Tag Archives: short sell ideas

The Economy Is Tanking – Housing Is Next

Do not get pimped into buying house now.  Wait 6 to 12 months if you really want to take on that expense because you will get a much better price.  The housing metrics promoted by Wall Street, industry associations and Bloomberg/Fox Biz/CNBC are just as bad as the Government’s seasonally adjusted, annualized rate pig vomit.

Denver is turning into one big “New Price” sign.  Also, I’ve never seen more homes “for rent” in central Denver than now.  Ma n Pa investors will take it in the back side on those homes and I bet many of them are stuck flippers or “swing traders.”  Unfortunately for everyone, many of the Ma n Pa retail price chasers started using mortgages to make their “investment” purchases.  Many of them also checked the “vacation home” box on the mortgage application to get better financing terms.  This will not end well.

Inventory now is piling up across the price spectrum more quickly than the brown stuff waiting to hit the fan blades.  The upper-end price segment of market has more inventory listed than I can recall seeing 2008.  Some small enclaves with psuedo, over-priced mini McMansions have 15-20% of the homes on the market (see Highlands Ranch Golf Club area, for instance).

I wrote an article for Seeking Alpha which explains how some of the “lower profile” housing market metrics are telling a completely different story than the pump and dump headlines on which most of the world reacts:

The bounce in home sales since mid-2010, which has been driven by the Fed’s near zero interest rate policy and $3.6 trillion in QE, has lasted longer than I expected. However, data released recently suggests that the housing market may finally be rolling over. Both mortgage purchase applications and pending home sales declined unexpectedly in July. This data followed a large unexpected drop in new home sales in June (released at the end of July).

You can read the rest of this article here: Renewed Downturn In Housing Starts

Hovnanian will be the first homebuilder to hit the wall this time around. But I have two research reports on companies that will be #2 and #3. I believe one of them may not see 2016’s Christmas. You can access these reports here:  Homebuilder Short-Sell Reports

#2 is the report posted in February.  While it’s not easy shorting anything in this market, patient traders will make a lot of money shorting the homebuilder sector.  The stock prices of these companies have completely dislocated from the underlying fundamentals.  When fundamental reality hits, it will be a bloodbath.

March New Home Sales Fall Off A Cliff – Housing Stocks Plunging

I knew the top  was in two weeks ago when Cramer went on Mad Money and recommended going long three homebuilder stocks.  We know that Cramer’s function on CNBC is primarily to get retail investors hyped up on highly overvalued stocks that his hedge fund buddies are looking to unload but need liquidity in order to sell big positions. Cramer’s picks are notorious horrendously.   Anyone remember Bear Stearns?

New home sales went off a cliff in March vs. February – down 11.4% month to month.  This is in the context of falling mortgage rates, zero-percent down payment mortgages, significantly reduced FHA, Fannie Mae, and Freddie Mac mortgage insurance premiums and a substantial loosening of mortgage underwriting standards.   This is ALSO in the context of new home builders providing an increasing amount of incentives, price discounts (vs. officially reported prices) and mortgage financing.

I will have lot more to say on this later this week when I get a chance to dissect the new home sales report.  Suffice it to say that – on a seasonal pattern basis – March new home sales are almost always higher than February.   If we could “unwind” the Census Bureau’s “seasonal adjustments” and annualization calculus, I’m sure the actual March number for new home sales was complete disaster.

I know that homebuilder margins are getting crushed because both DR Horton and NVR reported flashy top-line growth but significantly lower gross margins.  Homebuilders calculate revenues using the listed price but have to add price discounts and incentives into their cost of sales.   This is why DR Horton was down over 5% yesterday despite top-line and bottom-line earnings “beats.”

The Dow Jones Home Construction Index is down 4% down 4.5% right now and is down over 7% since Tuesday’s close.  It’s down over 9% since reaching a frenzied, housing stock bubble high of 600 on April 6.  This is in the context of the S&P 500 pushing toward new all-time highs – click to enlarge:

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The homebuilder stocks are offering us one of the best short-sell opportunities since the tech and housing bubbles popped.  Readers who played my Beazer short-sell recommendation made over 20% in a very short period of time.  Same with KB Homes.  Both of those stocks are now back to where they were when I first published.   All of my homebuilder stock recommendations are going to be home runs.

You can read and understand why here:  Homebuilder Research Reports.   I show in detail how these homebuilders are manipulating their accounting to make their earnings per share look substantially higher than it would be if honest were used.  I also show how they all have accumulated a record level of inventory and debt, in the context of unit sales volume that is one-third the level of the peak of the housing bubble.

You can also see a sample of my homebuilder research by supporting this website – I’ve also included a mining stock research report:

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New Homebuilder Short Report – The Stocks Are Rolling Over, Finally

I was a bit early with my expectation for when the homebuilder stocks would rollover again. But, then again, I underestimated the willingness of the Fed to keep the S&P 500 from falling.

