Investment Research Products
Powered by Kranzler Research
Articles
Hidden Financial Bombs Are Starting To Detonate
I am impressed, you answered very promptly even on a busy day; Thank you for the note and the consideration of timing on my sign up. I appreciate both! I’m also already pleased with the value of your service. – Comments from two subscribers to the Short Seller’s Journal
The S&P 500/Dow have started to sell-off relentlessly since the beginning of the year. This morning’s excuse was IBM and, once again, China. I guess Obama’s “America is exceptional” speech infected the brains of more people than I thought. The sell-off in the stock market surely can’t be attributable in any small way to the fact that the U.S. stock market never been more overvalued in its history. Not only is it trading at record valuation levels, the “value” of the stock market is resting on a mountain of debt and derivatives in the U.S. financial system of unprecedented size and diminished credit quality.
Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief. – William White, form chief economist of the BIS – LINK
Unpayable debt and counter-party defaulted derivatives are the hidden financial bombs that are beginning to detonate both globally and in the United States. Faux analysts like to point to the fact that consumer debt is lower now than in 2009. However, the reason the amount of stated debt declined was a result lender write-offs – not consumers repaying any debt. Now automobile and student loans are at all-time highs – over $1 trillion outstanding now in each. Unlike mortgage debt, this debt is largely unsecured (cars are collateral that depreciate quickly in value).
Well-known/regarded hedge fund titan Ray Dalio of Bridgewater Associates was in the news today warning that “if assets remain correlated, there’ll be a depression” LINK
Who am I to question Ray, but he’s got it wrong. The mistake embedded in his assertion is that economic activity is currently connected to the massive global financial bubble. Sorry Ray, but if you use unmanipulated data, the world is already in an economic depression. The price of oil, the baltic dry index, the Cass shipping and freight index (LINK a volume-based index down almost 20% since 2013), etc – measurements of actual economic activity – are reflecting a level of economic activity globally and in the United States that is suggestive of a deep recession on Main Street.
I’ll say we are in trouble up here [Canada]. Aside from the obvious, oil and the Canadian dollar crashing in unison, we have a seriously over-priced housing market and a totally unsustainable condo boom in our two largest cities. Alberta is an unfolding disaster and, for all intents and purposes, the largest province by far Ontario, is bankrupt. Superimpose on that a neophyte federal government and a totally clueless central bank head and we are headed for very big trouble. At least gold is $1575 in Cdn. Dollars and will explode higher shortly. – John Embry in an email exchange with IRD
The error in Dalio’s assertion is that financial assets drive economic activity. The “wealth effect.” Unfortunately, while record hedge fund management fees might determine whether or not Mr. Dalio decides to bid on the latest Picasso up for auction or buy a new Ferrari this year, the majority of wealth accessible to most humans has nothing to do with the current price of AMZN or the dividend paid on KMI. The “wealth effect” concept is yet another Keynesian rhetorical diaper wrapped around the mechanism by which the elitist suck wealth from the middle class.
Real Main Street economic activity has been receding since 2008. The illusion of economic “growth” has been created by issuing more debt used by the hoi polloi to buy cars, unaffordable homes and online college degrees. At this point in time, the relative trading level and correlation of financial assets has nothing to do with economic activity, other than maybe the ad rates that can be charged by the adult Nickelodeon channels: CNBC, Fox Biz and Bloomberg. This chart perhaps best illustrates this point – click to enlarge:
This graph on the left plots Kinder Morgan stocks vs. the S&P 500 for the last two years. KMI here represents real economic activity because its business is based on the price and demand for oil. Even if you want to argue that KMI has take or pay contracts, if its customers can’t pay, KMI does not “take” revenues. It’s no coincidence that KMI’s stock has crashed along with the price of oil (and gas). The misnomer of “Dr. Copper” is that it should be “Dr. Oil.” After all, for every pound of copper used it takes energy to mine that copper. For every product produced with copper, it takes energy to produce that product. For every copper-embedded product purchased, it takes energy to deliver to that product. Get it?
It’s the human condition to believe irrationally that bad things can’t happen. Denial and hope are the two strongest forms of the human emotional defense mechanism. But bad things are starting to happen. The price of oil is telling us that the world, including the U.S., is already entering an economic depression.
