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The Writing Is On The Wall: Latest Issue Of Short Seller’s Journal Is Up
It’s been estimated that at least a third of the 175 oil producing companies in the U.S. are at risk of slipping into bankruptcy this year. At some point banks are going to have to start foreclosing on defaulted loans and many companies will be forced to liquidate. Shell Oil announced this past week that it is exiting its North American shale operations. The writing is on the wall. This is going to inflict a significant amount of damage to the U.S. economy – an amount of damage that is not yet being anticipated by investors or by the policymakers. – the February 28th issue the Short Seller’s Journal
This week I feature a two stocks that can treated either as a “quick hit” or positioned as a long term short. I’m also going to include a highly undervalued silver mining stock as a “contra” stock market idea. For new subscribers, because the precious metals sector tends to move inversely to the stock market, going long mining shares is similar to shorting stocks.
I also review some strategies for using puts to either speculate on a big move lower or replicating a longer term short position in AMZN – see AMAZON dOT CON.
You can subscribe by clicking on this link – SHORT SELLER’S JOURNAL – or on the image below. Subsribers to SSJ will be able to subscribe to the Mining Stock Journal for half-price. The debut issue should be out this upcoming week or the following week at the latest.
Paper Silver To Deliverable Silver Hits Post 2000 All-Time High On The Comex
Declining above ground inventories of physical silver and the ratio paper claims against 
those stocks is going parabolic. When the music stops, do you want to be holding real silver in your hand or a fraudulently-issued paper claim on silver?
“Jesse’s” commentary can be found here: Comex Silver
I happened to notice yesterday that premiums for silver eagles have been creeping higher recently. The mint is on allocation for 1 mm coins per week, I believe it is, and I’ve been told from a few sources that the mint could easily sell a lot more.
Fundamentals Uber Alles – Are You Prepared For The Next Leg Down?
Certain aspects of this market have become relatively easy to predict. I told my partners yesterday that they would take silver below $15 once the U.S. paper market was the only market open market on Friday (today). Soon as the London p.m. fix was set, the NY paper market manipulators went to work and they hammered silver. Interestingly the mining stocks have been very reluctantly going down these past two trading sessions. This is quite remarkable given that, from the HUI’s low-close of 100.77 on January 19, the index has run up as much as 67%. It’s due for a “technical” pullback but it seems to be yielding rather grudgingly.
There may be a message in that. I’ll be rolling out a Mining Stock Journal next week to complement my Short Seller’s Journal. Subscribers the SSJ will be able to join the MSJ for half-price.
Everyone is getting frustrated with this bear market rally. In 9 trading days the S&P 500 has gone up 122 points, mostly in big “chunks,” despite increasingly negative economic developments. If anything points to the fact that this stock market is broken, it’s the fact 
that exchange operators had to “unplug” the electronic markets early yesterday morning to halt an imminent rout in stock futures. At it’s nadir yesterday during the NYSE session, it looked as if the S&P 500 was about to drop off a cliff but mysteriously a big buyer appeared and stimulated a “V” rally.
“The mispricing of assets across world markets has reached epidemic proportions” – This Is Why You Can Expect Another Global Stock Market Meltdown (Marketwatch).
When the fundamentals don’t “fit” the valuations, eventually the valuations “regress” toward the fundamentals. This is not an opinion – this is a law of markets. Currently the global Central Banks are attempting to change this law. It’s a pretty pathetic visual of Ben Bernanke or Janet Yellen confronting Atlas, who merely shrugs.
As an example, in my January 3rd issue I defied CNBC and Oprah and issued a short recommendation on Weight Watchers (WTW), which had spiked over $22 when Oprah was dropping stock pump bombs on Twitter (for which she should be investigated by the SEC but won’t be):
After selling back down to $18 from $28 by Dec 24, Oprah tweeted out a video ad promoting her participation in Weight Watchers (“come join me ladies”). The stock jumped 26% from the December 24 close, to close out 2015 at $22.80. Based on the December 31 close, the stock trades at 26 p/e and 13x trailing EBITDA. The Weight Watchers brand name is quite stale with little to no growth prospects despite Oprah’s “quick fix” presence, the stock is significantly overvalued. Especially given that the stock was trading at $4/share in August. I find it testament to the insanity of the current stock bubble that the market value of a company like WTW can move up 700% in four months based on the presence of Oprah Winfrey on its board of directors.
