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The Housing Market Hit A Wall In May/June – It’s Headed South Pronto

The commentary below is from my weekly short seller’s newsletter. To learn more follow this link: Short Seller’s Journal

Housing market update – In taking a deeper dive into the existing home sales report for May, I noticed that the distribution of sales across the six price “buckets” shows a different story than the headline number broken out by sales region:

The table above is from the Supplemental Data link on the National Association of Realtors news release. The data is the not seasonally adjusted, monthly data. On a monthly basis for May, the NAR data shows an estimated 364,000 homes (no change YoY) sold in May at a median price of $380,400 (half sold above that price and half below).

The headline numbers, however, are deceptive. Per the top table, the two highest price buckets showed double-digit increases in the number of homes sold YoY while the two lowest price buckets declined YoY. All of the action in the May sales was in the two highest price buckets while the everything below the top two buckets was flat to down. The data reflects the degree to which buying a home or moving up from a starter home has become unaffordable for the majority of households. In fact, Friday’s U of Michigan Consumer sentiment report (discussed below) showed that homebuying conditions in June hit a record low for the history of the data series.

Given the recent reports based on Zillow data that many of the previously hottest housing markets are experiencing a huge influx of listings and big price cuts in the listings, in most areas the buyers in the top two price buckets will soon be underwater on their home purchase. Moreover, as the amount of listings piling up in the various MSAs becomes more “visual” to prospective buyers in the two top price buckets, many will hold off buying.

The homebuilder stocks went straight up the last three days of the week, with most of the move triggered by better than expected, but highly rigged, CPI report.

The ITB ETF was up over 6% and the individual homebuilders stocks were up anywhere from 6-12%. It’s my opinion based on my observations in around the metro-Denver area as well as from reports from around the country that the housing market likely hit a wall in May/June. A colleague and friend who lives in the north-metro part of Denver told me that the DHI salesman who sold him his home not that long ago has quit because he said it’s too slow to make a living.

Per the chart above ITB, as a proxy for the homebuilders, shot straight up after it sold down to its 200 dma (red ma line) and tested it for five days. If the Government had reported inflation honestly, it likely would have done a cliff-dive below the 200 dma. I think the move in ITB in the latter part of the week was a combination of bubble-mania, hedge fund short-covering and technical-based momentum-chasing.

I have to believe that the actual fundamentals of the housing market will invade the highly overvalued homebuilder stock sector within the next three to six months. The primary driver of the record low buying conditions is high home prices. I would argue with high conviction that, given the data on household financials, even if the Fed took rates down to zero percent it would not do much to jump-start the housing market.

Before putting the cart before the horse on interest rate cuts, it should be noted that the CPI report this past week was a total sham. The BLS claims that food prices, which are a significant component of the CPI calculus, declined 0.1% in June from May. I did not experience that in the general basket of food items that I purchase every week. Also gasoline prices have begun to rise again after falling from late April to mid-June. In fact, the average price of gasoline has risen 9% since the beginning of June. Oil futures have jumped 13.2% over the same time period. The price of gas usually lags the directional move in futures.

Furthermore, the PPI report came in hot at 0.2% higher from May vs 0% expected, while May was revised higher. YoY the PPI was 2.6% vs 2.3% expected. The “core” PPI for 0.4%, double the expectation. Worse, prices for intermediate demand goods (partially processed commodities that will be used as inputs to product final demand goods) is accelerating.
The point here is that the market believes that the Fed will cut rates in September and that was one of the catalysts that triggered the melt-up in homebuilder stocks. I also believe that the Fed knows the truth about inflation and will only cut rates, along with restarting official QE, to fund Treasury issuance and save the biggest banks.

With respect to rate cuts, the median new mortgage payment now requires 41.4% (pre-tax) of the median household income according to the data parsed by Reventure Consulting (median household income (Fed) divided by median new mortgage payment (Bankrate). In the previous housing bubble, this metric topped at 39.3%. This is why I believe it won’t change reality for housing market if the Fed eventually takes rates back to zero.

The Big Move In Junior Mining Stocks Is Still Ahead

I research, trade and own the stocks I mention in the podcast below in my mining stock newsletter. I also cover others that I think are compelling investments. You learn more about newsletter here: Mining Stock Journal

By far my largest percentage holdings are the junior [gold and silver] development stocks because I think you are looking at anywhere from five-bagger to twenty-baggers potential in some cases with these stocks. I also expect gold to be north of $2500/oz and silver in the mid-$30’s/oz range by year-end 2024.

