Category Archives: Housing Market

Printed Money Blowing The Bubbles Even Bigger

Financial Markets, Gold, Housing Market, Market Manipulation, U.S. Economy, , ,

The total US stock market valuation  at $33.9 trillion is 157.4% of the last reported GDP. It’s the highest market valuation ever. The more the policy-makers try to pump and jawbone the market higher, the worse the consequences will be on the downside when the rug is pulled out from under stocks. The trigger could be anything. Eventually the market will acknowledge and accept the fact that the economy is getting worse and earnings will continue to decline. But fundamental reality is just one of many possible catalysts that will cause a painful drop in the stock market.

For now the rising stock market is shaping the Wall Street narrative being  transmitted through the mainstream media that the economy is in good shape. Funny thing about that – the stock market is not the real economy. But this is:

To be sure, rising stock prices enhance the wealth and spending capacity of the top 1% who own stocks outside of their retirement funds. But that wealth does not “trickle down” to the average middle class household (everyone below the top 1% wealth demographic). Let’s look briefly at some facts.

I’ve been making the case for quite some time that freight shipping volume is a valuable tool by which to gauge the relative level of economic activity:

The Cass freight shipment volume index tanked nearly 8% YoY in December. This number includes the growth in online shopping fulfillment deliveries and would have been worse if online shopping was not taking market share from brick/mortar stores. The index has fallen to its December 2009 level, which is part of the time period that the NBER has declared the economy to be in a recession.

The Cass data is reinforced by the sharp decline in the Baltic Dry Index. The BDI measures global ocean freight shipment activity and is considered a leading indicator for global commodities and raw materials demand. This includes incoming/outgoing vessels to and from the U.S. Not only is the global economy, including the U.S. growing weaker, the IMF has slashed its global economic growth outlook for 2020 and 2021.

The Conference Board’s Leading Economic Index released Thursday showed a 0.3% drop vs the 0.2% decline expected. The index has now declined in five of the last six months of 2019. Without the large run-up in the stock market, the index would have fallen even more. Rising unemployment claims (hmmm…) were the largest contributor to the decline. YoY for December the index gained just 0.1% – the weakest YoY change since November 2009.

One of the false narratives being promoted by talking heads and Wall St. is the idea that the consumer is still strong. Wrong. Consumer spending over and above necessities is being driven by the easiest access to credit in my lifetime. Evidence of this is the rapid growth in auto, credit card and personal loans. And in fact more than a third of all households report using credit cards to make ends meet every month.

But as evidence of the deteriorating condition of the consumer’s financial health, Discover’s (DFS) stock plunged 11.1% on Friday despite “beating” earnings estimates. The dagger in Discover’s quarter was loan charge-offs, which jumped to 4% of the outstanding balance. This is the highest charge-off rate since DFS’ charge-off rate peaked at 5% during the financial crisis. Delinquency rates are also accelerating. On a YoY basis for Q4, 30+ day delinquencies were up 11% while 90+ day delinquencies jumped 13%. For credit card loans, 30+ day delinquencies were up 14% and 90+ day delinquencies soared 15%.

In fact, loan loss reserves are starting to rise at a double-digit rate at many banks and finance companies. The average consumer is stretched, a fact that shows up in the numbers that never get reported in the mainstream media or Wall Street. The last time bank financials evidence rising consumer borrowing distress like this was in late 2007. We know how that played out. This time around the bubbles are bigger, the fraud is better disguised and households and policy-makers are even less prepared for the inevitable.

This is why gold is up 24% since May 2019, outperforming the stock market and most other financialized or commodity investments. No, it has very little to do, if anything, with coronavirus fear. But it’s why the western Central Bank and bullion bank gold price managers are having a difficult time containing the rising price.

The Housing Bubble: They Keep Pushing The System Until It Breaks

Financial Markets, Gold, Housing Market, Precious Metals, U.S. Economy, , ,

The mortgage regulators are stretching the removal of mortgage qualifications to the limit in an effort to keep the housing party going. The Consumer Financial Protection Bureau (CPFB) is recommending the removal of the DTI as a factor in qualified mortgage underwriting. Ironically, tighter mortgage finance regulations were the purpose for the formation of  the CPFB in the first place. Wash, rinse, repeat. I have no doubt the mortgage and housing market is headed for another catastrophe.

