Category Archives: Housing Market

Tech Bubbles And SPACs

The following is an excerpt from the latest issue of my  Short Seller’s Journal:

I thought this chart showed yet another interesting signal that the stock bubble could be ready to pop:

It shows the spread (the difference) in the percentage sector weightings in the SPX between Technology and Energy & Financials. Prior to 2000 and between 2002 and 2016, the Energy/ Financial sector had a higher percentage weighting in the SPX than Technology. Currently the differential in the percentage weightings between Tech and Energy/Financials is negative. The last time this differential was negative occurred at the peak of the dot.com/tech bubble.

My interpretation is that the technology sector is a bellwether indicator of when market speculation becomes extreme and when retail piles into the action with blind ambition. Another indicator is the proliferation of SPACs (Special Purpose Acquisition Companies). Politely called “blank check companies,” these are blind pools of capital raised in the public market. SPACs do not have any existing businesses. Their purpose is to make some type of business acquisition within two years. This is what the top of a stock bubble looks like – just throw your money to a blind pool promoter and trust that they know how to invest it:

The SPAC sponsor may have an acquisition in mind at the time the money is raised, but the public stock investors have no idea what company or companies they are investing in at the time of the IPO. How’s that sound?  Why not pay a nose-bleed valuation for a business at the top of a business cycle?

In truth, SPACs are fee-generating cash cows for the sponsors. In addition, sponsors often end up with 20% of the shares, gratis, after the SPAC has merged/acquired a business.  Half of the IPOs YTD have been SPACs. Of the 18 that have gone public, 11 are trading below their IPO price. It’s one of the ultimate indicators of reckless speculative behavior, especially from retail investors, and the degree to which a stock bubble likely is reaching its limits.

A possible top indicator for the housing market?  United Wholesale Mortgage (“UWM”) is going public via a merger with a SPAC. The deal values UWM at $16 billion and it will be the largest SPAC deal to date. UWM is the largest wholesale mortgage lender in the country.  A wholesale mortgage lender funds mortgages offered through mortgage brokers, credit unions and banks.

The SPAC, Gores Holdings IV (GHIV), is paying UWM $925 million ($425 million in cash plus $500 million to raised via debt) for a 6% interest in UWM. UWM will own approximately 94% of the new United Wholesale Mortgage, which will trade under “UWMC.” Gore Holdings went public on August 10th, raising $525 million.

This type of deal is essentially a “reverse” IPO in which a private company goes public by merging with a public shell. The full terms of the deal are not available yet, but in all likelihood Alec Gores (the SPAC sponsor) and the senior executives of UWM will be awarded a large chunk of shares that will dilute the public shareholders. GHIV shares jumped to $12 on Wednesday after the deal was announced but closed Friday at $10.44.

Great time to invest in a mortgage finance company?  The delinquency rate on FHA mortgages is now at a record 17.4%. FNM/FRE/VHA mortgages will soon follow.  FHA started underwriting sub-prime-like mortgages in late 2008.  FNM/FRE/VHA began doing the same about 5 years ago.  In fact, the delinquency rate on VHA mortgages, which require zero down payment, is starting to accelerate.

This is a deal that I will be ready to pounce on with a short position after it goes public. I believe this is a bellwether indicator that the housing market is topping. Speaking of which, I’ll review the housing market data released this past week in the next issue. But, per usual, the headline reports for new and existing home sales sensationalized the actual home sale numbers.

As with general economic activity, there was a burst of activity in the housing market after the lock-down period. This was further fueled by the $1 trillion-plus in stimulus the Fed injected into the mortgage market. That, combined with the Fed’s zero-interest rate policy, pushed mortgage rates to the lowest in history.  I expect the burst of housing market activity to taper off quickly, similar to what we’re seeing in the reports for general economic activity for August and early September.

Click on the graphic below for more information about this weekly newsletter:

The Stock Market Could Be In Trouble – Buy The Dip In Gold / Silver

The price take-down in gold and silver is 100% a product of the trading activity – aided and abetted by the bullion banks in NY and London, who manipulate the price in the paper derivative market. All of the trading activity dictating this sell-off is occurring in the paper derivative markets – it has nothing to do with the economics of the physical gold and silver markets.

