Tag Archives: Sears

Illinois On The Brink? The Whole Country Is On The Brink

The biggest problem facing Illinois is the public pension fund problem.  I don’t care what the “official” number is for the degree to which it is underfunded.  I can guarantee that even without marking-to-real-market the illiquid investments like private equity funds, derivatives, commercial real estate trusts and other assets that do not have truly visible markets, collectively the public pension system in Illinois is at least 60-70% underfunded.   Then apply a realistic assumed actuarial rate of return on assets, which would be lower than the current assumption (likely 7.5% ad infinitum) and the underfunding goes to 80%. The problem is unsolvable without a complete and drastic restructuring.

I was in a Lyft ride today and the driver happened to be from the northwest suburban area of Chicago.  There’s a lot bad things happening in that State that are not reported in the mainstream media.  All road public road work has been halted except toll roads.  The gun violence has worked its way from the South Side up through downtown into the Gold Coast neighborhood and is winding its way north.

He said that his old house at peak prices in northwest burbs was worth over $500k.   The current resident has it offered for $250k.   Housing and real estate prices are plunging.   He has a good friend who consults with Sears and the expectation is that SHLD could file bankruptcy any day (Short Seller Journal subscribers were shown this idea on April 2, 2017 at $11.49 – it’s been as low as $6.20 since then).

It’s not just Illinois.  The entire system is crumbling beneath the surface.  As long as the mainstream media isn’t reporting the truth, the “truth” can’t be that bad, can it?  The truth is worse than any of us can possibly know.

There’s a 1%/99% in this country that’s different than the assumed meaning for that term. For 99% of the population, economic reality and systemic truth has been covered up and kicked down the road for so long that this segment of the populace is willing to believe there may well be a such thing as a “free lunch.”  To 99%’ers, it’s inconceivable that the grim-reaper could or ever would show up to collect.  Of the 1%, a small percentage not part of the insider elite can see most of the truth and can imagine that the whole truth is far worse than what can be perceived from publicly available information.  The balance of the 1% are the insiders.

I stated in 2003, after watching the tech bubble collapse and the housing bubble inflate, that the inside elitists were going to keep the system propped up with printed money and easy credit until they had swept every last crumb of middle class wealth off the table and into their own pockets.  I also said that nation’s retirement assets would be last crumbs remaining.  Enabling pension underfunding is another form of debt used to confiscate wealth.  That’s why the catastrophic underfunding of pensions was allowed to persist.

For purposes of my analysis, anyone who does not have enough money in the form of cash in hand to buy a Federal politician or buy the direct phone number to the Oval Office is “middle class.”  There’s plenty of douche-bags running around with assets worth 8-figures but they don’t have enough spare change to buy their way in to the elitists’ card game.

We are at the point where the last crumbs are being swept off the table.  It looks like Illinois will be the first to fall but there will be several others that follow.  Part of the motivation by the Fed/Government to hold up the stock market like it has been doing is to keep the big State pension funds propped up for proper looting – like a prize-fighter being held up under the shoulders after passing out in order to deliver more punches to the face.

I suspect the time at which the system will be allowed to collapse is not too far off.  The only question for me is whether or not the “Mad Max” scenario engulfs the country before the outbreak of World War 3…

Orwell’s Theorem: The Opposite of Truth Is The Truth

All propaganda is lies, even when one is telling the truth. – George Orwell

A reader commented that the number of corporate lay-offs in America is escalating, yet the unemployment rate seems to keep going lower.  Part of the reason for this is that the 2008 collapse “cleansed” corporate america’s payrolls of a large number of workers who are eligible to file for unemployment benefits.

The Labor Force is derived from the number of people employed + the number of people looking for work.  To continue receiving jobless benefits during the defined period in which fired workers can receive them, they have to demonstrate that they are looking for work.  Ergo, they are considered part of the Labor Force.  Once the jobless benefits expire, they are removed from the Labor Force unless an enterprising Census Bureau pollster happens to get one on the phone and they answer “yes” when asked if they are/were actively looking for work.   Those who do not qualify for jobless benefits more often than not are removed from the Labor Force tally.  This is why, last month for example, over 600,000 people were removed from the Labor Force.