Bill Powers invited me back on to his Mining Education podcast to discuss the factors that I see which will drive gold, silver and the mining stocks considerably higher in the coming months and quarters. I also discuss of handful of minings stocks that I think will outperform their peers.

Nvidia And Dutch Tulip Bulb Bubbles

The commentary on NVDA below is from the latest issue of my short seller’s newsletter. You can learn more about it here: Short Sellers Journal

Nvidia update (NVDA – $123.54) – The 2x Long NVDA ETF (NVDL – $69.55) had a record $743 million inflow of investor money during the week that ended Friday, June 21st. Perhaps that was the ultimate contrarian indicator, as the stock price fell from an intraday high of $140 on June 20th (Thursday) to a closing price of $118 on June 24th (Monday). That’s a loss of $542 billion in market cap over a three-day period.

NVDA is another bubble among the various asset bubble charts throughout history starting with the 1600’s Dutch tulip bulb bubble on the upper left (source: @great_martis):

We’re being told that “it’s different this time” with respect to NVDA’s market cap. One portfolio manager was on CNBC saying he expects NVDA to hit a $6 trillion market cap this year “as investors realize how cheap the stock is…” That would be a double from the current stock price. It’s a laughable prediction. That would take the trailing P/E to 144, the forward P/E to 68x and the price/sales to 76x. I just don’t see it happening.

The bulls seem to believe that NVDA will maintain its lead in AI chips and near-monopolistic pricing power in perpetuity. It won’t. At some point competitors will bring competitive chips to market at lower prices. Plus, most are overlooking the fact that semiconductors are a highly cyclical industry. The proliferation of AI will not change that. At some point the market will become saturated with NVDA’s chips and its business will be subjected to the law of supply and demand.

NVDA’s share price has a history of boom/bust cycles. On a split-adjusted basis after the recent 10:1 stock split, NVDA went from 5 cents in October 1999 to as high as 61 cents in January 2002. By September 2002 it had dropped back to 7 cents. Between September 2004 and October 2007, another stock bubble era, NVDA ran from 12 cents to as high as 99 cents. By November 2008 it had dropped to as low as 14 cents. The cliff-dive in “Dutch tulip bulb” charts happens much more quickly than the ascent to the top of the cliff. It won’t be different this time.

After that three-day plunge, NVDA stabilized at its 21 dma (light blue ma line, $123.21 on Friday). Volume has tailed off considerably and the RSI/MACD momentum indicators are heading south. Those three attributes suggest the stock is losing “energy.” Also, the last three days of the week the stock closed well off of its highs of the day.

Gold, Silver and Mining Stocks: Higher or Lower This Year?

After getting back above the $30 level again last week, the silver price sold off on Friday. And has continued selling off again today. Chris Marcus invited me back on to his Arcadia Economics podcast to talk about the recent gold and silver trading, and the volatility we’re seeing around the $30 mark as the banks’ short position remains on the high side.

We also discuss why the stock market continues to remain near all-time highs even as rates have stayed higher for longer (hint: the Fed is engaged in a stealth QE, which is why gold and silver are going higher this year).

The Mining Stock Journal focuses on junior project development stocks with 10-20x upside potential plus a sprinkling of undervalued producing mininig stocks. Click here to learn more:  Mining Stock Journal info

Eastern Hemisphere Demand Is Driving The Gold Price

The following commentary is from the opening salvo in the May 30th issue Mining Stock Journal and was also written for Kinesis Money. Note: in that issue I present a review of Freegold Ventures in response to a subscriber request and comment on New Found Gold’s acquisition of Labrador Gold also in response to a subscriber request, along with updates on my “portfolio” companies. I also offer a quick notes on several junior silver mining stocks.

A good friend of mine mentioned that CNBC’s website featured a positive article on gold on its front headlines page on May 27th. He was wondering if he should be worried when one of Wall Street’s public relations outlets turns bullish on the precious metals. It’s a valid question. However, one of the “experts” cited in the article was a strategist from Australia’s ANZ Bank, who attributed the price rise in the metals to “weakness in the U.S. dollar” and “retreating U.S. Treasury yields.”