Note that Blackstone, one of the first companies to dive head first into the buy-to-rent market, recently dumped the rest of its shares in Invitation Homes – one of the large single family rental operators which Blackstone took public in 2017.

Phil Kennedy (Kennedy Financial) hosted Aaron Layman – one of the rare realtors willing to discuss the truth (Aaron Layman Properties), Jimmy Morrison – who produced “The Bubble,” an impressive film housing bubble/collapse – and me to discuss why the housing market will implode again – we also include a brief discussion of gold and silver and why the precious metals sector is going to a lot higher:

QE Madness: Is It Worse Now Than In 2008?

Financial Markets, Gold, Housing Market, Market Manipulation, Precious Metals, U.S. Economy, , , ,

Unequivocally, the “repo” operations by the Fed is “QE.” Well, let’s just call it what it is because “QE” was coined in place of “money printing.”  The socially correct posture to assume on Wall Street and in DC at the Fed is to label the current bout of money printing “repo operations.”  In fact, based on all of the underlying data I scour daily, let’s just cut to the chase and call this a de facto banking system bailout.

The technical details on why the “plumbing” in the banking system is getting “clogged” is mere surface analysis.  The underlying systemic problems are similar to the problems that pulled the rug out from under the financial system in 2008.  Bank assets, specifically subprime lending assets, are melting down again.

We’ve seen this movie before and the “regulators” were supposed to have blocked the banks from engaging in financial pornography. But, of course, just like teenagers who discover Pornhub, the greedy bankers undeterred by superficial legislation and an absence of independent regulatory oversight (every senior regulatory official has either worked on Wall Street or worked a law firms who get paid to keep Wall Street bankers out of jail) couldn’t help themselves.  CLO’s, 100% LTV lending, non-income verification consumer loans and OTC derivatives with orgasmic fees have re-emerged in full force.

As an example, Citibank is now sitting on top of nearly $1 trillion in credit default swaps – see this, which has the appropriate links:  Citibank CDS.   The article notes that:  “the New York Fed secretly hid from the public’s view that it had funneled $2.5 trillion (yes, trillion) to Citigroup and its trading units from December 2007 to at least July 21, 2010. That last information only became public after more than two years of court battles with the Fed.”

In the minutes released from the last FOMC meeting, the Fed is now discussing extending the money printing operations to April. Imagine that, what started as giving corporations a little help to pay quarterly taxes in September has morphed into and is on its way to half a trillion dollars of printed money handed over to the banks. Doesn’t seem strange that all the money created for corporate tax payments has not  found its way into the Treasury Department’s bank account? How do we know?  Because  a large portion of the money printed has financed new Treasury debt issuance.

Wall Street on Parade is making a motivated, if not valiant, effort to dredge up the truth with regard to to re-start of the Fed’s massive money printing operation. But I hope the Martens are not holding their breath on getting a response without an expensive legal battle:

On October 2, 2019 we filed a Freedom of Information Act (FOIA) request with the New York Fed. We requested “emails or any other forms of written correspondence from the Federal Reserve Bank of New York to JPMorgan Chase or any of its subsidiaries or affiliates containing any of the following words or phrases: ‘repo,’ ‘repurchase agreements,’ ‘overnight lending,’ or ‘reserves'”…

Our FOIA request was acknowledged by the New York Fed as received on October 2. We should have had a meaningful response on November 1. Instead, we received an email advising that we would not hear further from the New York Fed until December 5, 2019…Instead of the mandated 10-day extension that is allowed under law, we were given more than a month-long extension. On December 5, the New York Fed emailed us to say it was extending the time to respond to January 9. – Fed Balance Sheet Explosion

Make no mistake, the melt-up in the stock market, the majority of which is confined to just a handful of stocks – AAPL, MSFT plus a few insanely overvalued unicorn-type stocks (TSLA, SHOP, etc) – does not reflect a “booming economy.” Rather, it’s evidence that the financial and economic system is melting down beneath the propaganda.  With its bailout policies, the Fed has made a complete mess of the financial markets. And it’s worse this time  than it was in 2008.

Aside from some select shorts in stocks like TSLA and AAPL, buying gold and silver (physical bullion not paper derivatives – yes, GLD is a derivative) and mining stocks is the no-brainer trade of 2020.

