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Amazon $AMZN: The Path Of Least Resistance Is Down
The forces of economics are catching up with AMZN. First and foremost its businesses, including the cloud services (AWS), face stiff demand headwinds as the global economy sinks further into the abyss of recession. Second, AWS’ gilded veneer is peeling away as its growth rate recedes and its margins contract. Finally, the Company as a whole has been adversely affected by soaring costs, which can be covered over with accounting games while revenues are growing quickly but which rear their ugly when the economy heads south.
I think AMZN’s share price has at least another 50% downside from the current level. The analysis below is from the latest issue of my Short Seller’s Journal:
AMZN’s stock price plunged as much as 19% after hours Thursday (10/27) after reporting horrific Q3 numbers (it finished the after hours session down 12.6%) . Though the GAAP EPS “beat” estimates, revenues missed estimates and AWS sales growth was nearly 500 basis points lower than expected (27% YoY vs 31.9% forecast by the Street). The total revenue growth rate was the slowest in over 20 years. The Company also guided to Q4 revenues that were well below the Street estimate ($140 to $148 billion vs $156 billion expected).
While the revenue growth rate was much slower than expected, costs soared. And though the gross profit rose slightly (probably from GAAP accounting games), the cost of fulfillment jumped from 33.5% to 34.5% of Product sales (e-commerce + Whole Foods, primarily). As a whole, operating expenses soared while the operating profit margin plunged to 1.7% from 4.3% in Q3 2021.
AMZN’s Product Sales generated a $2.87 billion operating loss ($412mm in North America and $2.46 billion in International). AWS’ (cloud computing services) revenue growth rate slowed considerably. AWS’ operating margin dropped to 26% from 30.3% in Q3 2021. AMZN’s P/E multiple will rapidly decline if AWS’ growth rate continues to slow and its margins continue to contract. AWS is 16% fo AMZN’s revenues but it is the reason that AMZN sports a P/E ratio of 92 and a forward P/E of 56. The market will have to reassess the multiple it is willing to pay with AWS’ growth rate slowing and likely to slow more going forward (AMZN announced a hiring freeze at AWS two weeks ago).
I think the easiest money shorting AMZN has been made. However, it hit a low of $80 in March 2020 (down 22% from Friday’s close) and it hit low of $67 in the late 2018 market sell-off (down 35% from Friday’s close). With these levels as potential downside targets when the stock market rolls over again, it’s worth tracking AMZN and shorting it or buying longer-dated OTM puts if it rallies back to the $110-$120 range.
The Housing Market Appears To Be Melting Down Rapidly
When the CEO of a homebuilder admits publicly that “demand clearly slowed” during Q3 and was “even more challenging in October,” you know the market is in trouble. Unfortunately for the CEO of $PHM, the housing market is in worse shape that just “challenging.” But I’m sure he knows…I’ll be reviewing Pulte Homes in the next issue of the Short Seller’s Journal. The commentary below is from the October 23rd issue.
The housing market appears to be dissolving quickly. The National Association of Homebuilders sentiment index fell for the 10th straight month to 38 vs expectations of 43.
The chart above (sourced from Tradingeconomics.com) shows the index over the last 25 years. The index is based on a monthly survey of homebuilders regarding the rate of current sales of single-family homes, sales expectations for the next six months and prospective buyer showings. The sales expectations sub-index fell to 35. Except for the pandemic plunge, it’s the lowest reading since August 2012. However, in August 2012 the Fed’s QE was in full-swing and the index was rising.
To put the chart above in the context of homebuilder valuations, The last time the index was at 38 and headed further south was late 2006. The DJUSHB had declined about 37% from its then-ATH in 2005. It eventually bottomed in March 2009 after falling another 78%. The total decline over the nearly four-year period back then was 86%. Currently the DJUSHB has declined 37% from its ATH in December 2021. This is why I have been arguing that homebuilder valuations do not remotely reflect that coming carnage in the housing sector and homebuilder stocks. There’s still a considerable amount of downside that remains
On Friday the base interest rate for a 30-year fixed rate conforming mortgage hit 7.37%, the highest in 22 years. But that’s the base rate for a borrower with a 740 FICO and a 20% down payment. The mortgage rate for a sub-740 FICO and less than 10% down will exceed 8%. These numbers won’t help mortgage purchase applications, which declined again last week. The purchase apps index dropped to 164.2 from 170.5 the previous week. It’s back to where it bottomed and drifted sideways between late 2010 and 2015. The mortgage purchase applications index is down over 53% from its peak in early 2021. The base 30-year fixed mort-gage rate a week ago was 6.94%. The jump to well over 7% should translate into another weekly decline in purchase apps.