How do I know this? Consider that 404,000 Comex December paper gold contracts contracts traded on Wednesday. That’s equivalent to 1,262.5 tonnes of gold. That’s roughly 42% of the total amount of gold that will be mined in 2020. In other words nearly half a year’s worth of physically mined gold traded in one day in just one contract month.

The ONLY physical gold and silver that is transacting is at the London price fix. And it’s dubious as to whether or not physical gold and silver is actually changing hands. Most of the “settlement” occurs digitally and gold and silver do not physically change possession. It’s a bigger scam than pet rocks.

At some point the coming market, economic and political turmoil will trigger a big bid for gold and silver which in turn will translate into a big move higher for the mining stocks.

Silver Liberties invited me on to it’s podcast to discuss the imminent stock market crash, the popping of the housing bubble 2.0 and precious metals:

A Matter Of Time Before Stocks Collapse And Gold Soars

“Look at the underlying fundamentals that are driving it [gold and silver prices]. The financial condition of the country that hosts the reserve currency deteriorates more everyday and the Central Bankers are trying to kick the can down the road on an inevitable financial system and monetary system reset by printing more money.”

The economy continues to show signs that the “sugar high” from the Fed’s and Government’s multi-trillion dollar money printing and stimulus spending is wearing off. The latest economic reports – notwithstanding the moronic homebuilders “sentiment” metric – reflect a renewed downturn in economic activity plus the numbers reported in July are being revised lower (see today’s retail sales report, for instance).

As long as the Fed continues to devalue the dollar by printing money and as long as Treasury debt continues to increase at an increasing rate, the fundamentals are in place for a monster move in gold, silver and mining stock.

Michelle Holiday of Portfolio Wealth Global invited me on to her podcast to discuss the factors that I believe will lead to a stock market avalanche and soaring values in the precious metals sector:

**************

You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Note:  I do not receive any promotion or sponsor payments in any form from the mining stock companies I present in my newsletter. Furthermore, I invest in many of the ideas personally or in my fund.

New Mining Stock Journal Subscriber: “This is a lot of value for $20 a month. Thank you so much!” – Jorgen

Housing boom or housing stock bubble? Got Gold? Silver?

The DJUSHB (Dow Jones Home Construction Index) hit an all-time high on Thursday. The previous ATH was in July 2005. The current SAAR (seasonally adjusted annualized rate) for existing home sales as of the June report is 4.2 million. It’s the lowest sales rate since July 2010. The last time the DJUSHB was trading over 1,100 (July 2005) , the single family existing home sales rate was over 7 million.

Similarly, new home sales peaked in 2005 at a 1.4 million SAAR. The current annualized run-rate per the June new home sales report is just 776,000. The average price per home for new and existing homes back in 2005 was roughly equivalent to the current prices for each category. On an inflation-adjusted basis, homes were selling at higher prices 15 years ago. I’ll let you decide if the homebuilder stocks overvalued right now based on those statistics.

Two more points of note about the potential for an accident in the homebuilder stocks. A new survey by Apartmentlist.com released August 6th showed that 33% of households (renters and mortgagees) entered August with unpaid housing bills for the fourth straight month. As of the first week of August, 11% of all households had made a partial payment of their monthly rent or mortgage bill and while 22% had yet to make any payment.

Furthermore, “early stage” delinquency rates on mortgages are starting to accelerate. Per a Corelogic report for data available through the end of May, 7.3% of mortgages were at least 30+ days delinquent. This is compared to a 3.6% delinquency rate in May 2019. Barring additional additional intervention from the Federal Government, Corelogic expects delinquency rates to further spike.

Eventually unpaid housing bills and mortgage delinquencies will pull the rug out from under the housing market and homebuilder stocks. This also explains why, despite the propagandist housing market hype plastered all over the media, private residential construction spending is contracting rapidly.

Phil Kennedy (Kennedy Financial) hosted a discussion about the housing market that included myself, Aaron Layman and Karl Krentzel. We also discussed the precious market and why, contrary to mainstream belief, gold is not even remotely in an investment bubble:

**************

You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Note:  I do not receive any promotion or sponsor payments in any form from the mining stock companies I present in my newsletter. Furthermore, I invest in many of the ideas personally or in my fund.