This was curious because that assertion is easily fact-checked. As it turns out, yes the dollar index is 1.8% below where it was trading at the beginning of May, but it’s 4% above where it was at the beginning of 2024. Furthermore, the 10-year Treasury yield is considerably higher now than at the beginning of 2024 (4.55% now vs 3.87% then). In fact, the entire yield curve from the 2-year Treasury out to the 30-years Treasury has been trending higher since the beginning of the year.

Moreover, the Fed is not expected to lower the Fed funds rate until later this year, if at all. I thus would not be worried about the type of information that CNBC is publishing with respect to the precious metals market given that one of its so-called “expert” sources was predicating his attribution for the move higher in gold on factually incorrect information.

Rather, based on the available data, and recall that China only reports gold import data that flows through Hong Kong but not Beijing or Shanghai, China has been importing a massive amount of gold this year. Thus, eastern hemisphere gold buying, particularly from China, appears to be the force driving gold and silver prices higher currently.

It’s a given that the Chinese Central Bank is buying a lot of gold currently, and likely quite a bit more than it officially reports, in its effort to diversify its reserves out of U.S. dollars and into other forms of money. On top of that, the Chinese public is buying gold at a rate that is twice the amount of domestic gold mine production. According to the China Gold Association, consumers in China bought 308.9 tonnes (10.9 million ounces) of gold in Q1 2024. Chinese gold mines produced 139.1 tonnes of gold in Q1. 53.2 tonnes of that was a product of imported gold ore.

In addition, according to the World Gold Council – and we know it is unable to track all of the gold imported by China – Central Banks globally bought a record 290 tonnes of gold worth $24 billion in Q1 2024. But note that the ten Central Banks reporting an increase in gold reserves are based in the eastern hemisphere (chart and data from Metals Focus, World Gold Council and Refinitiv GFMS by way of the article linked above):

The graphic above is for Q1. In addition, in April India imported $3.11 billion worth of gold vs $1.01 billion in April 2023.

Given that a record amount of physical gold is being accumulated in the east right now, it’s pretty clear, at least to me, that the demand for physical gold is the biggest factor in driving the gold price higher.

The same analysis applies to silver. The Silver Institute is forecasting a 219 million ounce supply deficit in 2024. However, with the sharp rise in the gold price, it appears that the Indians have shifted from buying gold to gorging on silver. In Q1 2024, India imported 3,730 tonnes of silver, which exceeded the amount imported for the full-year 2023. That rate is running about 50% higher than the all-time high of 9,450 in 2022. (source: Manisha Gupta, CNBCTV18 in India, news editor – commodities & currencies).

Silver imports into China do not get reported other than silver concentrate. But it is thought that China buys and uses quite a bit more silver than is produced domestically. The Chinese Government has been working on a massive nationwide solar energy installation program which uses most of the silver produced annually by the mining industry.

Data from the Shanghai Gold Exchange shows that silver withdrawals YTD through the end of April were up 16.6% YoY. The demand is coming from manufacturers and banks. Current premiums for silver on a daily basis have been running about 10% above the world spot price of silver, which reflects continued strong demand for silver in China.

The bottom line is that, while the western mainstream media and market “experts” appear to be clueless with regard to the factors driving gold and silver higher, an examination of the demand for both metals in the eastern hemisphere leads to the conclusion that an enormous amount of physical buying from Central Banks, industrial users and the general public is likely by far the biggest factor in both driving gold to all-time highs and also triggering a technical breakout of silver than are any macroeconomic factors in the U.S.

Super Micro Computer’s 10-Q Is Loaded With Red Flags

The following analysis of SMCI is from the June 2nd issue of bear newsletter. You can learn more about here:  Short Seller’s Journal

Super Micro Computer (SMCI – $750) – Reported its FY 2024 Q3 numbers April 30th. Revenues were up more than three-fold YoY but that’s entirely attributable to AI-mania. However, from Q2 to Q3, revenues rose just 5%. There might be some seasonality in that but that’s a dramatic slow-down from YoY. Also a very dramatic slow-down from the 72% rise in revenues from FY 2024 Q1 to Q2. That said, management raised full-year FY 2024 guidance higher by about $400mm. That may be per-meditated per my analysis below.

The trail of red flags with SMCI starts here. In Q3 ’24, it’s largest customer accounted for 28% of SMCI’s accounts receivable, up from 23% in Q3 ’23. Its top three customers accounted for 61% of SMCI’s accounts receivable in Q3 ’24 vs Q3 ’23 when its top two customers accounted for 42.5% of accounts receivable.