Referring back to that graph of KMI vs. S&P 500, KMI represents the “poster child” for the U.S. economic system. KMI is loaded down with debt that will eventually become unpayable, some of it possibly by this fall. It’s also emblematic of the proverbial stock idea that was supposed to be “can’t miss.” It paid a huge dividend and it’s business model was “safe.” But KMI’s operating income has plunged 45% from Q3 2014 to Q3 2015. How on earth is that reflective of a stable business model?
KMI is somewhat of a Ponzi scheme. It relies on generating growth to fuel bullish stock reports and investor interest. It relies on an unfettered ability to issue debt in order to pay its dividend. I’m working on a big research report and you might be surprised at my conclusions. Kinder Morgan stock has already decimated a large number of investor portfolios. And yet, the indefatigable bullishness on the stock coming from the “it’s too cheap to sell” or “opportunity of a lifetime” CNBC zombies continues to blossom.
The orange line in the graph above is the S&P 500. You can see just how disconnected the real economy, as represented by KMI stock, is from Ray Dalio’s “financial assets.” And you can also see that the real economy is headed for a depression. In other words, it’s too late to worry about whether or not correlation among financial assets will cause an economic problem. “Financial assets” are a creature of Wall Street. The real economy is a creature unto itself and adheres to natural laws uncorrelated with Wall Street’s money-making gimmicks. Sorry Ray, but eventually your “financial assets” will be inextricably correlated with the real economy.
People want to believe that bad things don’t happen. But the laws of nature don’t care about what people want to believe. These laws are not necessarily correlated with human faith and bad things are about to happen out “there.”
If you want to hedge yourself against what is coming, subscribe to my Short Seller’s Journal. Homebuilder stocks are getting hammered this week and I will be featuring two ideas connected to homebuilders that have not been sold down hard yet.
Tuesday Morning Massacre In The Large Cap Miners
Something very ominous is brewing behind the scenes. It is systemic and related to a ongoing credit collapse behind “the curtain.” The indicators are right in front of our eyes, regarded with indifference by a zombified, propaganda-infused public injected with the “hope heroin” greedily pedaled by Wall Street, the Fed and the Government.
The credit markets are in a slow state of collapse led by high yield bonds and leveraged loans, which have been declining for the better part of a year. Recently that decline has turned into a tail-spin in the more toxic classifications of “high yield.”
It was revealed by Zerohedge LINK, in a display of adept journalism, that the Dallas Fed has quietly told its regional member banks to refrain from marking to market their distressed energy loans and to defer an initiative to foreclose on defaulting loans to technically bankrupt energy companies drowning in debt.
Of course the head of the Dallas Fed, a former high-ranking Goldman Sachs executive, has issued a polished denial. We need to two more denials before the intel is confirmed to be true. But I know from a source that it is indeed true. A couple months ago a little birdie passed on the remarks made to his client from the President of a big regional bank in Texas: the economic hurricane brewing from the collapse in energy prices is about to hit Texas hard and it will hit every sector of the Texas economy.
Back to the Dallas Fed issue, does this sound familiar? Anyone happen to learn anything from “The Big Short” about the fraudulent behavior of the big banks when their fraudulent business activity hits the wall? One well-read analyst dismissed this latest round of fraud by attributing it to the change in mark to market accounting rules passed in 2009. But these rules were meant to enable the big banks to avoid reporting asset mark-downs for GAAP purposes, enabling them to mark-up bad assets. This further enabled these banks to misrepresent their earnings per share in quarterly earning reports. But that analyst is whistling past the graveyard on this issue. This is much more insidious and fraudulent than changing the GAAP accounting rules. This is about telling banks to let bankrupt companies pretend to be solvent, just like we saw in The Big Short with CDO’s and CLO’s.
This latest move by the Fed is an attempt to play Atlas and hold up the world of banking on its shoulders. It’s about enabling these banks to avoid taking big hits to their reserve capital. This lets the banks carry on as if nothing is wrong when they should be selling assets hand over fist and raising even more capital to use as reserves against collapsing energy assets. The canary has died and the Dallas Fed is going to try and carry the canary out of the mine before anyone sees the corpse.