Housing starts in September also fell 8.1% from August and were below Street expectations (-7.2%). Permits rose 1.4% but this was attributable to rental unit permitting which rose 8.2%, as single-family permits dropped 3.1%. Most homebuilders build single-family homes and some townhomes. The decline in starts and permits for single-family homes should not surprise, as homebuilders currently are working on a record number of homes in various stages of inventory, many of which have had contract cancellations. This is going to get very ugly both for homebuilders and home prices.
Existing homes for September fell on a SAAR basis (seasonally adjusted annualized rate) for the eighth month in row, falling 1.5% from August. The single-family sales component fell 0.9% on a SAAR basis. But the not seasonally adjusted monthly numbers show a 9.2% decline from August and a 20.8% cliff-dive from September 2021. While the August to September change would have seasonal variances, the YoY comp is likely a decent barometer for the degree to which home sales are contracting. The National Association of Realtors data shows an 8.1% price increase from September 2021 but 7.1% decline from the peak in June.
The chart above puts the current housing bear market in context with the bear market that followed the previous housing bubble. It took trillions in Fed money printing and a near-zero Fed funds rate policy to revive home sales after the last bubble. In addition, it took a series of changes to the parameters for a Fannie/Freddie guaranteed mortgage, starting with reducing the down payment requirements to 3% from 5%, and increasing the size limit of the mortgage, making it easier to qualify. This also lowered by quite a bit the credit quality of the homebuyer pool. It also took trillions and a near-zero interest rate policy after the pandemic crash to juice home sales.
I continue to believe that, barring a sudden sharp reversal in the Fed’s monetary policies, the homebuilders are a no-brainer short. I still own LGIH ($78) puts of various “flavors.” I most recently booked profits on my December 95’s and added March $80s. While I think any of the homebuilder tickers are good shorts, LEN and DHI have not dropped as much as the most of the others, in case you are looking for some names to short. I also continue to really like BLDR and BECN. I think both stocks will be cut in half, at least, before this bear cycle is complete. Note: LGIH reports on 11/1 (before). Keep in mind its Q3 closings were down 23.6% from Q2 and 38% YoY.
Another name that I like as a short that continues to puzzle me is ABNB ($119). I presented the idea a few months ago. It performed well as a short but then shot higher during the June-August market rally. Between August and September, it tested the $125 level and turned lower. It traded down to $100 in September but now appears to be headed for another test of $125.
On an Airbnb Superhosts community chat, several hosts complained about a big drop in bookings: “We went from at least 50% occupancy to literally 0% over the last two months.” Another post said “What’s going on with Airbnb? No bookings at all.” Marketwatch published a report Friday in which it cited several hosts who were experiencing a sudden decline in bookings that began during the summer.
There’s a few factors at play. The number of ABNB hosts soared after the pandemic. A not unmeaningful percentage of home sales since June 2020 were by mom & pop investors who played the housing bubble by chasing investment properties and renting them out through ABNB. The travel boom after the Covid restrictions were lifted fueled this boom. But the most probable cause of the drop in bookings is a widespread and deep cut-back in household discretionary spending. Airlines started reporting a decline in bookings starting in mid-July.
ABNB reports its Q3 numbers on November 1st after the close. I have to believe that the Company either will disappoint vs forecasts or issue a warning. The fate of the stock between now and the earnings release will depend in part on the short term direction of the stock market. For now, I’m going to wait to see if ABNB trades up to test the $125 resistance level again. But I will likely put on some puts ahead of earnings to play a “miss.” I also think there’s a good chance that a material number of ABNB property investors will be forced to sell their homes/apartments, which will put further pressure on the housing market.
Who Actually Dictates The Fed’s Monetary Policy
Hint: it’s not Jay Powell or the FOMC. The mistake most people make is believing that the public figures elected and appointed by those elected are the ones who devise fiscal and monetary policy. Wrong. They are the front for the real deciders – mere pawns who are well-compensated for their role. This is a must-read Tweet thread from Occupy the Fed:
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See the rest of this Twitter thread here: Financial corruption/wealth inequality/inflation
Market Indicators That Suggest A Precious Metals Rally May Be Imminent
NOTE: The following is an article I wrote for Kinesis Money. In my opinion, the precious metals sector is on the same path that it went down (and then up) in the summer/autumn of 2008. Gold and silver are very undervalued relative to the financial, economic and geopolitical risks that have engulfed the world. And the mining stocks are extraordinarily undervalued relative to all financial assets (stocks, bonds, housing – yes housing is financial because home values are derived mortgage financing). If you are looking for mining stock ideas that should outperform the sector, I publish the Mining Stock Journal, which now offers Stripe as a payment alternative to Paypal.