I also happened to notice this “gem” in the 10-Q. SMCI has an agreement with Ablecom, a Taiwanese contract manufacturer, for product development, production and service agreements as well as product manufacturing agreements, manufacturing services agreements and lease agreements for warehouse space. The issue? Ablecom’s CEO, Steve Liang, is the brother of SMCI’s President, CEO and Chairman of the Board (Charles Liang). Steve Liang owns 36% of Ablecom while Charles Liang and his wife own 10.5% of Ablecom.

SMCI also has a distribution agreement with Compuware, including an arrangement for product development and manufacturing services similar to those with Ablecom plus lease agreements for office space. This issue? The CEO of Compuware, Bill Liang, is the brother of Charles and Steve Liang. In addition, a sibling of SMCI’s Senior VP of Business Development, and who is also a director of SMCI, owns 11.7% of Ablecom and 8.7% of Compuware.

This is a cozy and likely not-arms-length relationship among the three brothers and their companies as well as the sibling of the other SMCI executive. It smells really bad. Circling back to the customer accounts receivable risk detailed above, what’s to prevent SMCI from stuffing product into Ablecomm and Compuware, recording that as sales and then booking the sales into accounts receivable in order to boost sales. I’ll note that concentration from the top three customers has ballooned YoY. While there’s no way to prove this without access to the inside books, I would not rule this out.

The reason I say this is there’s some strange changes in SMCI’s statement of cash flows moving from 2023 to 2024, when the surge in revenue growth occurred. Through the first nine months of FY 2024, SMCI generated $855mm of GAAP net income but its operations burned $1.8 billion in cash. The majority of this was from a huge surge in inventory. But there was also a $507mm increase in accounts receivable. That’s a rather large number considering that accounts receivable grew $356mm in thru the first six months of SMCI’s fiscal year (through December). But there’s more. Accounts receivable was a $302mm source of cash in Q1 FY 2024.

I truly believe there’s something fishy going on with the incestuous relationship among SMCI, Ablecom and Compuware and the strange behavior of SMCI’s customer concentration and accounts receivable. Further to this point, SMCI raised $1.75 billion in a convertible bond offering in February. Tech companies with SMCI’s valuation multiple gush cash flow and do not have to raise money like this. At the end of 2023 (SMCI’s FY ’24 Q4) SMCI has $99 million in long term debt and $375mm in total debt. Just one quarter later SMCI has $1.86 billion in total debt.

The increase in capex YoY through the FY first nine months, just $110mm, does not explain the need to raise $1.75 million through debt issuance. If SMCI was borrowing to fund a high-growth rate, capex would be many multiples of that $110mm through FY 2024 nine months. The more I pour over SMCI’s financials in conjunction with the footnotes, the more I believe that its incestuous business relationship with Ablecom and Compuware is a serious issue.

On May 9th, this SEC filing hit:

SMCI was in SEC non-compliance with the rules governing the composition of the Board of Directors’ audit committee. Not that I watch for it, but I can’t recall ever seeing that red flag. The audit committee needs to have three independent directors. Ms. Lin is a chemical engineer and has zero experience in finance and accounting. Her previous jobs were engineering-based. I did run across an article from August 2023 which stated that she owned, at the time, over $4 million worth of SMCI stock. Something does not smell right here either.

The Robert Blair appointment to the audit committee is equally puzzling. Blair is also an engineer. He was CEO of a semiconductor company until 2018 that was acquired by a private equity firm in 2022. Since then he’s been on the board of a technology licensing company where he previously was CEO. His background is in marketing, sales and engineering. What does any of his experience, or Ms. Lin’s experience, have to do with overseeing the accounting and financial statement preparation of SMCI? The SEC delisting notice and the two executives selected to “remedy” the delisting notice, along with the incestuous fraternal relationship detailed above are major red flags at SMCI.

The stock market must agree with my assessment of SMCI. I wrote the above analysis the week leading into Memorial Day weekend on May 23rd, when the stock was trading well over $900 before closing at $847 that day. It closed Friday at $784. It declined every day last week after Monday. This is despite copious amounts of promotional hype from stock-pushing media outlets.