HOWEVER, after hitting a high of 540 eight trading days ago, the DJUSHB appears to have rolled over.  It closed down 4 points today at 527, 2.4% below its high a week and a half ago. In the same time period, the S&P 500 has actually risen a few points.  The DJUSHB bottomed out and started higher in October a couple days before the SPX bottomed and headed up in “V” fashion.  I believe the homebuilders are going to sell off before the Fed lets the stock market drop again.

My latest homebuilder features a company that I believe will eventually end up filing for bankruptcy.  It would have had to file probably sometime in 2011 had the Fed not saved the entire homebuilder stock sector with its QE program.  Interestingly, this stock – using a monthly graph which I show in the report – has stayed at roughly the same trading level since early summer 2013.  I have stated many times that the housing market mini-bubble peaked in July 2013.

I believe this is my most well-written and documented homebuilder report.   A recent buyer of my last homebuilder report sent me this email just this morning:  “Thank you for the report. Knock on wood…it has been profitable for me right out of the gate.”

You can access my latest report here:   Homebuilder Stock Reports.

This particular company has more than 4x the amount of debt per unit home sold that it had in 2005.  It also uses extremely misleading accounting, as I detail in my report.  In fact, I show how the Company, in reality, has now lost money 7 years in a row, despite its proud announcement that 2014 was its first profitable year since 2007.   You can also access this report by clicking on the pic below:

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I include a section which offers advise on trading/shorting the homebuilders.  I also include a section on using options, with some specific call/put recommendations.   This report is unlike any you’ll find published by Wall Street or subscription research services.   It is much higher quality and very candid.

Another Analyst Explains Why Housing Is In Trouble

This guy explains why the decline in foreclosures and distressed sales is a big negative for the housing market.   While counter-intuitive, his explanation is clear – crystal clear:

In summary, the halting of foreclosures and short sales due to can-kicking — and to a larger extent exotic mortgage mods — has caused serious structural damage to the demand equation of the macro housing market, which amazingly hasn’t not dawned on many yet.

Here’s the full article link:   Headwind For Housing

My first homebuilder short-sell is performing well so far – it has at least $10 of easy downside in it from here, with patience.   This stock traded below $5 in the 1990’s and I expect it go below $5 eventually once again:    Homebuilder Stock Short-Sell Idea

As the overall stock market begins to price in reality and sell-off quickly, it will exert particularly heavy downside force on the homebuilder stocks.

 

Fabulous Fraud-Filled Friday

“Government Employment Report Friday” and “fraud” are synonymous.  It would be redundant to say, “the employment is a fraud.”    If you just say, “employment report,” the word “fraud” is implied.   As an English major in college, I find that tautologies can be intellectually oppressive in certain contexts.  This is certainly one of them…

Of course, it now looks like Banco Espirito Santo is headed to the graveyard.   Most of the creditors and the stockholders, including the “mighty” Seth Klarman of the famed Baupost hedge fund, will see their money and their investors’ money incinerated.

This one was as easy to spot as was Enron.  But what about the derivatives?

Also easy to spot is the fraud known as  homebuilder stocks.  I saw a presentation yesterday by Jeffrey Gundlach here in Denver who gave a scathing assessment of the housing industry and referenced the homebuilder stocks as “insanely overvalued.”

Of course, I’ve been beating this drum since January 2013…You can see my first short-sell research report on a homebuilder with 360% more debt than book equity:   Homebuilder Short-Sell Report.    It’s overvalued by a factor of at least 4x and I uncovered a stunning fact about its accounting.

March Auto Sales: Fundamental Weakness Belies The Headline Reports

I did an in-depth analysis of March auto sales reported last week.  While the month to month from February to March looked good in the headlines, the year over year sales increase was only 1%.  This increase was fueled by exceptionally heavy incentive promotions, dealer channel-stuffing and subprime auto loans.

I wrote an article for Seeking Alpha which analyzes the numbers on a much more in-depth and candid level than any Wall Street/financial media analyst.   You can read the article here:   LINK.

I recommended selling and/or short-selling GM in an article I wrote in early January.  At the time GM was trading a little over $40.  Since then the stock is down over 16%.  During the same period of time the S&P 500 is up over 2%.  Less than half of GM’s decline can be attributed to its recall problems.  Away from the obvious and exceedingly overvalued high tech momentum stocks, I think GM stock is one of the better short-sell plays in the market.  GM is the most widely held stock by the universe of hedge funds and if the market starts to get pummeled, there will be an avalanche of GM stock for sale.   It’s no coincidence that the Government unloaded the rest of its share just a couple months before the recall problems were disclosed.

The overarching issue here is that both housing and auto sales were the primary sources of any economic growth over the past 24 months.   As we’ve seen with retail sales, the average American household/consumer is tapped out.   This has very ominous implications for the U.S. economy, especially as the global economy is also starting to contract.