The Truth Behind The “Repo” Non-QE QE Money Printing

Financial Markets, Gold, Housing Market, Market Manipulation, Precious Metals, U.S. Economy, , , , , ,

“The Fed first tried to justify the loans by saying they were a short-term measure to stem a liquidity crisis. But the so-called “liquidity crisis” has not prevented the stock market from setting new highs since the loan operations began on September 17. And the short-term operation has been running every business day since that time and is currently scheduled to reach into next year or last permanently. A cumulative total of approximately $3 trillion in overnight and longer-term loans has been funneled to unnamed trading houses on Wall Street without either the Senate or House calling a hearing to examine what’s really going on.” – Wall St On Parade

The analysis below is an excerpt from my November 24th issue of the Short Seller’s Journal

“Credit deterioration is a typical symptom of the end of a cycle — and that is exactly what Credit Benchmark is finding, particularly in the industrial sector.” – Bloomberg News in reference to a report from Credit Benchmark on the deterioration in credit quality of the industrial sector globally.

Credit Benchmark offers data/analytic services which provide forward-looking insights into the credit quality and liquidity of companies and sectors globally.  Credit deterioration is a typical symptom of the end of an economic cycle. Credit Benchmark also noted last week that U.S. high-yield corporate credit quality has been crumbling since early 2019.

High yield debt sits below and props up leveraged loans held by banks, pension funds and CLO (collateralized loan obligations) Trusts. Leveraged loan credit quality is also declining, with many loan issues trading well below par and a not insignificant portion trading at distressed levels. Banks have been stuck with a lot of leveraged loans that were underwritten with the hope of sticking them in CLO investment structures. But big investors have been pulling away from CLO’s since mid-summer.

A CLO is a type of collateralized debt obligation. An investment trust is set-up and structured into tranches in order of “safeness,” with credit ratings assigned to each tranche ranging from AAA down to the “residual” or mezzanine/equity layer. Each tranche is sliced into bonds which are sold to investors, primarily institutional and wealthy investors, who invest in the various tranches of the CLO based on relative appetite for risk. Typically hedge funds and/or the underwriter of the CLO will provide funding for the mezzanine/equity layer.

Leveraged loans underwritten by Wall Street are pooled together and the interest and amortization payments are used to fund the interest and amortization payments of each layer of the trust. Each tranche receives successively higher rates of return to compensate for the level of risk. In addition each tranche is amortized based on seniority. If and when enough loans in the trust default and cash collected by the CLO trust is insufficient to pay off all of the tranches, the losses are assigned in reverse order from bottom to top. During the financial crisis, losses spread into the highest-rated tranches.

Invariably, as yield-starved investors grab for anything with a higher yield than is available from relatively riskless fixed income investments like Treasuries, agency debt (FNM/FRE) and high-grade corporate bonds, the underwriting standards of leveraged loans deteriorate. Wall Street requires loan product to feed the beast in order to continue raking in fat fees connected to this business. And, as you might have guessed, Wall Street opportunistically offers credit default derivative “insurance” products structured around the CLO trusts.

As I’ve detailed previously, credit rating downgrades in leveraged loans are mounting as the level of distress in the asset class rises. CLO’s purchase roughly 75% of all leveraged loans underwritten. In theory, CLO trusts are “over-collateralized” to account for a certain level of loan default and to ensure the top tranche receives the highest credit rating possible. But it would appear that many of these CLO trusts are starting to incur losses at the lowest tranches. This fact is reflected in the rececent performance of CLO bonds since June. As an example, through June, double-BB rated CLO bonds threw off a 10% ROR (interest payments and bond price appreciation). But by the end of October, this 10% ROR was wiped out, meaning the value of the bonds has fallen 10% since June including 5% alone in October.

The chart above plots the SPX vs an index of “generic” CLO triple-B rated bonds. The negative divergence of the CLO bonds reflects the escalating degree of distress in leveraged loans, which are underlying collateral funding the CLO trusts.

I am certain that part of the reason the Fed has had to start bailing out the banking system with its not-QE QE repo operations is connected to the rapid deterioration in the CLO/leveraged loan market. Chunks of thes CLO’s and leveraged loans are sitting on bank balance sheets.