SMCI has knifed below its 21, 50 and 100 dma’s. I expect to head for its 200 dma ($545 on June 3rd) unless the tech sector bubble continues to reflate. That ship may have sailed, however. I’m short SMCI by way of near-money, short-expiry puts and longer-dated, OTM puts (Sept/Nov).

Strong Global Gold Demand Will Propel Gold Higher

The following commentary is the opening salvo to the May 2nd issue of my Mining Stock Journal. You can learn more about this mining stock newsletter here:  Mining Stock Journal information

“The ‘other side’ has a problem.” – John Brimelow, formerly of Brimelow’s Gold Jottings”

For many years John Brimelow published a daily report and commentary on the global gold market, with specific emphasis on the eastern hemisphere demand for physical gold, particularly China, Indian, Turkey and Viet Nam. It was a pricey newsletter targeting primarily institutional investors who focused on precious metals and commodities investing. His newsletter contained gold market data and statistics that rarely makes its way into the western mainstream media. John still emails several of his long-time subscribers, including me, with frequent updates of the latest demand data from the east.

The quote above references an email he sent on April 26th which reported that premiums charged by Indian gold dealers rose to $5 over official domestic prices after having been negative for nearly two months. Indians pay a 15% import duty plus a 3% sales tax, or 18% more than the world gold spot price. Thus, at $2300 gold, Indians minimally pay an added $414 above the spot price, or $2714 per ounce. However, the premium/discount factor reflects the level of demand. The premium or discount measures the relative supply/demand for gold by Indians. When dealers can charge a premium it means that demand is strong relative to the amount of gold flowing into India.

What’s most interesting about this is that, when gold rises sharply over a short period of time as it did from March to mid-April, Indian demand slows considerably. Over short periods of time Indian demand is price sensitive and the premium flips to negative. They tend to curtail buying when the price runs higher and resume buying after it pulls back. However, once they “acclimate” to a higher price level, strong demand resumes. The reversion to a premium this past week means that gold demand has picked up considerably again.

But it’s not just the Indian populace buying gold for investment and as jewelry for seasonal holiday and wedding festivals (the spring and the fall are when Indian demand spikes), but the Indian Central Bank, the Royal Bank of India (RBI) has been has been steadily and consistently accumulating more gold on a monthly basis. As of the end of March, the RBI’s gold reserves hit an all-time high. But not only that, according to the Center for Monitoring Indian Economic Data as well as the World Gold Council, The RBI’s net buying of gold YTD has already surpassed its net buying for all of 2023.

The RBI thus has been one of the primary entities driving the price of gold higher.

But it’s not just India. Per Brimelow’s email referenced above, dealers in China are charging $20 to $25 per ounce above the global spot price. This reflects the steady $25 to $30 premium to world gold that has been reported by the Shanghai Gold Exchange. Moreover, China’s net gold imports via Hong Kong rose 40% over February (Hong Kong Census and Statistics Department). This plus the price premium buyers are willing to pay reflects strong investment demand by Chinese investors as well as the Peoples Bank of China. Keep in mind that the Hong Kong data does not account for all of the gold flowing into China. The Government does not report the amount of gold that enters China via Beijing and Shanghai.

And it’s not just India and China. According to the World Gold Council, total global demand for gold rose 3% YoY in Q1 2024. In fact, Central Banks bought more gold in Q1 2024 than any other first quarterly period on record. This was driven largely by persistent Central Bank buying and high demand from Asian investors. Based on WGC numbers, investment demand (bars and coins) rose 3% YoY in Q1 while demand for gold used in technology jumped 10% YoY. The wild card is the PBoC. While it reports “official” holdings monthly, research done by a few different analysts (most notably Alasdair Macleod) shows that official numbers are just a fraction of the amount the PBoC holds and accumulates. I have detailed previously that China does not report the Beijing and Shanghai import data specifically to “help keep PBoC purchases discreet” (South China Morning Post).

Circling back to Brimelow’s comment that “the other side has a problem,” he is referencing the both the massive bank short interest in gold derivatives, most visibly Comex contracts and LBMA forward contracts, as well as the harder to quantify short-fall of vaulted custodial unallocated physical bars backing the amount of potential claims on those bars. The surge in demand for physical bars with immediate delivery requirements thereby has the potential to trigger a vicious short-squeeze in gold which would drive the price considerably higher.