It’s always best to approach any investment with a long-term view. While physical gold and silver are first and foremost wealth preservation assets, they can also be used as rate-of-return assets after periods of time when they have become “oversold” relative to other financial assets, such as the stock market.
In addition to the gold/silver ratio, some interesting, lesser-followed market indicators suggest the possibility that the precious metals sector may be forming an investable bottom.
The chart above shows the gold/silver ratio (GSR) from late 2006 to the present on a weekly basis. Periods when the GSR has risen above 80 (as indicated by the green boxes) are followed by a sharp decline in the GSR and a rally in the precious metals sector.
Currently, the GSR has rolled over from reaching its third highest level since 2008 and by far the highest level since August 2020, when the current down-cycle in the precious metals sector began. In addition, the MACD – or the moving average convergence divergence – hits its third most overbought reading in the time period shown in the chart. It has rolled over and is pointing to the possibility of a downturn in the GSR.
Read the rest of this analysis here: Kinesis Money
Consumer Debt Delinquencies And Defaults Set To Soar
The following analysis was featured in the September 25th issue of the Short Seller’s Journal. You can learn more about this newsletter here: Short Sellers Journal information.
A survey was done by CreditCards.com in which 60% of the respondents said that they have been in credit card debt for at least a year. That’s up from 50% a year ago. Forty percent said they’ve been in credit card debt for over two years. A quarter of those surveyed said that the reason they carry outstanding credit card debt is to cover daily expenses. The Fed’s July consumer credit report (it has a two-month lag) showed that credit card debt hit a record $4.64 trillion. It’s likely that credit card defaults are going to start shooting higher, causing increased stress on bank balance sheets and credit markets.
A couple weeks ago Goldman Sachs reported that the losses (bad debt write-offs) on its credit card business hit 2.93% in Q2. That’s the largest loss-rate among big credit card issuers (Goldman in recent years has made a big push into retail banking services). As it turns out, more that 25% of Goldman’s credit card loans have gone to people with sub-660 FICO scores.
See a trend here?:
The chart above plots consumer credit card debt balances (blue line, left y-axis) vs the personal savings rate (red line, right y-axis). Credit card debt outstanding is at an all-time high, while the personal savings rate is at its lowest level since the great financial crisis. Keep in mind, though, that a significantly higher percentage of personal savings is with the upper 5% wealth/income demographic relative to the 2008/9 period. Also, the savings rate just after the virus lockdown was a product of the Government handouts in the form stimulus checks and PPP loans. The PPP loans were forgiven. The funds from those programs are now spent. Keep in mind that the savings rate metric is deceptive. The majority of the savings in the U.S. is attributable to the upper 5% income/wealth demographic – and really the upper 1%. How do we know? Because a Lending Club survey a few months ago showed that 23% of those making $250k or more were living paycheck to paycheck; no savings but they live in a fancy house and sport $100k SUVs and sedans in the driveway.
What stands out most to me in the chart above is that credit card debt levels explode relative to the savings rate when the financial markets and economy are entering a period of turmoil. I took the chart back to 2003. The same pattern occurred in 1998/1999 right before the tech bubble collapsed, but it’s not as pronounced because the money supply and outstanding household debt was diminutive relative to the post-tech stock crash period, when Greenspan juiced the money supply and encouraged all flavors of consumer borrowing.
Of course, over the next several months, escalating consumer debt losses will not be unique to Goldman. For point of reference, the overall credit card delinquency rate hit 2.7% in Q1 2020. At the peak in the financial crisis years, the delinquency/charge-off rate, according to Fed statistics, hit a peak of 6.77% outstanding balances in Q2 2009. I believe there’s a good chance it will be much worse this time around.
Moreover, the delinquency and default problem will not be confined to credit cards. Over the last few years, particularly since April 2020, households have stretched beyond rational limits and to assume auto loans and mortgages that many can barely afford and soon will no longer be able to afford. While Carmax’s big earnings miss and subsequent 25% drop in its stock grabbed the headlines on Friday, buried in its Q3 report was an increase in bad debt charge offs and an increase in the provision for credit losses. Carmax is not unique in this regard.