The 2008 financial crisis was primarily triggered by the collapse of collateralized subprime mortgage CDO’s (these were the securities featured in “The Big Short”). I believe – and I’m not alone in this view – that CLO’s will cause the same type of systemic damage . The CLO market is roughly $680 billion just in the U.S. That was about the same size as the subprime mortgage market by 2008. Including the offshore market, the global leveraged loan market is now $1 trillion, doubling in size since 2010.

Most people think of the Fed when they hear the term “repo.” But the repo market primarily is funded by banks and money market funds. CLO bonds have been used as repo collateral for several years. As the credit quality of this asset class declines, banks are less interested in participating in repo market funding transactions to avoid the rising probability of suffering a counterparty default from use of CLO collateral, thereby reducing liquidity in the repo market.

In addition, many banks have been stuck with leveraged loans that could not be offloaded onto investors or CLO trusts. This inability to off-load loans into CLO’s started this past summer when the largest investor in CLO’s, a large Japanese bank, began to pull away from the CLO market. As the value of these loans declines, banks are forced to increase the amount of capital required to maintain reserve ratios – another reason for the Fed repo market intervention.

As the global economy, including the U.S. economy notwithstanding the insistence to the contrary by the Fed and Trump, continues to contract it’s quite probable that CLOs/leveraged loans will begin to melt-down Chernobyl-style. Referring back to the SPX/CLO bond price chart above, in my view there’s no coincidence that the Fed’s intervention in the repo market commenced at about the same time the triple-B CLO bonds began to take a dive. That price decline is even more pronounced for the tranches with ratings below triple-BBB.

To be sure, CLO’s are not the only financial wildfire outbreak targeted by the Fed’s money printing, but I would wager a healthy amount of gold coins that distress in the CLO market is one of the primary troubles right now. And the problem is magnified when you take into account the credit default swap transactions “wrapped around” these CLO trusts. These derivative trades also require an increasing amount of collateral as CLO tranche distress escalates.

To accompany the above analysis in my Short Seller’s Journal, I presented some ideas for expressing a bearish view based on the the eventual collapse in the CLO/leveraged loan market. You can learn more about this newsletter here:  Short Seller’s Journal information.

An Unavoidable Global Debt Implosion

Financial Markets, Housing Market, Market Manipulation, Precious Metals, U.S. Economy, , , , ,

“[Whatever] the repo failure involved, it is likely to prove a watershed moment, causing US bankers to more widely consider their exposure to counterparty risk and risky loans, particularly leveraged loans and their collateralised form in CLOs. a new banking crisis is not only in the making, for which the repo problem serves as an early warning, but it could escalate quite rapidly.” Alasdair Macleod, “The Ghost of Failed Bank Returns”

The delinquency and default rate on consumer and corporate debt is rising. This creates funding gaps and cash flow shortfalls at banks. In a fractional banking system, banks only have to put up $1 of reserve for every $9 of money loaned. When the value of the loans declines because of non-performance, it requires capital – cash liquidity – to make up the shortfall in debt service payments received by the banks. In simple terms, the banks are staring at a systemic “margin call.”

To be sure, the current repo funding shortfall may subside. But it will not fix the underlying causes (Deutsche Bank, CLO Trusts, subprime debt, consumer debt, derivatives), which are likely leading up to another round of what happened in 2008 – only worse this time.

Chris Marcus of  Arcadia Economics  invited me to discuss my thoughts on the meaning behind the sudden need for the Fed to inject $10’s of billions into the overnight bank lending system:

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

Everything Is Worse Now Than In 2007

Financial Markets, Housing Market, Market Manipulation, U.S. Economy, , , ,

Does anyone seriously believe that in the next global recession equity markets will not collapse? Do market participants really believe fiscal stimulus and helicopter money will save us from a gut-wrenching global bust that will make 2008 look like a picnic? Has the longest US economic cycle in history beguiled investors into soporific complacency? I hope not. – Albert Edwards, Market Strategist at Societe Generale

Friday’s 625 point plunge in the Dow capped off another volatile week. Three of the top 20 largest one-day point declines in the Dow have occurred during this month. Remarkably, the Dow has managed to hold the 200 dma 5 times in August. The SPX similarly has managed to hold an imaginary support line at 2,847, about 40 SPX points above the 200 dma. The Russell 2000 index looks like death warmed-over and it’s obvious that large funds are unloading their exposure to the riskier small-cap stocks.