With or without a short-squeeze, the demand for physical gold has been the catalyst pushing the price of gold higher. I was looking for a pullback/consolidation of the sharp move higher from March to mid-April which created an extreme technically overbought condition in the precious metals sector per the RSI and MACD momentum indicators. That said, given that it appears that world demand for physical gold – particularly in the eastern hemisphere and middle east – will limit the magnitude and duration of the correction that is occurring currently in the sector. Historically gold will often correct down to its 50 dma after a sharp price rise. The 50 dma currently is at $2236 (as of May 1st). I’m not making that price prediction, per se, I’m just stating the lay of the land.

Regardless of the price path, the current pullback will set-up the foundation for another large, sustained move higher in the precious metals sector, especially now that the Fed announced that it is reducing the amount of its Quantitative Tightening program per the latest FOMC policy statement.

Silver Breaks Out – Is There Short-Squeeze Potential

The GSR is currently at 82, after trading as high as 92 earlier this year and up to 97 in 2023. It traded down to 63 in early 2021, which put silver at $30. If gold were to hold at just $2400 while the GSR falls to 63, the conservative price objective for silver would be $38. But it’s silly to assume that silver would move 30% higher from its current price while gold stays constant. So $38 is a very conservative minimum level price objective.

If the current bull move in the precious metals sector resembles the move from late 2008 to mid-2011, the GSR could fall all the way to 31, where it bottomed in 2011. Let’s give gold a more realistic price target of $3000 in this scenario. If the GSR were to drop to 31 eventually, that would imply a price objective of $96 for silver.

Craig Hempke of the TF Metals Report fame invited me onto his podcast to discuss gold and silver, specifically silver, and what happens after silver breaks over $30. We also discuss some mining stocks that I like:

My newsletter twice-a-month precious metals market commentary/outlook as well as mining stock investment ideas, particularly the junior project development micro-cap stocks. I also cover and recommend a handful of producing mining stocks. To learn more, click here:  Mining Stock Journal

Arbor Reality Is Dead-To-Rights

The following commentary and analysis is from the May 5th issue of my Short Sellers Journal newsletter.

Arbor Realty (ABR) – “Rising interest rates have negatively impacted real estate values and have limited certain borrowers abilities to make debt service payments, which may limit new mortgage loan originations (sic) and increase the likelihood of additional delinquencies and losses incurred on defaulted loans if the reduction in collateral value [i.e. the stunning decline in CRE prices] is insufficient to repay their loans in full.” That statement is from the ABR 10-Q.

“It would require great analytical gymnastics and limited financial literacy to promote these results as anything close to “outperform” – Viceroy Research

LOL they “beat” consensus, huh? Revenues dropped 11.5% YoY. Income from mortgage servicing rights was clobbered 45%. This is a result of much lower loan origination activity. Despite lower revenues, expenses were basically flat YoY. Net income before dividends and non-controlling interests was down 28.4%. Net income for common shareholders plunged 32.1%. Great, they “beat,” though.

The earnings call transcript made for some interesting reading. Management did its best to slather mascara all over the earnings report and related statistics which show the rapid deterioration in its loan portfolio. In addition, management made no mention whatsoever of its intent to issue more shares. But after the market closed Friday, ABR filed a prospectus to issue up to 30 million shares as well as preferred stock, debt securities and warrants. And yet, in the liquidity section of the MD&A and on the earnings call management boasted about the amount of liquidity on hand. If that’s true, why further dilute shareholders by issuing more stock?

In March 2023 ABR had declared four loans as non-performing (NPLs) with a carrying value of $7.7million. By the end of Q1 2024, ABR had 21 NPLs with a carrying value of $465 million. It would have been worse but they kicked the can down the road by modifying $1.9 billion worth of loans in Q1. That’s 15.8% of its loan portfolio. The modifications occur because the borrower can’t make payments. The modifications include interest reductions and maturity extensions, with the delinquent interest payments deferred by being added to the principal amount at maturity. Given the third-tier quality of the multi-family and office buildings on which ABR has loaned money, in all likelihood the modifications merely defer default/foreclosure.

The only thing holding the stock up is the shareholder base, which won’t sell because of the 13% dividend. The dividend size is imposed on ABR because in order to maintain its status as a REIT, it has to pay out at 90% of its taxable income to shareholders. Note that net income available to common shareholders plunged 32% YoY and 36.8% from Q4 2023. Though net income was $57.8 million, the Company paid out $98.6 million in dividends to shareholders in order to maintain the 13+% dividend yield. At some point ABR will not have the liquidity to supplement the dividend in order to maintain that 13% yield.