The stock dropped down below $11 by Feb 8, when Oprah again tried to pump the stock (note: she owns 10% of the stock and her promotional pump was 2 weeks before earnings). The stock ran up over $15. WTW announced earnings after the close last night and the stock is getting drilled for 27% back down to $11 today. Nothwistanding the fact that I’m calling for an investigation of Oprah and her stock manipulation games, WTW fundamentally is not worth $5, let alone $15.
I wanted to use this example to illustrate my point that, regardless of the short term zigs and zags in the stock market, eventually the gravitational pull of fundamentals take over and the stock market will seek its intrinsic value. There’s still a plethora of stocks trading at insane multiples of revenues, cash flow and book value. The market bottom won’t be seen until all of these stocks have either gone out of business or are trading at valuation levels which reflect the ability of their business models to generate bona fide – not “adjusted non-GAAP” – cash income based on the actual demand for their products or services.
Rest assured we are a long way from that level on the Dow/S&P 500. The Short Seller’s Journal is a weekly research and trading report which presents at least two short ideas per issue. It also provides ideas for using put and call options and capital management/trading advice. It emphasizes a long term, fundamental approach to shorting the market. You can access it clicking here: Short Seller’s Journal.
Hey Dave, Loving your SSJ service. In fact it is just what I was looking for as the market rolls over. I expect to have my best year in the market ever, assuming the powers that be don’t step in to halt trading just when things are heating up, or some other such manipulation. I think the journal provides just the right amount of depth, and your writing style makes me chuckle. Keep the great tips coming. – Ken
Let’s Have Lunch With The Mad Hatter
I’m trying to free your mind. But I can only show you the door. You’re the one who has to walk through it. – The Matrix
The overnight computerized stock market futures trading systems mysteriously “broke” once again as the futures were heading south (see this and this). This glaringly overt intervention reeks unmistakably of desperation.
Corners of the global economy – and specifically the U.S. – are collapsing behind the smoke and mirror cloak of ebullience emanating from a sharp bear market dead-cat stock market bounce and from absurdly manipulated data reports on employment and housing.
I was looking at a daily graph of AIG earlier today and comparing it to a couple other insurance company stock charts (Allstate and Progressive). Contrary to other insurance 
stocks, AIG has not participated at all in this stock market bounce. In fact, it’s been hitting new 52-week lows almost everyday since early February.
The same problems that caused a temporary systemic collapse in 2008 are back in full force again. Only they are much larger and much more insidious because rules were changed in a way that enabled the big financial firms to better disguise their Ponzi schemes. AIG is the born-again poster-child of this evolving financialized nuclear melt-down. I was chatting with a colleague earlier who told me that a contact of his at the Company said that everyone who stayed on at AIG after 2008 are now being let go. Something ominous is going on there…
The Kansas City Fed survey reported today that its index has dropped to 7-year lows. Yes, the Government reported today a bounce in durable goods, but it was driven by a huge order for aircraft parts from the Dept of Defense (great, we’re preparing for war in the Middle East). Here’s what the real economy looks like:
While the Government insults our collective intelligence with tall tales of 5% unemployment and Janet Reno Yellen lobbies the public on the view the economy is improving, the actual numbers coming from Main Steet show an economy slipping into recession. Treasury yields continue to compress. This is not the signal that it’s time to take out a 100% mortgage from a private lender and overpay for a crappy house, it’s the unmistakable onset of economic collapse.
Today both Dominos Pizza (12%) up and Lending Tree (up 22%) spiked up after “beating” their earnings. Here’s what was missed in the reporting: Dominos trades at 16x EBITDA and Lending Tree trades at 25x EBITDA. This is sheer insanity. Oh, by the way, TREE’s trailing EBIDTA is “adjusted,” which means EBITDA after the financial Kreskins at the Company add back all of the recurring “non-recurring” expenses.