“We Are In The Golden Age Of Fraud”

“Elon Musk has personified the hopes and dreams of this bull market; Tesla burnishes its results through aggressive accounting; it’s a culture of deception because it is selling self-driving, which doesn’t yet exist.” – Jim Chanos from “We Are In The Golden Age Of Fraud” (Financial Times)

Jim Chanos is perhaps the most well-known remaining short-seller in this market.  Don’t be fooled by his demure characterization of Elon Musk and Tesla.  It’s calculated diplomacy. The numbers are far more than just polished up to look good  – the accounting is not just “aggressive,” it’s fraudulent, and Chanos knows that as well as anyone.

Chanos describes the current environment as “a really fertile field for people to play fast and loose with the truth, and for corporate wrongdoers to get away with it for a long time”. He reels off why: a 10-year bull market driven by central bank intervention; a level of retail participation in the markets reminiscent of the end of the dotcom boom; Trumpian “post-truth in politics, where my facts are your fake news”; and Silicon Valley’s “fake it until you make it” culture, which is compounded by Fomo — the fear of missing out. All of this is exacerbated by lax oversight. Financial regulators and law enforcement, he says, “are the financial archaeologists — they will tell you after the company has collapsed what the problem was.” (Financial Times)

I have said many times that Tesla and Elon Musk embody and reflect the extreme degree to which the U.S. system has defined deviance downward into what is now a complete Banana Republic controlled by crony-capitalist elitists who are putting the screws to the middle class. The money printed by the Fed is nothing more than the thinly veiled bailout of the biggest banks – nothing more – effecting the greatest wealth transfer in history.

The fraud and corruption is blatant. And there’s nothing the masses can do about it at this point. The U.S. economic, financial, political and legal system is now amalgam of “1984” and “Atlas Shrugged.”  Eventual collapse is fait accompli.

Chanos himself burnishes the adjectives he uses to convey the degree to which the U.S. system has been engulfed in fraud, corruption and open theft.  In my opinion, Francisco D’Anconia in “Atlas Shrugged” describes the U.S. perfectly in this excerpt from the famous “Money Speech:”

Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion–when you see that in order to produce, you need to obtain permission from men who produce nothing–when you see that money is flowing to those who deal, not in goods, but in favors–when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you–when you see corruption being rewarded and honesty becoming a self-sacrifice–you may know that your society is doomed.

Fiat Currency Race To Zero: The “Suddenly” Part Of The Story Approaches

“Gold, unlike all other commodities, is a currency…and the major thrust in the demand for gold is not for jewelry. It’s not for anything other than an escape from what is perceived to be a fiat money system, paper money, that seems to be deteriorating.” … Alan Greenspan, ex-US Federal Reserve Chairman, August 23, 2011

The chart on the right shows the purchasing power of the dollar from when the Fed was founded to present. Pretty much self-explanatory but it’s why we buy and own physical gold. For now the price of gold has found resistance – likely official – in the high $1700’s.  But that will soon change as gold soars in response to what appears to be global Central Banks’ – led by the Federal Reserve – willingness to print unlimited quantities of paper currency in order to keep price (note: not “value”) of  financial assets elevated.

The overwhelming imperative to keep control of markets is a recipe for hyperinflation and will ultimately fail. The Fed would have us believe that the slump in business activity is only due to the coronavirus lockdown and that shortly after it ends normality will return. It will hope that we have forgotten that fully five months before the virus hit, it was forced to inject liquidity into the repo market at the rate of tens of billions every day.

The Fed’s monetary policy replicates John Law’s attempt to keep his bubble going in 1720 France. Law failed to maintain the price of just one asset, the Company of the Indies, his Mississippi venture, by printing livres to buy the shares. Within seven months the currency had collapsed and priced in worthless currency, the shares had fallen from 12,000 livres to just one or two thousand.

The principal upon which the Fed and the other major central banks are embarked is the same in every respect, but with a far larger task. The project will fail for the same reason: no one can fool all of the people all of the time. It is increasingly obvious that both the currency and financial asset values will collapse John Law-style, probably by the end of this calendar year, if precedents are any guide.

The passage above is from Aladair Macleod’s latest essay which explains in detail the process why fiat currencies will eventually become offered without a bid while, concomitantly, physical gold goes bid without offers:  Anatomy Of A Fiat Currency Collapse

Fed Lies And Money Printing: Rocket Fuel For Gold

For central banks, monetary inflation is everywhere the solution. Bank rescues, payment chain failures, the furloughing of millions of employees, helicopter money to bail out whole populations, money to bail out governments, money to support all categories of financial assets: the list is endless in scope and infinite in quantity. The survival of the global financial system is at stake. If it survives, state-issued money will have been destroyed. But then what is the point of owning financial assets valued in valueless currency?

