate industry for the better part of 25 years, including trading this sector as a junk bond trader on Wall Street in the 1990’s, I know that mountain resort real estate has a beta of at least 2 vs metropolitan real estate.

When the sector goes bad, mountain properties go bad times at least 2. Vail Resorts is not immune to this just because Vail and Beaver Creek cater to the wealthier demographic. Many of MTN’s resorts host the middle class. This is the middle class that uses home equity loans to buy vacation properties. We saw the downside effect of mountain resort real estate leverage on Friday when MTN lost $48 – or 17.8% of its value – on one day on one earnngs “miss.”

I have not had a chance to dig elbow-deep into MTN’s earnings report yet.  But by the time I release this Sunday’s next issue to my  subscribers, I’ll have a good a idea about what happened and why last quarter and where my next bet will placed based on what will likely happen over the next 12 months with Vail Resorts’ fundamentals and stock price.  That said, I have mentioned to colleagues that I expect, based on a rapidly deteriorating economy, that this coming ski season – though likely a banner year for snow quality – will fall well short of analyst expectations in terms of skier visits and money spent.

You can learn more about my stock shorting newsletter here:  Short Seller’s Journal.

The Housing Bubble Is Popping

The Seasonally Adjusted Annualized Rate (SAAR) economic numbers are now manipulated beyond the definitional meaning of the word “absurd.”  This is especially true with the housing market and auto sales reports.  – Investment Research Dynamics

Today the NAR released its “pending home sales” index.  On a “seasonally adjusted annualized rate” basis, it showed 1.3% gain over June.  June’s original report was revised lower from +.8% to -.2%.  Mathematically, this downward revision enabled the National Association of Realtors to report a gain from June to July.  Keep in mind this is on a “seasonally adjusted” and “annualized rate” basis.

Now for the real story – at least as real as the reliability of the NAR’s data sampling  Untitledtechniques.   In the same report the NAR shows the “not seasonal adjusted” numbers. (click on image to enlarge) On a year over year basis for July, pending home sales were down 2.2%.  They were down 13% from June.   This is  significant for two reasons.  Using a year to year comparison for July removes seasonality and it removes the “seasonal adjustments.”   Just as important, if you look at historical data for existing home sales by month, “seasonality” between June and July is non-existent – i.e. in some years June sales exceed July and in other years July exceeds June.

The not seasonally adjusted data series is much more reflective  of the real trend in the housing market that has developed this summer than is the manipulated SAAR number vomited by the NAR’s data manipulators.  The 13% from June to July should shock the hell out of housing market perma-bulls.

FURTHERMORE, the not seasonally adjusted numbers are consistent with the highly correlated mortgage purchase applications data.   “Pending” sales are based contracts signed.  Concomitantly with signing a contract – the NAR reported that 80% of all existing home buyers in July used a mortgage – the buyer needs to file a purchase application.  But the Mortgage Bankers Association reported that mortgage purchase applications hit a 6-month low in July.    The mortgage applications data contradicts the NAR’s pending home sales report on a SAAR basis but is entirely consistent with the pattern in the not seasonally adjusted data.

The not seasonally adjusted data are pointing to a rapidly developing housing market implosion – 13% drop in contracts signed from June to July in a two-month period that has little if any seasonality and with 30-yr fixed mortgage rates hitting all-time lows.
Just like the big bubble which finally exploded in 2007-2008, I was early in my call on Housing Bubble 2.0  (HB 2.0).   Because it takes a lot of capital and “inertia” to move the housing market, directional movements take time to develop and they become fast-moving trains with no brakes – until they either hit a wall or hit the ground.  But change in direction happens suddenly.

When prices are moving up, the market becomes very illiquid on the “offered’ side and buyers become ravenous.  This occurred because the Fed dedicated $2 trillion of it’s QE to the mortgage market and the Government made Government-guaranteed mortgages much easier for buyers by taking the down payment requirement down to 3% and in some cases 0%.   But when the market rolls over, supply quickly builds and demand disappears and the market becomes very illiquid on the “bid” side.  The market is about to become very illiquid on the buyer side of the equation.

I made this call in my latest Short Seller’s Journal this past week:

The housing market is heading south now as well. It’s been my view, and I’ve supported this view with detailed analysis of new and existing home sales on my blog, that both the Government (new home sales report) and the National Association of Realtors (existing home sales report) are using their mysteriously calculated “seasonal adjustments” to inflate the true level of homes being sold on a monthly basis. MOREOVER, and this point is crucial to understand, to the extent that there are flaws in the “seasonal adjustments,” the “annualized rate” calculation compounds these flaws by a factor of 12.