The randomness of unforeseen events causing sudden market sell-offs is starting to occur with greater frequency. Friday’s sell-off was triggered by disappointment with Jerome Powell’s speech at Jackson Hole followed by an escalation of the trade war between China and Trump. Given the response of the stock market to the day’s news events, I’m certain no one was expecting a less than dovish speech by the Fed Head at J-Hole or the firing of trade war shots.

It’s laughable that the stock market soars and plunges based on whether or not the Fed will cut rates, and by how much, at its next meeting. At this point, only stocks and bonds will respond positively to the anticipation of more artificial Central Bank stimulus. And the positive response by stocks will be brief.

Morgan Stanley published a table of 21 key global and U.S. economic indices – ranging from the Market Global PMI manufacturing index to the Goldman Sachs US financial conditions index – and compared the current index levels to the same indices in September 2007. Every single economic index was worse now than back in late 2007. September 2007 was the first time the Fed cut rates after a cycle of rate hikes.

But there’s a problem just comparing a large sample of economic indices back then and now. By the time the Fed started to take rates down again in 2007, it had hiked the Fed funds rate 425 basis points from 1% to 5.25%. This time, of course, the Fed started at zero and managed to push the Fed funds rate up only 250 basis points to 2.5%. Not only is the economy in worse shape now than at the beginning of the prior financial crisis but the Fed funds rates is less than 50% as high as it was previously.  For me this underscores that fact that everything is worse now than in 2007.

The commentary above is an excerpt from the latest issue of the Short Seller’s Journal. Each issue contains economic and market analysis short sell ideas based on fundamental analysis, including ideas for using puts and calls to express a short view. You can learn more about this newsletter here:  Short Seller’s Journal Information.

Thanks Dave for the TREE recommendation. I covered in the high $200’s for a very profitable trade after it cracked finally – subscriber “Daniel”

The Economy Is Starting To Implode

Financial Markets, Housing Market, Market Manipulation, Precious Metals, U.S. Economy, , ,

Regardless of the Fed Funds rate policy decision by the FOMC today, the economy is spinning down the drain. Lower rates won’t help stimulate much economic activity. Maybe it will arouse a little more financial engineering activity on Wall Street and it might give a temporary boost to mortgage refinancings. But the economic “recovery” of the last 8 years has been an illusion based on massive money printing and credit creation. And credit creation is de facto money printing until the point at which the debt needs to be repaid. Unfortunately, the system is at the point at debt saturation. That’s why the economy is contracting despite the Fed’s best efforts to create what it incorrectly references as “inflation.”

The Chicago PMI released today collapsed to 44.4, the second lowest reading since 2009 and the sharpest monthly decline since the great financial crisis. The index of business conditions in the Chicago area has dropped 5 out of 7 months in 2019. New orders, employment, production and order backlogs all contracted.

The Chicago Fed National Activity index for June remained in contraction at the -0.02 level, up slightly from the reading in May of -0.03. The 3-month average is -0.26. This was the 7th straight monthly decline for the index – the longest streak since 2009. This index is a weighting of 85 indicators of national economic activity. It thus measures a very wide range of economic activities.

The Richmond Fed manufacturing survey index fell off a cliff per last week’s report. The index plunged from 2 in June to -12. The June level was revised down from 3. Wall Street was looking for an index reading of 5. It was the biggest drop in two years and the lowest reading on the index since January 2013. Keep in mind the Fed was still printing money furiously in 2013. The headline index number is a composite of new orders, shipments and employment measures. The biggest contributor to the drop was the new orders component, as order backlogs fell to -26, the lowest reading since April 2009. The survey’s “business conditions” component dropped from 7 to -18, the largest one-month drop in the history of the survey.

Existing home sales for June declined 1.7% from May and 2.2% from June 2018 on a SAAR (seasonally adjusted annualized rate) basis. This is despite the fact that June is one of the best months of the year historically for home sales. Single family home sales dropped 1.5% and condo sales fell 3.3%.

On a not seasonally adjusted basis, existing home sales were down 2.8% from May and down 7.5% from June 2018. The unadjusted monthly number is perhaps the most relevant metric because it removes both seasonality and the “statistical adjustments” imposed on the data by the National Association of Realtors’ number crunchers.

