The Big Short Part Two

Truth is like poetry. And most people f*cking hate poetry. – from “The Big Short”

Ron Paul was on Fox Business last week explaining that stocks and bonds are in a big bubble. He said that, “you need to short this market.” As is my modus operandi, I had the volume muted so I didn’t get hear the Fox hosts’ exasperation. Interestingly, it was reported last week that the short interest in the S&P 500 ETF (SPY) hit an all-time low on March 7th. This is a fantastic contrarian indicator. It also removes the general “short-squeeze” risk from the risk of shorting the market.

Perhaps more curious than Ron Paul’s comments was the warning about the stock market issued by Robert Shiller, who is typically a Wall Street apologist, in an interview on Bloomberg this past Tuesday: “The market is way over-priced,’’ he says. “It’s not as intellectual as people would think, or as economists would have you believe.” Shiller is noted for his warnings about the tech bubble in 1999 and the mid-2000’s housing bubble before it collapsed.

Extreme levels in consumer confidence, investor sentiment, valuations and a steep incline in stock prices have historically marked market peaks. A week ago Investor’s Intelligence bullish sentiment among investment advisors hit its highest level in 30 years. That previous peak corresponded to the market peak in 1987 (the 1987 stock crash was the steepest in history). Consumer confidence hit a 16-year high. The prior peak in consumer confidence occurred right before the tech bubble crashed in 2000.

As detailed in recent Short Seller Journals, the retail mom & pop investor has been piling into the market since the beginning of the year. When the realization that Trump’s campaign promises will never become reality and the “music stops” in the stop market, there will be a broad base of retail stock geniuses looking for seats that don’t exist.

The stock market is perhaps the most disconnected from the underlying fundamental systemic reality than at any time in history. This is true if we were to evaluate the total amount of debt as a percentage of GDP, which is about 345%. At the beginning of 2000, it was about 270%. If we were to adjust the current level of GAAP earnings for the S&P 500 using the GAAP standards applied in 2000, it’s likely that current p/e ratio for the SPX would be at least as high as it was in 2000. And recently it was revealed that retail traffic at malls across the country has fallen off a cliff (15% in February and another 13% so far in March). Used car prices are plunging, which reflects both an oversupply of used cars and a big fall-off in demand. This will quickly spill over into the new car market, which faces a record level of dealer inventory. And bank loan creation has begun to rip in reverse:

Bank loan creation is a product of both demand and supply. A drop of the magnitude shown above occurs because borrowers have stopped forming new businesses or expanding current businesses (except for real estate developers, who will borrow relentlessly until the banks cut them off) and banks have determined that, in the current economic environment, the risk of losing money from lending to businesses and consumers exceeds the potential return (real estate developers are finally getting cut off).

In short, based on the above fundamental data the economy for the most part has fallen off a cliff.

Extreme levels in consumer confidence, investor sentiment, valuations and a steep incline in stock prices have historically marked market peaks. A week ago Investor’s Intelligence bullish sentiment among investment advisors hit its highest level in 30 years. That previous peak corresponded to the market peak in 1987 (the 1987 stock crash was the steepest in history). Consumer confidence hit a 16-year high. The prior peak in consumer confidence occurred right before the tech bubble crashed in 2000.

Most of the above commentary is excerpted from the latest issue (released Sunday) of IRD’s Short Seller’s Journal.  The primary short idea presented is down  4.7% from last Friday’s close.  I just closed out a put position from an idea I presented (including the put otion I would be buying)  two weeks ago for an easy 30% gain.  If you are interested in learning how to make money shorting the most overvalued market in history, click here: Short Seller’s Journal subscription.

I have a feeling, in a few years people are going to be doing what they always do when the economy tanks. They will be blaming immigrants and poor people. – from “The Big Short”

6 thoughts on “The Big Short Part Two

  1. Watched this interesting video about how War of 1812 brought about Panic of 1819 in the US.

    https://www.youtube.com/watch?v=3hV_ctIGDHA

    What I’m fascinated by:

    Despite monetary policy then being specie backed (gold & silver) & unlike today, general population in those days was well aware of role of gold & silver as money. They still got into problems of over-leveraged borrowing, rampant speculation & some other stupidities like today. And after the panic struck, instead of looking inward at their own stupidities, they set into different kinds of divide & conquer blame games (South vs North, farmers vs manufacturers etc.)