It’s incomprehensible the way the market can ignore the bad news piling up. JP Morgan admitted earlier this week that it is woefully under-reserved against defaulting energy loans it was unable to unload onto the market. Bloomberg News featured a story today which reports that “the biggest wave of oil defaults looms as the bust intensifies” – LINK. I think this is already becoming a hidden problem in the financial system and it explains why we seeing financial firms like AIG (credit default swap issuer) and DB (lender to defaulting energy companies) not participating in this bear market bounce.
We know that the middle class is running out of money – “more subprime borrowers are falling behind on their auto loans” and “Retail Apocalypse: Major US Chains Closing 6,000 Stores Nationwide” – but Restoration Hardware yesterday told us that upscale shoppers have stopped spending money now as well.
The “Minsky Moment” occurs when too much borrowed money has fueled too much asset valuation speculation. The market will no longer absorb increasing levels of debt and the current borrowers can no longer support what’s already been borrowed. A severe collapse in asset values ensues.
In early 2015 the Government allowed Fannie Mae and Freddie Mac to offer 3% down payment mortgages. This is because the system had run out of borrowers capable of taking down a 5% mortgage. Later in the year the Government began offering a zero-percent down payment program. Private, non-Government pools of capital are offering reconstituted versions of the type of mortgages which led the collapse in 2008. The mortgage market is now searching for the last non-mortgaged stragglers who can still fog a mirror and are willing to overpay for a chance at the American dream.
Currently we are seeing the Minsky Moment swarm the energy market and begin to engulf the auto loan market. Soon it will start creeping into the housing mortgage market. The gerbil is almost dead but it’s still making the wheel spins albeit slowly. Not surprisingly the stock market is looking at the gerbil as it dies and interpreting any sign of life as a reason to party on…
“In Gold We Trust” – CNBC Asia’s Bernie Lo
Since the bull market in precious metals began in late 2000 / early 2001 the mainstream media has gone out of its way to function as a propaganda tool in the official war on gold conducted by the biggest beneficiaries of the thoroughly corrupted western banking, Central Bank and Government systems.
Quite amazingly, CNBC allows its CNBC Asia affiliate and morning (Asian hours) anchor, Bernie Lo, to host Bill “Midas” Murphy on occasion to discuss the blatant and unfettered manipulation of the gold market. Bill was on yesterday (Tuesday, Feb 23) for a seven minute segment that’s worth watching, if not for the insight provided my Bill then for the exceptionally rare glimpse of a mainstream media financial programming host who is willing to pullback the media’s propaganda curtain and expose the truth (click on the image or this LINK to watch the broadcast):
Goldman Sachs’ technical analyst, Jeffrey Currie was on CNBC again urging clients and viewers to sell or short gold. With regard to this, I’ll point out that Currie had an $800 price target on gold for quite some time and he moved his target up to $1,000 once he understood the embarrassment of the $800 target.
I honestly don’t know how anyone with more than two brain cells in their skull to rub together would ever pay attention to any market recommendation coming from Goldman given the firm’s track record of taking the other side of their publicly-issued investment “advice.”
Too be sure, at some point the precious metals sector is going to experience a pullback. Perhaps as early as this week. But to the extent that inexorable and unfettered official intervention the market has prevented the price of gold/silver from a true price discovery process, it is quite possible for the metals to become extremely “overbought” and stay overbought for an extended period of time. I’m not making this my forecast – I’m saying that markets behave in unexpected ways when price-control measures are in place and the “time for a pullback” side of the proverbial ship is getting very crowded.
On a related matter, I featured a junior silver exploration stock in my January 10th Short Seller’s Journal on the premise that investing in mining stocks is a “contra” NYSE stock strategy and therefore a surrogate method of shorting the market. The stock is up 38% since then (44% in Canadian dollars) and I’m expecting some good news coming from the Company next week. I’m offering a copy of this issue to new subscribers: Short Seller’s Journal.