The was the 16th month in a row of year-over-year declines. You can see the trend developing. June 2018 was down 5% from June 2017 (not seasonally adjusted monthly metric) and June 2019 was down 7.5% from June 2018. The drop in home sales is made more remarkable by the fact that mortgage rates are only 40 basis points above the all-time low for a 30-yr fixed rate conforming mortgage. However, this slight increase in interest expense would have been offset by the drop in PMI insurance charged by the Government for sub-20% down payment mortgages.

The point here is that pool of potential home buyers who can afford the monthly cost of home ownership is evaporating despite desperate attempts by the Fed and the Government to make the cost of financing a home as cheap as possible. 

New home sales for June were reported to be up 6.9% – 646k SAAR from 604k SAAR – from May. However, it was well below the print for which Wall St was looking (660k SAAR). There’s a couple problems with the report, however, aside from the fact that John Williams (Shadowstats.com) referenced the number as “worthless headline detail [from] this most-volatile and unstable government housing-statistic.” May’s original number of 626k was revised lower to 604k. Furthermore, the number reported is completely dislocated from mortgage application data which suggests that new home sales were lower in June than May.

The new home sale metric is based on contract signings (vs closings for existing home sales). Keep in mind that 90% of all new home buyers use a mortgage for their purchase.
Mortgage applications released Wednesday showed a 2% drop in purchase applications from the previous week. Recall, the previous week purchase apps were down 4%. Purchase apps have now been down 6 out of the last 9 weeks.

Because 90% of new home buyers use a mortgage, the new home sales report should closely correlate with the Mortgage Bankers Association’s mortgage purchase application data. Clearly the MBA data shows mortgage purchase applications declining during most of June. I’ll let you draw your own conclusion. However, I suspect that when July’s number is reported in 4 weeks, there will a sharp downward revision for June’s number. In fact, the Government’s new home sales numbers were also revised lower for April and May. The median price of a new home is down about 10% from its peak in November 2017.

The shipments component of Cass Freight index was down 3.8% in June. It was the seventh straight monthly decline. The authors of the Cass report can usually put a positive spin or find a silver lining in negative data. The report for June was the gloomiest I’ve ever read from the Cass people. Freight shipping is part of the “central nervous system” of the economy. If freight shipments are dropping, so is overall economic activity. Of note, the price index is still rising. The data shows an economic system with contracting economic activity and infested with price inflation.

The propagandists on Capitol Hill, Wall Street and the financial media will use the trade war with China as the excuse for the ailing economy. Trump is doing his damnedest to use China and the Fed as the scapegoat for the untenable systemic problems he inherited but made worse by the policies he implemented since taking office. Trump has been the most enthusiastic cheerleader of the biggest stock market bubble in history. This, after he fingered his predecessor for fomenting “a big fat ugly bubble” when the Dow was at 17,000. If that was a big fat ugly bubble in 2016, what is now?

It’s Just A Matter Of Time (before the market tips over again)

Financial Markets, Gold, Housing Market, Market Manipulation, Precious Metals, U.S. Economy

Texas Instruments reported its Q2 yesterday after the close.  Revenues were down 9% YoY for Q2 and management forecast an 11% decline for Q3.  The stock market rewarded this fundamental deterioration in TXN’s business model by adding nearly $8 billion to TXN’s valuation as I write this.

The Dow Jones Transports index is up 1% on the news that the U.S. is sending envoys over to Shangai for a face-to-face love-in with their Chinese counterparts to discuss the two Governments’ differences of opinions on how to conduct bi-lateral trade.  The  stock  market momentum chasers are happy because the headline announced that the meeting would “face to face,” therefore it’s a given that the meeting will save the freight industry from the deep recession into which it’s headed.

The U.S.’ economic woes are not caused by the trade war anymore than China’s issues are caused by the trade war.  The trade war is a symptom of the underlying systemic structural issues.  Trump’s handlers crafted a clever strategy to enable the policy-makers and war-mongers of the Deep State to use China and the trade war as a scapegoat.

Fixing the trade differences – which likely won’t happen in any meaningful manner – and taking interest rates to zero will not stimulate economic activity.   The stock market is melting up because the western Central Banks have made money free to use for those closest to the money spigot.  The banks and companies with access to the free money know that investing it in capital formation is a waste of time because real economic activity is contracting.  Instead they plow this cash into the stock market (cheap loans to hedge funds from banks in  lieu of margin credit and corporate share buy-backs).