Now does it sound familiar? This is exactly what happened in 2008 in the mortgage market. Only this time around it will be worse because this dynamic will encompass most of the biggest lending sectors of the financial system: energy, auto loans and student loans. Don’t worry, mortgages won’t be left out. The pool of homebuyers sitting on 0-3% down payment mortgages has bubbled up. I predict that within the next twelve months a large portion of the subprime mortgages disguised as FNM/FRE/FHA conventional loans will be come quite problematic for the banks.
How does this relate to the Tuesday morning massacre in the large cap miners? Whenever something really bad is about to hit the system, one of the first places it manifests is with an unexplainable raid on the mining stocks. I thumbed through the news announcements of every single component of the HUI index and could not find any news reports that would have triggered a 6% hit on the HUI. Some of the biggest stocks, like BVN, Kinross and Newmont are down 7-10%. Unexplainably down.
This could lead to a big attack on gold/silver, so brace yourself. It won’t last and anyone who sells into it out of fear will regret doing so in 3-6 months.
The global financial system is collapsing. It was reported yesterday that Italy’s big banks are melting down. This will trigger a big daisy-chain explosion credit default swaps. I expected to see the S&P futures down 2% on this report. They were up 1.5% overnight. I guess a melt-down starting in the European financial system is a good reason to pile into U.S. stocks…But on the contrary, I knew I would wake up to find the SPX futures up big and that’s what confirmed for me that the system is collapsing. The Tuesday morning slaughter in the large-cap miners is Fed’s attempt to get that canary past the last group of people entering the mine and it further confirms that the global economic system is failing.
Is The U.S./West About To Collapse?
Well, in truth, we had a de facto collapse in 2008 which was addressed with $4 trillion in QE and, ultimately, a few trillion in Taxpayer subsidies. The proverbial can was kicked down the road in order to enable the insider elitists to continue looting as much wealth as possible from the system. A fractional reserve banking system will always eventually collapse. The fraction of reserves is allowed to become smaller over time and the amount of unpayable debt balloons to the point of explosion.
I would suggest that the massive debt implosion about to happen in the energy sector will be the trigger point for a collapse that can’t be prevented this time.
With that in mind, Zerohedge reposted a Reuters article which is reporting that the Italian banking system is collapsing – LINK. What’s that got to do with the U.S. financial system, you might ask? Derivatives. Every single big bank in the world is interconnected through the insidiously toxic international web of OTC derivatives.
Someone will lose big on Italian credit default swaps and not be able to pay their counterparty. The counterparty may have offloaded some of that risk and fail to stand as a counterparty on the risk it laid off. And so on down the line. The banks themselves do not know the extent of true counterparty risk exposure. Internally employees lie to risk managers. Risk managers knowingly and unknowingly lie to the board. The CEO then knowingly and unknowingly lies to the Fed and other Central Banks about that bank’s specific derivatives exposure. I witnessed this first-hand in the 1990s’ when derivatives were just beginning to blossom as a wealth-extracting device for Wall Street.
I bring all this up because one of Bill Murphy’s readers sent him a letter that should, at the very least, raise the hair on the back of your neck. I emailed Bill, with whom I communicate several times per day every day and asked him about the credibility of the person who submitted this letter: “Well written, little drama, just input. I couldn’t make up a story like that. This is just a regular guy ho believes our story and follows you too. No reason for him to send this except to point it out. If I thought a bit bogus, I would never have run it. No reason for the girl to make that up and, of all people, one of the Koch brothers.”
So with that, here’s the letter published by LeMetropole Cafe/Bill Murphy’s Midas report:
This email from a fellow Café member will catch your attention. It is edited to keep the identity of the sender private, but the essence of what was presented is striking…
Bill,
I have been working in a chemical plant and have been there for 39 years. We have about 400 people working at the site. I can’t talk to anyone about what is going on with the financial system because nobody wants to hear any of this, they either don’t believe it or their eyes glaze over and they change the subject. I gave up trying to tell people what is coming years ago.