I will also be rolling out a Mining Stock Journal, possibly as early as sometime next week and subscribers to the SSJ will be able to subscribe to the new report for half-price.
The NAR’s Existing Home Sales Report For January Is Not Credible
The 14 percent quarterly decrease was fueled primarily by a 24 percent quarter-over-quarter decline in purchase originations — the biggest quarterly drop in purchase originations in more than five years, since the third quarter of 2010. – RealtyTrac
EVERYTHING EVERYWHERE that is used to further intended policy is adjusted that way to the nth power. Inflation, employment, housing…Our world has become so delusional and a house of mirrors that it’s impossible to rule out anything. Policy today should be called: NHB (no holds barred). – A friend and colleague of IRD
The National Association of Realtors reported their statistical estimates for January existing home sales today. According to the NAR, home sales on a Seasonally Adjusted Annualized Rate (SAAR) basis increased .4% in January vs. December. The NAR claims that the same metric shows an 11% year over year increase for January 2016 vs. 2015.
I’ve never understood the purpose of using an annualized rate number in order to report monthly economic data. That does not make any sense whatsoever. To begin with the NAR uses data samples that it describes as “representative.” However, as anyone who has taken elementary statistics in school knows, all data sampling is highly vulnerable to sampling errors and sampling bias. To the extent that the data pool for a monthly time period contains errors, annualizing this data compounds the error by a factor 12.
And then there’s the seasonal adjustments. The NAR will not share its seasonal adjustment algorithms with the public. The seasonal adjustments further pollute the data samples and therefore further corrupt the annualized metric.
However, we can test the NAR reported numbers using some highly correlated comparative reports. It just so happens that, understandably, there’s a high correlation between between purchase mortgage originations and existing home sales. A week ago RealtyTrac released a report that showed U.S. residential purchase loan originations dropped 24% in the fourth quarter of 2015: RealtyTrac. This was the biggest drop in purchase loan originations in more than five years.
You might ask what mortgage purchase loans in Q4 have to with the existing home sales report for January. Good question. Existing home sales are based on contracts that close (escrow closes and title changes hands) – as opposed to new home sales which are based on contracts signed. Unless an existing home sale is an all-cash transaction, it takes at least 30-60 days for a contract to close once its signed. This means that up to 2/3 of the contract closings in January were more than likely based on contracts signed in November and December. Mortgage originations for those months should move in lock-step with contract signings.
How is it possible that existing home contract closings increased slighly over December or 11% year over year for January when mortgage purchase originations plunged 24% during the period of time that NAR claims that contracts were being signed and converted into closings? In fact, per the NAR, all-cash transactions declined slightly in January, which means that the use of mortgages was a slighly greater part of the sales mix for contracts that closed in January 2016 vs. January 2015. In other words, it’s almost a statistical impossibility that home sales were up 11% for January 2016 vs. January 2015 or even vs. December given the huge decline in mortgage purchase originations.
Anecdotally, the market is breaking down here in the DC area. Homes are being listed and them removed after too many price reductions. If a home does sell, it’s probably a foreclosure that selling 33% below its 2005 price like this one: Zillow LINK – Reader comment
The other problematic assertion by the NAR is a claim of low inventory. I know from the new listing notifications I receive daily for the Denver area that new listings have been soaring since the early fall, especially in the over-$750k price bucket. Not only that, but the “price change” notifications have been accelerating since the late fall. I have received similar reports from readers around the country. The way the NAR calculates “supply,” when sales are overstated, it creates a downward bias in the “months inventory” metric. The annualization of the data exacerbates the problem.
Given the rapidly deteriorating economic condition of the U.S., a claim that housing sales 
continue to increase is simply not credible, with or without the verification provided by the mortgage origination data. This is further reinforced by the rise in the cost of buying a home relative to the deterioration in household real income. We found out earlier today that, according to the Case-Shiller housing price index, the price of a home continues to climb. How is it possible that more people are supposedly buying increasingly expensive homes with declining incomes?