Reducing the Labor Force de facto reduces the unemployment rate.  Thus, there’s an inverse relationship between layoffs and the unemployment rate.  It’s an Orwellian utopia for the elitists.

Today’s stock market is a great example of the “opposite of truth is the truth” theorem.   It was reported by Moody’s that credit card charge-offs have risen at to their highest rate since 2009 – LINK.  This means that defaults are rising at an even faster rate, as finance companies use accounting gimmicks to defer actual charge-offs as long as possible.  A debt that is charged-off has probably been in non-pay status for at least 9-12 months.

The same story has been developing in auto loans. The 60+ day delinquency rate for subprime auto loans is at 4.51%, just 0.18% below the peak level hit in 2008. The 60+ day delinquency rate for prime auto loans is 0.54%, just 0.28% below the 2008 peak. In terms of outright defaults, subprime auto debt is just a shade under 12%, which is about 2.5% below its 2008 peak. Prime loans are defaulting at a 1.52% rate, about 200 basis points (2%) below the 2008 peak. However, judging from the rise in the 60+ day delinquency rate, I would expect the rate of default on prime auto loans to rise quickly this year.

Now here’s the kicker: In Q3 2008 there was $800 billion in auto loans outstanding. Currently there’s $1.2 trillion, or 50% more. In other words, we’re not in crisis mode yet and the delinquency/default rates on subprime auto debt is near the levels at which it peaked in 2008. These numbers are going to get a lot worse this year and the amount of debt involved is 50% greater. But the real problem will be, once again, the derivatives connected to this debt. It would be a mistake to expect that this problem will not begin to show up in the mortgage market.

Amusingly, the narrative pitched by Wall Street and the sock-puppet financial media analysts is that the credit underwriting standards have only recently been “skewed” toward sub-prime. This is an outright fairytale that is accepted as truth (see Orwell’s Theorem). The issuance of credit to the general population has been skewed toward sub-prime since 2008. It’s the underwriting standards that were loosened.

The definition of non-sub-prime was broadened considerably after 2008.  Many borrowers considered sub-prime prior to 2008 were considered “prime” after 2008. The FHA was the first to pounce on this band-wagon, as it’s 3% down-payment mortgage program enabled the FHA to go from a 2% market share 2008 to a 20% market share of the mortgage market.

Capital One is a good proxy for lower quality credit card and auto loan issuance. While Experian reports an overall default of 3.3% on credit cards, COF reported a 5.14% charge-off rate for its domestically issued credit cards. COF’s Q1 2017 charge-off rate is up 48 basis points (0.48%) from Q4 2016 and up 100 basis points (1%) from Q1 2016. The charge-off rate alone increased at an increasing rate at Capital One over the last 4 quarters. This means the true delinquency rates are likely surging at even higher rates. This would explain why COF is down 17% since March 1st despite a 2.1% rise in the S&P 500 during the same time-period.

To circle back to Orwell’s Theorem, today the S&P 500 is hitting a new record high. But rather than the FANGs + APPL driving the move, the push higher is attributable to a jump in the financial sector. This is despite the fact that there were several news reports released in the last 24 hours which should have triggered another sell-off in the financial sector. Because  the stock market has become a primary propaganda tool, it’s likely that the Fed/Plunge Protection Team was in the market pushing the financials higher in order to “communicate” the message that the negative news connected to the sector is good news.  Afer all, look at the performance of the financials today!

Days like today are great opportunities to set-up shorts. Most (not all) of the ideas presented in the Short Seller’s Journal this year have been/are winners.  As an example Sears (SHLD) is down 39% since it was presented on April 2nd.   I’ll present two great short ideas in the financial sector plus a retailer in the next issue.  You can learn more about the Short Seller’s Journal here:  SSJ Info.