There is one man at the plant that knows what is going on with the worldwide financial system. He is the production superintendent for the plant, reports to only the plant manager, I have two supervisors between him and myself. Last night he called me about 8pm, which was very unusual because we normally stay in touch through email or sometimes, very seldom though, he comes to the unit I work in and we discuss what is going on at that time. His daughter works for Koch Industries in Wichita in marketing. She called him yesterday and told him they had a meeting with one of the Koch brothers giving the meeting. He came out and told his employees that we were about to go into unprecedented times. He said that their company was cash rich and they would be able to ride out the coming storm. One of her coworkers asked if we were going to have a recession or a depression. Mr. Koch answered that no we were going to have an economic collapse with a 40% devaluation of the dollar. I know you know who these Koch brothers are, with the money and inside connections they have wouldn’t you presume they have inside information.
My superintendent’s daughter told her father that Mr. Koch sounded just like him with the speech he gave, because her father has been telling his 2 daughters for years to get ready for the collapse and they have. My job allows me to read probably 11 hours a night when I work days and on weekend days. I started researching our financial system in 2008 because of what went down back then. It is totally amazing to me now that we have a system that is totally manipulated by TPTB constantly and people don’t have a clue about what is really going on. We really do live in the Matrix.
R
Time will tell if this information proves to be prophetic. Someone asked me today if I thought a collapse was right around the corner. I answered that, with the enormous effort being exerted by the Fed and other western Central Banks to keep the system from collapsing, there’s no way to know with any reasonable degree of accuracy. But I said that I would be surprised if the system makes through 2016 intact.
The Ongoing Global Financial Markets Collapse
Video courtesy of Eric Dubin’s The News Doctors
Remember the economic catch phrase, “when the U.S. sneezes, the world catches a cold?” The idea being that the U.S. is the economic engine of the world and if the U.S. economy tanks, the global economy tanks. The current “vogue” in the financial media is to blame the incipient melt-down in global stock markets on China’s move to devalue its currency.
But nothing could be further from the real truth. China’s devaluation process may well be the proverbial “straw breaking the camel’s back.” However the real causation of the global economic meltdown is a result of the world’s fiat-currency-based Central Banking system losing the ability to control the natural market forces which are acting to destroy the financial market bubbles and economic excesses that have been allowed to breed since the dollar became the global reserve currency.
The reasons that the U.S. stock market looks like it may be starting to collapse are both simple and complicated. Craig “Turd Ferguson” Hemke of the TF Metals Report and I discussed some of the real factors which have conflated to “prick” the global financial/economic bubble: stocks, bonds, real estate, derivatives, paper currencies – anything connected catastrophically to the global paper fiat currency “Frankenstein” that was born with the Bretton Woods Agreement in 1947.
You can listen to our conversation here: TF Metals Report or by clicking below:
This graph is part of our conversation in which we discuss why the sell-off in the U.S. stock and credit markets may be attributable to an unwinding of the yen/yuan carry trade – 
which no one on Wall Street/CNBC/Bloomberg/etc has mentioned:
Note that the yen has appreciated significantly more than the dollar vs. the yuan since China’s currency deval began. How come no one on Wall Street is discussing this?
My latest issue of the Short Seller’s Journal will be released Sunday evening. You can subscribe by clicking here: Short Seller’s Journal This week will feature a section which outlines a strategy and the pros/cons for using put options to replicated shorting a stock.
Amazon.com: Has The Bubble Finally Popped?
It’s good to no longer be a lone voice in the wilderness. This latest commentary on the insane overvaluation of Amazon stock comes from Bill Bonner of Agora Research by way of the Acting Man blog:
Every AMZN bear has been made to look like an idiot – but that may soon change. As David Stockman recently pointed out, those who actually take the time to properly analyze its slippery accounting and business model (not the dead fish employed by the sell-side, obviously) cannot help but conclude that it is a giant Ponzi scheme – and the danger that this realization will penetrate the “market mind” is increasing. It remains a “river of no returns” – although consumers have every reason to love it. Investors buying it today pay 830 times net earnings for the stock – and said net earnings actually look somewhat dubious upon closer inspection.
Interestingly, a lot of AMZN critics still insist on describing AMZN as company that generates “cash flow.” But, as my AMAZON dot CON report details, the metric being describe as “cash flow” comes from Bezos’ own quarterly earnings presentations in which he references “free cash flow.”