The real source of the problem is too much debt.  The global financial system is on the precipice  of a Von Mises’ “crack up boom.”  The melt-up in the chip stocks and unicorns is stunningly similar to the melt-up in the same chip stocks and the dot.coms in late 1999/early 2000.  The “unicorn” stocks are this era’s “dot.com stocks.”  Most of the hedge fund managers and daytraders were in grade school during the first tech bubble.  They will remain clueless until the rug  is pulled out from under them.

The stock and housing markets will eventually collapse because the foundation of debt on which both asset markets are propped will implode.  This process of systemic cleansing started in 2008 but was deferred by the trillions in printed money and credit creation thrown at the problem.  Rather than “fixing” the system, the “solution” did nothing more than add gasoline on the underlying fire.

Someone asked me yesterday what triggered the sell-off in tech stocks in early 2000.  I said, “the market started to shit the bed for no specific reason other than it stopped going higher and decided to go south. The Fed jawboning was not nearly as pervasive although Greenspan was good at ‘talking’ stocks higher. The President then never cheered on the stock market like Trump does. At some point, no one can for sure when, this stock market is going tip-over – it’s just a matter of time…”

Tesla, Gold, Silver And A Historical Stock Bubble

Financial Markets, Gold, Housing Market, Market Manipulation, Precious Metals, U.S. Economy, , , ,

“Tesla’s headed for bankruptcy. It’s got a flawed business model; costs are way too high for the price charged for the vehicles and its riddled with accounting fraud. But the regulators will look the other way until it’s too late.”

Silver Liberties invited me on to its podcast to discuss reality. We spend 35 minutes trying to blow away the Orwellian “smoke” that is engulfing the United States’ economic, political system:

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

The U.S. (and Global) Economy Is In Trouble

Financial Markets, Housing Market, Market Manipulation, U.S. Economy, , ,

Jerome Powell will deliver the Fed’s semi-annual testimony on monetary policy (formerly known as the Humphrey-Hawkins testimony)  to Congress this week.  He’ll likely bore us to tears bloviating about “low inflation” and a “tight labor market” and a “healthy economy with some downside risks.”  Of course everyone watching will strain their ears to hear some indication of when the Fed will cut rates and by how much.

But the Fed is backed into a corner.  First, if it were to start cutting rates, it would contradict the message about a “healthy economy.”  Hard to believe someone in control of policy would lie to the public, right?  Furthermore, the Fed is well aware that it has created a dangerous financial asset bubble and that price inflation is running several multiples higher than the number reported by the Government using its heavily massaged CPI index.

Finally, the Fed needs to keep support beneath the dollar because, once the debt ceiling is lifted again, the Treasury will be highly dependent on foreign capital to fund the enormous new Treasury bond issuance that will accompany the raising, or possible removal, of the debt ceiling.  If the Fed starts slashing rates toward zero, the dollar will begin to head south and foreigners will be loathe buy dollar-based assets.

However, if the Fed does cut rates at the July FOMC meeting, it’s because Powell and his cohorts are well aware of the deteriorating economic conditions which are driving the data embedded in these charts which show that US corporate “sentiment” toward the economy and business conditions is in a free-fall:

The chart on the left is Morgan Stanley’s Business Conditions index. The index is designed to capture turning points in the economy. It fell to 13 in June from 45 in May. It was the largest one-month decline in the history of the index. It’s also the lowest reading on the index since December 2008.

The chart on the right  shows business/manufacturing executives’ business expectations (blue line) vs consumer expectations. Businesses have become quite negative in their outlook for economic conditions. You’ll note the spread between business and consumer expectations (business minus consumer) is the widest and most negative since the tech stock bubble popped in 2000.

Regardless of the nonsense you might read in the mainstream media or hear on the bubblevision cable channels, the U.S. and global economies are spiraling into a deep recession.  Aside from the progression of the business cycle, which has been hindered from its natural completion since 2008 by money printing and ZIRP from Central Banks, the world is awash in too much debt,  especially at the household level. The Central Banks can stimulate consumption if they want to subsidize negative interest rates for credit card companies.  But short of that, the economy is in big trouble.

I publish the Short Seller’s Journal, which features economic analysis similar to the commentary above plus short selling opportunities to take advantage of stocks that are mis-priced based on fundamentals.  You can learn more about this weekly newsletter here: Short Seller’s Journal information.