The fraudulent data and lies being broadcast by the Government and various industry associations like the NAR are just silly given the increasing divergence between the statistically manipulated data and the underlying reality. It’s funny because I play tennis weekly with a successful mortgage broker in Denver. He is looking to move out the business and into something else because he sees the writing on the wall for the housing market…
This is the type of analysis that is the foundation for the Short Seller’s Journal. When I pick out short-sell ideas, I don’t look for stocks that will go down just in correlation with the market, I look for stocks that will get demolished when the market moves lower. To do this I spend several hours a week looking not just a p/e ratios and business models, but I also look “under hood” at company financials and industry fundamentals. I am also going to roll out a bi-monthly Mining Stock Journal and SSJ subscribers will be able to subscribe to the Mining Stock Journal for half-price.
A Flock Of Black Swans Hovers Over This Bear Market Bounce
The Dow has spiked up nearly 1,000 points in six trading sessions. Similarly, the S&P 500 has shot up 6.4% in the last six trading sessions. Nothwithstanding the continued flow of increasingly bearish economic data, stock market moves like this do not occur in a bull market. The economic indicators continue to get worse – much worse. Maybe the markets are giddy because they are anticipating more money printing – I don’t know.
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. – Ludwig Von Mises, “Human Action”
I don’t care what so-called Wall Street scam artists, financial media imbeciles and the charts are saying. The basic underlying economic, financial and geopolitical fundamentals continue to show two developments brewing: the onset of a Greater Depression and war.
The black swans are right in front of our eyes in the form of debt at every level of our system: Energy industry, student loans, auto debt, personal and credit card debt, corporate debt and real estate/commercial property/housing debt.
The energy debt crack-up boom is here and now. The Government can somewhat hide the SLMA debt problem but I’ve seen estimates that as much as 40% of the $1.3 trillion is in technical default. The Government lets people go into deferment or enables as little as no monthly payments with a new income based test that Obama initiated. But the Government still has to make payments on the debt as a the pass-thru guarantor to entities that hold the student debt.
The auto debt will become a problem this year: More Subprime Borrowers Are Falling Behind On Their Auto Loans. Repo rates are already at historically high levels. The enormous glut of new cars will begin to push down the resale value of repo’d vehicles, forcing big losses on banks and auto loan-backed asset-trust investors.
The rate of delinquency on all of the new 3/3.5% down payment mortgages issued over the last 5 years will begin to move up quickly this year as well. In fact, the banks are still sitting on defaulted mortgages from the last housing market collapse. But the liquidity pushed on to the banks by the Fed has enabled them to endure non-performing loans on their balance sheet.
And then there’s the tragically underfunded pensions…the State of Illinois has openly admitted to a $111 billion underfunding problem. Several other States have disclosed 40-50% underfunding of their State-employee pension plans. The problem with these estimates is that they rely on projected future rates of return that are too high. Most funds assume a 7.5-8.5% ROR in perpetuity. Last year most funds were flat to negative. YTD pension funds are quite negative.
How is it even remotely possible that any pension fund is underfunded given that, since the 2009 low, the stock market has tripled in value and the bond yields have fallen to record lows, which means bond portfolios should have soared in value? Pension funds should be, if anything, over-funded right now.
Furthermore, those underfunding estimates assume bona fide, realistic mark to market marks on illiquid investments such as CLO’s, CDO’s, Bespoke Tranche Opportunites (think “The Big Short”), private equity fund investments, real estate, etc. – you get the idea. I would bet most pension funds, public and private, are fraudulently over-marked on at least 20% of their holdings. I know many pensions have allocated in the neighborhood of 20% of their investments to private equity funds. Most of these funds are in the early stages of becoming little more than toxic waste.
Pension underfunding is no different from a brokerage account that is using margin. “Underfunded” is a politically acceptable term for “we are using debt to make current payments.” The “debt” incurred will be owed to future beneficiaries. But here’s the rub: with assumed rates of return too high and investments already overvalued for political purposes, it is highly likely that future pension fund beneficiaries – private and public – will be left holding little more than an “IOU.”