For those of us who bother to scour the footnotes of AMZN’s SEC filings, we find that AMZN discloses that its “free cash flow” metric does not conform to GAAP accounting standards. But I take that disclosure in my report and show, with details from AMZN’s financials, why the term “free” in reference to “cash flow” is highly misleading. In fact, over the last two years the cash used by AMZN to “invest” in its business model has come largely from debt issuance and from gift card and Prime membership deposits.
Amazon Prime? Bezos admitted about a year ago that Prime loses a couple billion, a fact confirmed by one analyst in July but ignored by everyone: LINK. The idea behind Bezos’ strategy is to do whatever it takes to generate sales growth. The stock price soars when it looks like AMZN is growing rapidly. However, as my report details with direct evidence from the financials, revenue growth is required in order for AMZN to pay its expenses. In other words, the only way AMZN stays afloat is if “cash in” exceeds “cash out.” That’s the definition of a Ponzi scheme. AND, as a matter of fact, as I show in my report, AMZN has stretched out its accounts payables over the last few years. This is a trick companies use in order to slow down the rate at which they pay their bills. If revenues begin to decline, AMZN will hit the wall – quickly.
As I state in the introduction sent to new subscribers of my Short Seller’s Journal, it is impossible to time the top in AMZN. But once it rolls over, it will drop quickly. You might miss the move from $600 to $400, you can ride it from $400 to $100 or lower. AMZN ran from $300 to almost $700 in less than a year. It can easily complete that roundtrip in even less time.
There’s probably a core level of operations that can be a profitable business. But it is nowhere near the level that generates the current $100 billion of revenue. AMZN spends at least $1 to generate every $1 of revenue. That core level of potential profitability would likely imply a fundamental value per share well below $50.
I would not necessarily rush out and short AMZN right now. It will probably start to move higher into its earnings report on January 28 (after the market close). I have a feeling that Bezos will pull out all the stops to manufacture an earnings report that beats consensus estimates and the stock will gap up again as all the hedge funds that piled in short this week scramble to cover. THAT is when you want to start pulling the trigger on shorting the stock. My AMAZON dot CON report will help you prepare for that.
U.S. Economic Collapse Becoming More Evident
It’s days like today that will keep the muppets invested as we keep going down. – Jim Quinn of The Burning Platform in reference to Thursday’s stock market moon-shot
Well, I was wrong. I was predicting that the Census Bureau would engineer a miraculously positive retail sales report for December. As it turns out, the CB is admitting to a .1% drop in retail sales for the month. The question begs, then, just how bad were the real numbers? They also are purporting that November retail sales rose .4% instead of the .2% originally reported. Unfortunately for the Government, all of the privately produced retail sales metrics during November showed large declines in retail sales during the month. No, Virginia, the impressive percentage gains in online sales do no offset the decline in brick/mortar sales – online sales activity is about 7% of total retail sales. The Consumer is tapped out which means the U.S. economy is tapped out. But we should blame China, right?
In addition, the NY Fed general business conditions index registered a stunning collapse to
-19.5 (vs. -4 expected). This is the lowest reading on this index since the Great Financial Crisis Collapse in 2008/2009. This graph shows both the Philly Fed and NY Fed economic activity index readings. Does this at all look like the economy that Obama told us the other night is doing fine? (Source: Bloomberg News)
NY Fed President Bill Dudley was out today announcing that negative interest rates would be considered if the economy continues to slide. Negative interest rates are another form of QE. QE is a politically/socially correct term for money printing. “Money printing” is the code for “BAIL OUT THE BANK AGAIN.”
The price of oil is collapsing. I predicted in the fall of 2014 that the price of oil would hit the $20’s. The price of oil is collapsing because collapsing economic activity globally, especially in the United States, is causing a collapse in demand. For get “Dr. Copper.” The real barometer of economic health is oil. Copper is used in a lot of manufacturing applications, but oil/energy is used to mine and refine copper and to manufacture and deliver copper-based products. Oil is the root indicator of economic activity. Oil is the real “Dr. Copper.” Everything else is a derivative of oil. Think about that for a moment…
The Financial Markets Are One Big Cartoon Network
It seems to never end. The markets do the opposite of what would be expected based on common sense and on undeniable evidence about the fundamentals. Just this morning, for instance, the S&P 500 pops up overnight and then promptly goes red after the NYSE opens. Then one of the Fed sock-puppets makes a comment about oil bottoming and the S&P 500 takes off like Roman candle. Overnight gold was also up about $4. A report hit the tape that some of the ECB members wanted more money printing. Money printing is a fundamental event that should send gold inexorably higher. Instead, gold was slammed $10 as soon as the news item hit the tape.