Brace yourself for the impact of a credit crisis that will be be far worse than the one that hit in 2008 – perhaps this is why gold and silver have begun to outperform the stock market.
Paper vs Physical Gold And Silver And Why The Precious Metals Sector Should Rally
I had an interesting dialogue with a couple of long-time colleagues about this commentary by Wall Street On Parade. The Martens do an admirable job exposing the corruption on Wall Street, the Fed and Congress. But they exhibit a profound misunderstanding of the architecture of the global market for gold and silver. In the title to that article, the Martens suggest that “the typical safe havens of gold and t-notes are losing money.” Well, yes all flavors of fixed income securities are losing money because that’s how bond math works when interest rates and bond yields rise. However, the Martens fail to understand that the gold and silver market is bifurcated.
One side of the market is the paper derivatives markets on the Comex and LBMA as well as OTC derivatives. These markets are opaque, fraudulent and a source of fantastic profitability for the banks that use the products to manipulate the prices of gold and silver. For now, the paper market is dictating most of the price-action. And it’s not just the banks. The hedge funds have been dumping tens of thousands of gold and silver paper contracts on the Comex. This can be seen in the weekly COT reports, which show that the hedge funds (Managed Money segment) are increasingly adding to their gross short position and reducing their net long position. The hedge funds have been net short paper silver for several weeks. Their recent net short positioning in paper gold is the largest in memory. Conversely, the Comex banks (Swap Dealers segment) have swung from a big net short position to a net long position in paper silver and they are aggressively covering their short position in paper gold.
The other side of the gold and silver market is the physical market. By this I mean the market in which large buyers – primarily eastern hemisphere buyers – are accumulating vast quantities of physical gold and silver and require that the metal is physically delivered to their possession/custody rather than remain in allocated and unallocated vaults in London and New York (Delaware, actually). Central Banks, sovereign entities and the Indians are hoovering physical gold right now. Unlike the paper markets, in which Comex contracts and LBMA forward agreements can be printed as easily as digital currencies and Treasury bond certificates, there are not any large sellers of physical gold and silver that are identifiable. To be sure, gold and silver is brokered from producers to buyers via the bullion banks. And when delivery short-falls occur, the unallocated GLD and SLV accounts (sub-custodian accounts) are pilfered by the banks and shipped to buyers. But there are not any transactions globally in which a big holder of physical gold or silver is selling its holdings to the buyers.
The banks are not bidding aggressively to cover their short positions. Rather, shrewdly let the hedge funds drive the price lower with an avalanche of selling/shorting and using that opportunistically to cover their short positions as the price falls. Shrewd gamblers know that when the “house” – or the dealers – are taking all bets placed in one direction for their own account, the game is rigged. What do the banks know that we do not yet? This is a similar set-up to the final bottom of the precious metals sector in late October 2008, when the precious metals sector turned on a dime and shot higher while the stock market continued to head south quickly for six more months.
As mentioned above, the set-up in the markets is startlingly similar to that of late September and early October 2008. Something stopped the selling of paper gold and silver back then – some trigger event – and the paper shorts scrambled to start covering, driving the market higher and setting off a 2 1/2 year bull move in the precious metals sector. Whatever that catalyst was – and it was connected to the de facto credit market/banking system collapse – will be triggered again. It’s a matter of timing. The credit markets are melting down as evidenced by the devastation in the various fiat currencies. Review a historical chart of the dollar to see that the dollar soared – like it is now – in the summer of 2008, just before the financial system implosion. Based on behavior of the credit and currency markets, along with the glaring repositioning of paper gold and silver between the banks and the hedge funds per the COT report, I believe that a similar trigger event will occur in the coming months, possibly before Christmas.
The Housing Market Continues To Crater
The following commentary is an excerpt from the latest issue of my Short Seller’s Journal. In addition to my analysis, I provide my subscribers with specific short ideas, including the use of options. In the housing sector, my recent home run short ideas include Zillow $Z, Opendoor Technologies $OPEN and Anywhere Real Estate $HOUS (formerly Realogy), among others.
Housing market update – There’s nothing like grass roots data from Main Street as opposed to the gaslighting propaganda from the perma-bullish mainstream media. A subscriber emailed me to tell me he talked with two window manufacturers. Anderson said they are down 60% in requests for quotes [from builders, primarily but also replacement window resellers]. A higher end company to which he spoke wouldn’t give him a number but did not argue when he mentioned the 60% number. Both companies are still working through their back-log of orders.