    This means that from a structural perspective, history keeps repeating. The divide & conquer blame games after our panic sets in are going to be million times worse than in 1819. In fact, looking all around me right this moment, the divide & conquer blame games are already well underway.

  2. And not to be out-done, here is a different video of THE DESPICABLE DEVIL John Maynard Keynes himself celebrating the end of Gold Standard. I’m unsure of the exact year, but I suspect it’s very soon after the end of war (WWII), probably in 1945 itself?

    1. Great find, thankyou.

      Britain went off gold [again] in 1931 – I suspect that is the event he is celebrating.

      One thing you can do – create your own personal gold standard. As much as is practicable, keep your savings in gold, only using the central bank’s fan-crapulous paper currency when you need to.

      If we’re right, in time the world will come round to our way of thinking. Might as well make money out of their self-defeating obstinacy.

  3. There are 3 incredibly big bombs being reported @ the same time, which deserve attention of many more people. Please publicize to the best of your capability. All of them taken together should make your head spin.

    Paul Craig Roberts:

    The nexus of Deep State & Mainstream Media PROPAGANDA PRESSTITUTES is obviously spreading very wild & extremely DANGEROUS Russia conspiracy theories

    http://www.paulcraigroberts.org/2017/03/22/fbis-conspiracy-theory-trumpputin-collusion-no-clothes-paul-craig-roberts/

    A private cyber-security firm CrowdStrike in charge of guarding DNC servers spread WILD conspiracy theory lies that Russian government officially hacked DNC. These lies were picked up by Deep State & PROPAGANDA PRESSTITUTE media verbatim & they ran with such story since June 2016 without any corroboration. In fact, FBI were denied multiple access requests by DNC when they asked to verify credibility of a “State Actor” hacking into American election process.

    As if that’s not enough, the credibility of this private cyber-security firm CrowdStrike had been called into question in previous unrelated reporting. Ukrainian military had called this company “DELUSIONAL” when they spread conspiracy theory lies that Russian government hacks into Ukrainian military were responsible for massive losses of Ukrainian army tanks.

    http://www.voanews.com/a/crowdstrike-comey-russia-hack-dnc-clinton-trump/3776067.html

    Thought that was crazy enough? Think again. Following story gets even more insane:

    A family of Pakistani brothers with possible terrorist connections (Awan Brothers) was hired as contractors to be in charge of IT security to guard matters of immense national security. Multiple Democrat Reps in fact DESPERATELY pleaded that cyber-security restrictions on Awan Brothers be relaxed to be as lax as possible, or else their work would be impeded. In effect, these Democrat Congressmen/women committed treason.

    The Awan Brothers were embedded deeply with Clinton (Foundation), Huma Abedin/Anthony Weiner, Debbie Wasserman Schultz etc.

    As if that’s not enough, there are strong indications these same Awan Brothers were also in charge of running a Heroin smuggling/dumping rat-line: Opium sourced from Afghanistan, crude refined into heroin in Pakistan, trafficked thru UAE & Turkey hidden in mangos shipped to Pakistani grocery store in Chicago. Links of this drug rat-line w/ Clinton Foundation continues to be under investigation.

    https://wearechange.org/pakistani-awan-family-under-investigation-for-largest-breach-of-national-security-in-history/

  4. Dave,
    I’d like your email address. If I subscribe to your Mining Stock Journal today, will I get the current issue that has this in it:
    In the latest issue of the Mining Stock Journal I review a junior mining stock that was heavily promoted last summer ahead of a big issuance of stock. Many of you may own it thinking you sitting on junior with close to 20 million ounces of gold in the ground. What I found when I examined the background of management and quality of the alleged mineralization on the company’s properties, with no plans for advancing the properties, might shock you. This stock is down 50% from its highs last summer and insiders were dumping shares in September before the stock sold off. This is a stock you want to avoid and you can find out more about it by subscribing:

    1. Hi Mark,

      Yes you’ll get the issue today. I’m out most of the day with a tennis tournament but I’ll be checking for new subscribers sometime around 5-ish MST.

      I have not uploaded the latest issue of MSJ to Paypal yet but when you subscribe you’ll end up on a landing page that let’s you download one of the recent issues.

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