This drool that is served up from the policy makers and political leaders in the U.S. is nothing short of a laughable insult to our collective intelligence. But, then again, it would seem that this country has slid down that slippery slope into idiocy. I received this email from a colleague who is an investment advisor. He’s one of the few that understand what is happening in this country. Clearly his clients have been mesmerized by the clown show:
I can’t tell you how many times I have been in meeting with investors and explained common sense truths, only to have their eyes completely glass over. Usually, they immediately proceed to ask me about Amazon, Netflix, Apple and Google. People really are that clueless. One of my clients, that owns PHYS, told me he really didn’t want any more than 10% gold and wanted me to look at cloud computing stocks.
I had another client leave me recently because we had an allocation to gold, cash and stocks. They went to Fidelity and purchased 4 growth funds and long term bonds. They told me that Fidelity was a bigger company and they were bullish stocks. I laughed myself to sleep that night and watched their account fall 8% the first week of 2016.
It is totally insane how clueless your average person with investable assets is. I can’t even imagine how insanely ignorant the people that are that live paycheck to paycheck. It’s truly scary because those people really and truly believe it’s the rich that keep them poor and they believe the government is their only ally.
When the day finally comes that gold is recognized as real money your average person is going to be totally shocked. I have a feeling they will blame everyone and everything other than themselves and the good old government.
The hardest part about being a retail advisor is when you first understand that people, even smart people, can’t accept that their beliefs are misguided. People will take it hard when it happens.
I leave you with a final quote I heard years ago: “If what you knew to be true turned out not to be true; when would you like to know about it.” Unfortunately, for most people, they only want to know when it is too late!
Jim Quinn, of The Burning Platform, with whom I often share email chuckles over what’s unfolding in this country, has written a concise commentary titled, “Maybe Valuations Do Matter,” which encapsulates the essence of the madness into which our system has lapsed:
I wonder if the brainless twits and shills on CNBC will be telling their audience that the S&P 500 is now lower than it was in May 2014. That’s right. Anyone in the stock market over the last 20 months hasn’t gained a penny. The S&P 500 is now down 11% from its all-time high in May 2015. Only 40% or 50% more to go to reach fair value.
He concludes that that the stock market needs to drop at least 50% to be fairly valued. I have not had a chance to probe him on this, but I suspect his non-public number is closer to my number: 80%. We were on that path in 2009 until the Fed and Obama bailed out the banks in order to enable them to continue sucking wealth out of the system.
The latest contrarian editorial “vogue” is to refer to the recent .25% nudge in the Fed funds rate as “a policy mistake.” Sorry, that’s not even remotely close to the truth. The policy error committed in this country was preventing the markets in 2008/2009 from doing what they will eventually do anyway. And EVERYONE will end up paying for that mistake.
Out, out, brief candle!
Life’s but a walking shadow, a poor player
That struts and frets his hour upon the stage
And then is heard no more: it is a tale
Told by an idiot, full of sound and fury,
Signifying nothing. (Macbeth, Act 5 scene 5)
David Stockman: Amazon And The Fantastic FANGs…
…A Bubblicious Breakfast Of Unicorns And Slippery Accounting
Consider the case of Amazon. Its PE multiple on LTM net income of $328 million has dropped from 985X all the way to…….well, 829X! Likewise, it’s now valued at 97X its $2.8 billion of LTM free cash flow compared to 117X at year end. In the same vein, Facebook’s LTM multiple on net income has dropped from 108X to 96X.
So the reason to revisit the FANGs, and the Amazon bubble in particular, is not because their market caps have come down to earth; it’s because once you get inside, another characteristic of late stage bubbles comes lurking front and center. Namely, the tendency for the accounting income of momo tech stocks at bubble tops to be bloated with non-sustainable revenues and profits from Silicon Valley burn babies…
…I was reminded of this possibility by an excellent post by Dave Kranzler at Investment Research Dynamics. In a piece called “AMAZON dot CON” he took me to task for being too kind to Jeff Bezos’s ponzi accounting. Among other things, Kranzler went all the way back to the beginning and offered an even more dramatic juxtaposition of the bubble in the stock versus the reality on the ground:
Throughout its 25-year history as a public stock, AMZN has delivered a cumulative total of $1.9 billion in net income to shareholders. Jeff Bezos made $16 billion on AMZN stock in 2014.