In other words, the pension underfunding problem is, in reality, another massive chunk of debt has been cleverly disguised and layered into our system. It has been yet another mechanism by which the Wall Street racketeers have sucked wealth from the middle class.
By all appearances, this recent dead-cat bounce in the stock market is quickly losing steam. Macy’s stock is up 1% because it “beat” estimates using “adjusted” EPS. “Adjusted” is a euphemism for “recurring non-recurring expenses that we strip out of our reported net income calculation to make the headline earnings report look better.” Of course, hidden in between the lines is the fact that Macy’s revenues and net income (any way you want to calculate it) has dropped precipitously year over year.
It’s impossible to know for sure how much longer this parabolic spike up can last. It might even run up to the 200 dma (red line). But inevitably the market take another parachute-less base jump off a tall building and remove another chunk of money from daytraders, retail investors and their moronic advisors and, of course, pension funds.
If you want ideas on how to take advantage of a market that is inevitably headed much lower, please visit the Short Seller’s Journal.
Dr. Paul Craig Roberts: The Evil Empire Has The World In A Death Grip
A little know fact about the U.S. Department of Homeland Security is that, rather than being borne out of it was in the planning, it as being planned at least as early as the mid-1990’s: NY TImes 2002 – The Prickly Roots of Homeland Security.
A fact that you will NEVER hear on Fox News or CNN or in favorite mainstream media “news” source is that name “Homeland Security” is the same name used by Hitler’s Nazi regime. I find it quite amusing that neocons and liberals alike equally endorse the implementation of the same type of population control measures employed by the Third Reich. Et tu?
My good friend Paul Craig Roberts is a Patriot in the true definition of the word because he is a former high level Government official and policy planner who has devoted a large part of his time toward an attempt to expose the truth about what’s really going on behind the proverbial “curtain” that has been erected between the DC/Wall Street Mafia and the mainstream public.
His latest article discusses John Perkins’ “Diary of an Economic Hitman,” which describes the process by the U.S. Government has been taking control and looting lesser developed nations for decades. The same tactics are now being applied to some of the smaller EU countries.
You can read his commentary here: The Truth About Obama’s U.S. “Exceptionalism”
I would add to this that I strongly believe that the U.S. has been attempting to destabilize and gain control of both Russia and China and that it is this hubris that will eventually result in the outbreak of WW3. Ironically, the United States’ “war on terror” is being conducted by the most dangerous terrorist Government in the world.
The Latest Weekly Short Seller’s Journal Is Now Available
The stock market (S&P 500) jumped 97 points the first three days of last week. That’s an average of 32 points per day for those three days. The economic news continues to show quickly deteriorating U.S./global economic conditions. U.S. Treasury debt is now over $19 trillion. There is a near-100% probability that the U.S. Treasury will hit the new $20 trillion debt ceiling limit before the March 2017 borrowing authority extension date arrives.
I have no doubt that the Fed will re-ante its money printing program – aka “QE” – before Labor Day.
My latest issue of the Short Seller’s Journal features a highly overvalued construction industry stock plus a tech/media stock with big operating losses. Click HERE or on the image below to subscribe.
Hey Dave, loving your SSJ service. In fact it is just what I was looking for as the market rolls over. I expect to have my best year in the market ever, assuming the powers that be don’t step in to halt trading just when things are heating up, or some other such manipulation.
I think the journal provides just the right amount of depth, and your writing style makes me chuckle. Keep the great tips coming. – Ken
The Perfect Storm In Silver Is Coming
From Silver Doctor’s Weekly Metals and Markets report:
“The Perfect Storm in Silver is Coming. Demand Could TOTALLY OVERWHELM SUPPLY in 2016. The Real Value of Gold and Silver Will Be RELEASED By the Bankers Once They’re Out of Their [short] Positions.” -Steve St. Angelo
You can listen to this report here: Collapse Of The Paper Silver Market Is Coming