The mortgage purchase index last week dropped to 197.8. This is the fifth week in a row of declines. The index has fallen 10 of the last 11 weeks. Outside of the lockdown period, the purchase index is at its lowest level since late 2016. It has plunged 43% from its peak in early 2021. Note that the purchase index continues to decline despite that fact that 30-year mortgage rates slipped below 6% last week.
Recall that I’ve been discussing the record level of homes under construction by new homebuilders. This chart was posted on Twitter last week:
The number of housing units sitting in various stages of work-in-process inventory on homebuilder balance sheets is at an all-time high of 1.678 million – 50% of which is single-family homes. It’s 18% higher than the peak in the previous housing bubble. Homebuilders are beginning to release a massive backlog of finished homes on to the market at discounted prices.
According to the Census Bureau data, this is the first time in history that the number of single-family homes being built exceeds the run-rate of single family homes that are being sold. Note that the run-rate (SAAR) is declining and will continue to decline per the mortgage purchase index and pending home sales data.
In my opinion, the homebuilder/home construction-related stock valuations are significantly overvalued relative to the industry fundamentals and outlook.
The chart above from the Fed shows the single family new home sales monthly SAAR over the last ten years. The current level is back to where was in the 2015-2016 time period.
This chart is a 10-yr weekly of the DJUSHB (Dow Jones Home Construction index):
In the 2015-2016 time period, the DJUSBH was trading between 500 and 600 vs Friday’s close at 1,190. This means that home builder/home construction stocks are trading currently at two-times the value per home sold now as in the 2015-2016 period. This is despite the fact that mortgage rates (6%) currently are nearly 200 basis points (2%) higher than the average rate in 2015-2016 (4%).
To be sure, profit margins over the last year have been higher than they were in 2015-2016. But that’s “rear-view” mirror data. With inventory soaring and sales plus prices dropping, the profit margin differential will quickly disappear. In addition, in coming quarters homebuilders will be forced to take big inventory valuation write-downs. This fact is not remotely priced into the stock valuations yet. I am going to increase my capital allocation to homebuilder puts.
The homebuilder stocks have been holding up better than I would have expected given the significant decline in new orders that they have been reporting over the last couple of quarters. This is particularly true of TOL, which showed a 60% YoY drop in new orders in its latest quarterly report. I don’t expect this to last much longer. In fact, I expect home prices to begin to decline in step-function fashion, which what happens when a relatively illiquid market goes from a big demand imbalance to a large supply imbalance, as is happening now.
You can learn more about the Short Seller’s Journal here: Short Seller’s Journal subscription information
How And Why QE Becomes Printed Money
There’s an egregious misperception that QE is merely an “asset swap” with banks that simply creates reserves – that the Fed is not printing money with its QE operations. This view is seeded in ignorance about the monetary system as operated by the Central Banks, particularly the Fed. My good friend and colleague, John Titus, in a series of videos shows how, using the data and research papers freely available on the Fed’s website how the bank reserves leak (or have gushed) into the real economy, thereby creating spendable money from QE. Note: it is highly recommended that you watch the series of videos referenced in this video:
The Housing Market Appears To Be In Free Fall
The following is an excerpt from the latest issue of the Short Seller’s Journal. I have been hitting doubles, triples and home runs with my housing market-related stock shorts, like $OPEN, $HOUS, $Z, $PSA, $REZ plus homebuilder stocks. You can learn more about this weekly newsletter here: Short Seller’s Journal information.
Housing market update – The Homebuyer Affordability Fixed Mortgage Index from the National Association of Realtors has plunged to its lowest level since 1989:
The late 1980’s experienced what was back then considered a housing bubble, though it was much smaller in scale than the two housing bubbles this century. But here’s the kicker: back then the average rate for a 30-yr fixed-rate agency mortgage was nearly 10%. Price inflation and deteriorating household conditions has turbo-charged the prospective homebuyer’s sensitivity to small changes in interest rates relative to 33 years ago.
This explains why the July new home sales report was a complete disaster. The headline SAAR (seasonally adjusted annualized rate) was down 12.6% from June. The SAAR of 511k homes sold was below Wall Street’s forecast of 520k. The YoY SAAR plunged 29.6% and the rate of home sales is at its lowest since January 2016.