The shareholders are largely high net worth investors looking for high-yielding stocks and registered investment advisors catering to their clients who want high current yielding stocks. They won’t sell until the Company hits the wall.

Per the chart below, ABR jumped 10.5% Tuesday on no news. Apparently management, which has highly questionable ethics, is trying to orchestrate a “meme-style” short-squeeze given the 42% short-interest in the stock. However options market-makers don’t seem concerned. The implied volatility of ARB’s shortest duration, near-money options is 55%. This compares to GME, for which the weekly, near-money implied vol is over 600%.

Arbor is furiously modifying and defering payment requirements on the garbage CRE loans that it has stuffed into CLO’s that is sponsors. In many cases it’s swapping current-pay loans it holds from non-performing loans in the CLO’s. Given the low quality of the multi-family apartment complexes that ABR has financed, these measures merely defer the inevitable default and foreclosure of these loans.

One last point, NYCB reported its numbers last week. The amount of defaulted loans surged 400%, amounting to $800 million in Q1. Multi-family loans, which is a big lending segment for ABR, accounting for 42% of the new defaults. It would be naive to think that the same issues plaguing NYCB are not affecting ABR’s loan portfolio. But entities both finance the dregs of office buildings and multi-family apartment complexes. I think the possibilty that ABR hits the wall before the end of 2025 is very real.

Disclosure: I own a large quantity of long-dated, near-money puts on ABR.

GATA Correctly Shreds Jeffrey Christian’s Gold Commentary

CPM Group’s Jeffrey Christian did a Youtube podcast in which he mocked the view that most if not all of the gold in “Ft Knox” has been used by the Fed and the U.S. Treasury to help control the price of gold since the late 1960’s (London Gold Pool).  The best proof those of us who are convinced that the Treasury’s gold plus an unknown quantity of gold held of behalf of foreign Central Banks has been hypothecated in the Fed’s effort to suppress the gold price is two-fold:  1) Contrary to Christian’s claim, there has not been a bona fide, independent audit of the Fed’s gold holdings since Eisenhower was the President: 2) the U.S. flinched, embarrassingly, when Germany requested the repatriation of half of the gold the Fed has “safekept” for Germany since the end of WW2; the U.S. balked then eventually agree to return 300 tonnes of the custodied gold, or 20% over seven years. Why not in just a couple of months similar to Venezuela’s repatriation of 200 tonnes of gold the prior year?

With the sanctions imposed on Russia by the U.S.,  along with the U.S.’ confiscation of Russia’s assets held at western Central Banks, eastern hemisphere Central Banks have been repatriating gold held in London vaults as well as adding to their existing gold stock.

As a third, and even more damning piece of evidence in support of the view that the Fed’s gold vaults are largely empty (except for the dust that has accumulated on the empty pallets on which gold bars were previously stacked), the Fed has refused to answer official inquiries about both the gold repatriation activity by foreign Central Banks and the questions about its gold market activities. It has even denied FOIA requests for this information. Why the secrecy? The Fed used to report this information. What changed?

GATA’s Chris Powell takes Jeffrey Christian to task over his glib dismissal of those who question whether the Fed has emptied its custodial vaults in its effort to suppress the gold price (Christian actually referred to the truthseekers as “scum”):

But contrary to Christian’s suggestion, the big question about U.S. gold reserve is not the narrow one of whether there’s still metal at Fort Knox but whether the U.S. government has foreign gold obligations and whether these obligations are so large that U.S. gold reserves at Fort Knox and elsewhere are potentially impaired by multiple claims of ownership.

In this respect the curiosity of a more candid and honest analyst might be piqued by the recent refusal of the Federal Reserve to answer even for a member of Congress whether foreign nations have been repatriating their gold that nominally has been vaulted at the Federal Reserve Bank of New York. The amount of foreign gold vaulted at the New York Fed used to be reported publicly by the Fed at various intervals. Why is it apparently a top secret matter now? Christian doesn’t seem to mind.

Chris’ entire commentary can be founder here:  CPM Group’s Jeff Christian battles straw men to distract from the big issues of gold

Possession is 100% of the law with physical gold and silver – if you don’t hold it yourself, you don’t own it