You can read the rest of Stockman’s commentary on AMZN here: Amazon And The Fantastic Fangs
December Retail Sales? Expect More Census Bureau Fairy Tales
The Government releases its retail sales report for December this Friday. The Census Bureau is the front-man for this report, which means that we can expect something that conforms to the highest standards of statistical manipulation.
But the truth is, we already know based on data released by private-sector entities that retail sales in December, and for the entire fourth quarter, were a disaster. Six days ago, Macy’s announced that its comp store sales dropped 4.7% in November and December vs. those two months in 2014. Recall that the Government reported that retail sales actually fell nearly 1% in December 2014. In addition, Macy’s slashed another 3,000 employees.
I just finished perusing the Cass Freight Index Report for December. It showed that freight shipments in December dropped 5% vs. November and 3.7% vs. December 2014. This would include goods transported by train, truck, ship or plane. The reason freight shipments decline is because orders from retailers decline. The reason orders from retailers decline is because consumer demand has declined and inventories are high.
We don’t need a bunch of Census Bureau flunkies to tell us how retail sales fared in 
December – this graph from the Fed based on data compiled by a non-Government organization sums it up – click to enlarge:
This graph shows the year over year change in the ISM backlog of orders index. This graphic reflects a rather sharp decline in consumer spending since May 2015.
Finally, we know that auto sales dropped 5% in December and were way below consensus estimates. As Bloomberg describes in reference to the auto sales report last week: “an ominous indication for December retail sales…Vehicle sales make up about 1/5 of total retail sales and the weakness here will make it hard for December to show any lift.”
Bloomberg was uncharacteristically candid in its assessment. Typically Bloomberg will apply a heavy dose of “spin” when an economic report falls well short of expectations. I do believe, however, after the steaming pile of smelly brown stuff that the Census Bureau threw at us with its non-farm payroll report, that we can expect an encore performance of scatological proportions this Friday when the December retail sales report is released.
And that’s fine with me. One of my short-sell ideas that will presented in Sunday’s Short Seller’s Journal weekly report is going to be a retailer. It would be ideal if the retail stock sector experiences a nice bounce on Friday in order to improve the entry price for shorting this particular stock. You can sign up here for this report: Short Seller’s Journal.
Rob from the Netherlands: I loved your latest SSJ report. Especially THE weekly shorts performed wonderful. Easy to read even for non-native speakers and non-financial educated people. Not only do you provide clear entry information but more important to me how and when to sell/ take profit on THE trade. Indeed you are one of few bringing shorts to the attention of the retail investor.
Rail Freight Shipments Are Collapsing
The pundits can disingenuously blame the crashing Baltric Dry Index on container ship overcapacity and find some dopes to believe that fairy tale, but there’s only one explanation for collapsing rail freight shipment volume in the United States: the consumer has finally suffocated from too much debt and declining real income.
We believe rail data may be signaling a warning for the broader economy,” the recent note from Bank of America says. “Carloads have declined more than 5 percent in each of the past 11 weeks on a year-over-year basis. While one-off volume declines occur occasionally, they are ge
nerally followed by a recovery shortly thereafter. The current period of substantial and sustained weakness, including last week’s -10.1 percent decline, has not occurred since 2009. – Bank of America brain trust
Eric Dubin of The News Doctors brought this article to my attention: Rail Traffic Is Saying Something Worrying About the U.S. Economy
I’d like to point out that the price of oil is collapsing. It will soon be in the $20’s. Several Wall Street fraud shops have decided that oil is headed to $20. I made that call 6 months ago. Oil is the economy’s canary in the coal mine that the Fed can not remove before it dies. Rail freight traffic is the canary’s twin brother.
I hope everyone is braced for impact because the system is in for a much bigger shock than occurred in 2008/2009…and the Fed is out of bullets – just ask former Fed President Richard Fisher…