While this process of monetary destruction would have reasonably been expected to evolve over time, the coronavirus has accelerated it. The fate of the $640 trillion derivative mountain recorded by the Bank for International Settlements is sealed and will be settled through bank bankruptcies and state-directed elimination. – Alasdair Macleod, The Looming Derivatives Crisis

Phil/John Kennedy hosted John Titus and me to try and untangle The Big Lie that is the Federal Reserve and the real reasons behind the Fed’s massive money printing program:

**************

You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

The Fed – Kicking People When They’re Down

“You [the public] are the sucker. Your role in the Federal Reserve System is to absorb losses [on the crappy assets the Fed buys off of bank and hedge fund balance sheets]…The Fed is there to facilitate your absorption of those losses and that’s going on right now…the taxpayer is going to eat the losses – not the bankers who will have already been paid to help the Fed collect the bad assets.”

My good friend and colleague, John Titus of Best Evidence productions, uses source documents from the Fed to explain how the Fed and the member banks are going to shift the enormous losses on bad credit market products to the taxpayer while the banks make huge fees assisting the Fed.

The Virus Crisis Exposed The Financial Markets’ Black Hole

The biggest bill of sale sold to the public after the great financial crisis was that the legislation enacted forced the banks to maintain a higher level of integrity in their business dealings. But nothing could be further from the truth. The various pieces of legislation enacted after the 2008 de facto banking system collapse ultimately made it easier for the TBTF banks to move their fiat currency-based Ponzi scheme off-balance-sheet.

Over the last 10 years a massive Rube Goldberg credit market black hole has formed. Point of note: the Fed is injecting printed money into the banking system at a faster rate now than at any time after 2008.

While the coronavirus to be sure is the “black swan” that pricked the stock bubble, market forces eventually would have accomplished the same result. The Fed started bailing out the banking system in September, printing half a trillion dollars to save the banks well before anyone had ever heard of coronavirus or Covid-19. As it turns out, the Fed was also bailing out hedge funds. Powell knew back in September that a massive credit problem was starting to bubble up.

Chris Marcus of Arcadia Economics and I try to put some context on the current market crisis that was triggered by coronavirus but was an eventuality anyway:

**************

You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

“Thank you – your research saved my finances!!! Your approach to OTM puts really worked for me. I like it when those red put positions turn from red to green in Trader Workstation – and all of a sudden – these puts are in the money! It already happened with CVNA, Citigroup, CACC, FICO, GS, JBHT, LGIH, SHAK, W, TOL, MXI – and I am almost in the money with SHOP, FICO! You turned upcoming crisis into an opportunity for me!” – Short Seller and Mining Stock Journal subscriber, “Philip”

Coming Soon: More Money Printing And Higher Gold Prices

Two economic reports were released which demonstrate that the money printing is not helping the economy. In the fourth quarter of 2019, U.S. household debt pushed over $14 trillion, reaching an all-time record high. This was fueled by a surge in mortgage and credit card debt. Much of the the new mortgage debt consisted of cash out” refis, which helped exacerbate the last housing bubble/collapse.

Second, the U.S. Treasury announced that the Government spending deficit for January was $32.6 billion. This was considerably worse than the $11.5 billion deficit expected. The cumulative deficit for the first four months of the Government’s Fiscal 2020 year (which starts in October), surged to $389 billion, or an annualized rate of $1.16 trillion. The four month cumulative total was 25% higher than a year ago and was the widest since the same four month period of time in 2011.

Make no mistake, the Fed is printing money to keep the fragile financial system glued together and to monetize new Government debt issuance. The economy will continue to contract with or without the help of coronavirus. The Fed knows this, which is why several Fed officials including Jay Powell are already telegraphing more money printing.

The good news is that you can benefit from this – or at least protect your wealth – by moving a significant amount of your investible money into physical gold and silver that you safekeep yourself. I joined up with Arcadia Economics to discuss why the Fed is compelled to further crank up the printing press:

**************

You can learn more about  Investment Research Dynamics newsletters by following these links (note: a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information