However, the YoY unadjusted monthly sales showed July new home sales collapsed 32.2% from July 2021. The unadjusted number is much “cleaner” statistically than the SAAR, as it is not subjected to seasonal adjustment modeling errors – only to data collection estimation errors. The months’ supply jumped from 9.1 months in June to 11.2 months in July. This chart should terrify anyone who recently overpaid for a new home or was thinking about buying one:
The supply of new homes is nearly as high as it was at its highest after the previous housing bubble popped. The “low inventory” narrative was never completely valid but now it is preposterous.
Pending home sales for July fell 1% from June and 20% YoY. On a monthly basis, pendings have dropped 8 of the last 9 months and 9 of the last 12 months. On a YoY basis, pendings have dropped every month for over a year. Not including the pandemic lockdown period, the pending home sales index is at its lowest level since October 2011. Needless to say, the July pending home sale data suggests that August will show another monthly decline in home sales.
The mortgage purchase increase declined 0.5% from a week earlier. Not including the pandemic lock-down period, the mortgage purchase index dropped to its lowest level in nearly six years.
In a recent issue, I mentioned that Wall Street/corporate home buyers have been rapidly pulling back from the housing market. This past week, Blackstone announced that its Home Partners of America buy-to-rent subsidiary will stop buying homes in 38 cities as of September 1st. It will stop buying in an additional 10 cities on October 1st. In addition to Blackstone, Invitation Homes (INVH), American Homes 4 Rent (AMH) and My Community Homes (owned by KKR) announced that they have slowed considerably their home purchases.
Up until recently, buy-to-rent or flip homebuyers represented well over 20% of all home sales over the last couple of years. Zillow (Z) shut down its home flipping operations in late 2021. It’s only a matter of time before Opendoor (OPEN) stops buying homes. One of the differences between the 2008 bubble and current bubble is that the corporate buyers largely were not prevalent until after the 2008 bubble had collapsed. However, the corporate home buyers were one of the primary drivers of the housing bubble. Removing the corporate demand from the market equation will accelerate the downward momentum of the market and it’s one of the reasons I believe this housing collapse will be worse than 2008.
The chart below makes a compelling argument that home prices are going to go into free fall:
The light blue line is the Case-Shiller average home price. The dark blue line is a regression metric composed of the current mortgage rate and months supply. The two lines are highly correlated going back to 1998, the start date of the study. I do not foresee a scenario which prevents the light blue line from “catching down” quickly with the dark blue line. The 60% decline YoY new orders in its FY Q3 reported by TOL (see below) is an indicator that a price collapse is coming.
This chart solidifies that argument:
Unfortunately, the chart from Redfin only goes back to 2015. But the chart shows the percentage of active listings nationwide with price cuts. In some of the biggest bubble cities (Boise, Austin, Denver) the number of active listings with price cuts are in excess of 50%.
A long-time colleague of mine knows the CEO of a large excavating company in Colorado. They primarily do “dirt work” for new homebuilders. They are busy finishing existing projects. However, they do not have any new business on the books for 2023 or 2024. The CEO said “it’s like somebody just turned off the fountain.” If the Fed sticks to the message delivered by Jay Powell at Jackson Hole on Friday just for the next four to six months, the carnage to the housing market will be Biblical.
The Housing Crash Will Be Worse Than 2008
“The buyers just disappeared off the face of the earth.” – Shauna Pendleton, a Boise real-estate agent for Redfin
Over the course of the summer, there’s been a stunning collapse in home sales. For July, new home sales fell 12.9% from June (seasonally adjusted annualized rate) and 29% YoY. However, the Census Bureau includes the “unadjusted” monthly data – this is a metric that is based on the Census Bureau survey of homebuilders – though the media ignores it. On a YoY basis for July, new homes sales plunged 32%. Toll Brothers’ FY Q3, reported earlier this week, experienced a 60% decline in new contracts.
Based on all of the data available currently, I can say with confidence that it is starting to look like the coming housing bubble collapse will be considerably worse than the one in 2008. Because of the financial condition of the majority of prospective homebuyers, a Fed pivot will not revive the housing market – it’s headed into a severe crisis:
I have been focused in my Short Seller’s Journal on finding short ideas to take advantage of the stocks that are not remotely pricing in the coming housing market depression. I recommended Opendoor Tech ($OPEN) at $21 in November 2021; Realogy ($RLGY – now called $HOUS) at $16 early in 2022; Zillow ($Z) well before the stock price collapsed; and a plethora of homebuilders plus a couple real estate REITs (Public Storage $PSA at $400 earlier this year). There’s a lot more wood to chop from the short side. You can learn about my newsletter here: Short Seller’s Journal info