A Stock Market Crash: A Matter Of “When,” Not “If”

Given group-think and the determination of policy makers to do ‘whatever it takes’ to prevent the next market ‘crash,’ we think that the low-volatility levitation magic act of stocks and bonds will exist until the disenchanting moment when it does not. And then all hell will break loose, a lamentable scenario that will nevertheless present opportunities that are likely to be both extraordinary and ephemeral.  –  Highly regarded hedge fund manager, Paul Singer, in his latest investor newsletter

Singer has apparently has unloaded $5 billion worth of stock, which is 15% of his funds management.

Anyone happen to notice that several market commentators have argued that Bitcoin is  a bubble but the same stock “experts” look the other way as the U.S. stock market becomes more overvalued by the day vs. the deteriorating underlying fundamentals? Bitcoin going “parabolic” triggers alarm bells but it’s okay if the stock price of AMZN is hurtling toward parity with the price of one ounce of gold. Tesla burns a billion per year in cash. It sold 76,000 cars last year vs. 10 million worldwide for General Motors. Yet Tesla’s market cap is $51.7 billion vs. $48.8 billion for GM.

This insanity is the surest sign that the stock market bubble is getting ready to pop. If you read between the lines of the the comments from certain Wall Street analysts, the only justification for current valuations is “Central Bank liquidity” and “Fed support of asset values.” This is the most dangerous stage of a market top because it draws in retail “mom & pop” investors who can’t stop themselves from missing out on the next “sure thing.” There will be millions of people who are permanently damaged financially when the Fed loses control of this market. Or, as legendary “vulture” investor Asher Edelman stated on CNBC, “I don’t want to be in the market because I don’t know when the plug is going to be pulled.”

A friend/colleague of mine is a point and figure chart aficionado. He sent me an email on Thursday in which he said even with the five horsemen (FANGs + AAPL) and the SPX and Dow up today (and the SPX setting a new all-time high), the bullish percent index (BPI) of the NYSE is negative which means there are more stocks generating a point and figure sell signal than a buy signal. This has been fairly consistent over the past couple of weeks. (Note: the bullish percent index is a breadth indicator based on the number of stocks on point & figure buy signals). When the BPI is negative over an extended period of time, it reflects the fact that a lot more stocks in the NYSE are trending lower than are trending higher. When a declining number of stocks are participating in the move higher of a stock index, it is a bearish signal.

As my friend says, “in reality this will continue until it doesn’t.” He goes on to say: ” what this shows me is that at this time it’s much better to be strategically short than broadly short. This will change too at some point…”

Picking out strategic shorts has been the focus of the Short Seller’s Journal. Not all of the ideas have worked and a couple back-fired – in defiance of the company’s underlying fundamentals – but many ideas are well below the price at which they were presented either the first time or presented again thereafter. One idea that has declined 39% (declined $42) since August 2016 is Ralph Lauren, which was presented on August 14, 2016 at $108.19. It closed Friday at $66.11, down 41 cents on a day when the SPX hit another all-time high. RL has closed lower on 12 of the last 13 days.

One subscriber emailed me earlier this week to let me know he had shorted 200 shares at $108 and covered 100 of it this week. He’s hanging on to the other 100 share short. I mentioned to him that my 12-18 month target was $50 and that he should hold the other 100 short at least until August because it’s only going to get worse for the consumer and retailers.

Currently there’s a a large percentage of stocks trading below their 50 and 200 day moving averages.  Many stocks are close or at 52-week lows.  Some stocks, like Sears Holdings (SHLD) are no-brainer shorts.  Sears is going to file for bankruptcy – it’s down 32% from April 2nd, when it was presented as a short idea in the Short Seller’s Journal.  Similar to the probability of a stock market crash, it’s  a matter of “when,” not “if.”