As an example, last week’s new home sales report, which showed an unexpected and absurd 72,000 (SAAR) new homes sold in July vs expectations and 154,000 more homes sold vs. July 2015. However, the report also shows the “not seasonally adjusted, not annualized number for July, which never makes its way into the media reports. In that section it shows only 16,000 more homes vs the 154k SAAR headline sold year over for July AND a decline in sales from June to July of 6,000 homes. In other words, the sensationalized headline reports were manufactured out of thin air from the “seasonal adjustments” applied to the monthly numbers and then converted into an annualized rate

As you can see, the Government’s new home sales report is utterly unbelievable. In fact, the Mortgage Bankers Association has reported that mortgage applications to purchase homes hit a 6-month low in July. New home sales are based on contracts signed. With 93% of all new home buyers using a mortgage, if mortgage applications are not being filed, contracts are not being signed. It’s really that simple.

The NAR’s existing home sales report was well below consensus expectations and showed a 3.2% drop in existing home sales from June and a 1.6% drop from July 2015. These numbers are based on closings. Again, if mortgage purchase applications dropped in June and July, we can expect (or at least should expect )that existing home sales reports for at least the next two months will show further declines. Furthermore, the NAR uses the same statistical “adjustment” model as the Government. To the extent that the NAR’s SAAR numbers showed a decline, the true decline is likely much greater.

After the employment, GDP and inflation reports, the home sales reports from both the Government and the National Association of Realtors are among the most highly manipulated economic data reports.  The data is heavily modeled and massaged via the “seasonal adjustments.”

The truth from the ground, based on the extensive footwork due diligence I conduct plus emails from readers around the country reporting similar observations, is that the inventory of home listings of soaring (the published inventory reports by design have 2-3 month lag), prices are dropping quickly, the time it takes to sell a home is increasing significantly and, most important, the potential pool of middle class home buyers no longer have an income level that will support the size of mortgage it takes to “buy” a home.

Short-sell ideas are starting to work again.   The short-sell selections in my Short Seller’s Journal have now worked four weeks in a row.   My pick from 3 weeks ago is down 6%.  At one point it was down 10%.  The pick from two weeks ago gave subscribers a quick 13% drop after it reported earnings and it’s still down 10%.   My pick from last week is down nearly $2  (2.3%)  after 2 1/2 days of trading  but the puts are up 42%.  I am also making several homebuilder short recommendations now each week.

You can subscribe to the Short Seller’s Journal by using this link:   SSJ subscription.

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As Housing Crashes, Gold Will Soar

The precious metals market is at the end of its typical mid-July to last August “breather.” This is the time of the year when the eastern hempisphere physical buyers are somewhat dormant.  Over the last several years, China’s emergence as the world’s largest gold importer has somewhat reduced the late summer seasonal sell-off.  But it’s the period of the year when it’s the easiest for the paper manipulators to push the price of gold lower.

Quite frankly, gold is up 25% since mid-December and 10% since early June.  Notwithstanding the fact that, if left alone to trade freely, gold would go parabolic for at least $700-$1000, it’s been one of the best performing asset classes YTD and can use “technical breather.”  But India is starting to flex its muscle as it heads into its biggest seasonal gold buying period of the year from right around now to mid-December.

On the other hand, the housing market is getting ready to rollover. Its already crashing in some areas (Hampton, Aspen, Miami), as noted by Investment Research Dynamic’s Short Seller’s Journal two weeks ago.   The higher end of the price spectrum is loaded with inventory in most major MSAs  and inventories in the middle and upper-middle price segments are building quickly.   July was negative month for existing home sales and mortgage applications.   The only area homes were being “sold” was in the Government’s highly manipulated new home sales report.

The Shadow of Truth discusses gold and housing  and the direction in which each is headed in its late episode:

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Powered by The Daily Coin, Investment Research Dynamics

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Desperation Sets In With Homebuilders

Lennar announced that they are going to jump into the home rental business.   This is another way of conveying the fact that they have too much inventory and need to try and “monetize” some of their inventory.   Housing:  Look Out Below.

This is an outright acknowledgement that the market for home sales is deteriorating.  As it is, the big investment firms who loaded on buy-to-rent properties are already looking for exit strategies:

Small batches of investor-owned properties have trickled into public listings, indicating some investors may be gearing up for larger liquidations, according to Daren Blomquist, vice president at the online real estate company RealtyTrac.

More than just “small batches” have already been liquidated.  Big investment companies are finding that its more difficult to achieve acceptable lease yields, especially after expenses, than their junior analysts’ Excel spreadsheet models indicated.

SCAM

The big investment firms sucked up a lot of the inventory overhang from the big bubble.  Now that there’s been a glut of apartments built and being built, the rental market is going to “soften up” significantly.  It already is in Denver.   Now Lennar is throwing in the towel on frozen inventory and will add even more inventory to rental market.  Eventually there will be a flood of unrented properties hitting the market for sale, as hedge funds rush for the exits.  This is the catalyst that will cut the housing market’s Achilles’ Heel.   It is going to get ugly.

I predicted this would happen about 18 months ago.  It’s been taking a bit longer than I expected, but it’s happening now.

I have documented in detail in my housing research reports that new homebuilders have exceptionally bloated inventories now, especially in relation to their rate of unit sales volume and their debt levels.  Lennar’s announcement confirms my view.