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Strongest Gold “Buy” Signal In 16 Years
When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. – Alan Greenspan, “Gold And Economic Freedom,” 1966
Anyone who was involved in the financial markets during Greenspan’s tenure as Chairman of the Federal Reserve would be shocked to see that comment above coming from Greenspan. He was, after all, the king of the printing press until his successor, Ben Bernanke took over the role of chief money and credit creator.
While it might not show up in the Fed’s “M” accounts, which are various measures of the “money supply,” Greenspan’s Fed shepherded in an era of unprecedented growth in systemic debt – private and Government – and unprecedented decline in credit standards. By the end of Greenspan’s reign of monetary terror, anyone with no more than two nickels to rub together could qualify for a credit card or mortgage.
The graph above shows total debt outstanding system-wide in the U.S. during Greenspan’s Fed. The level debt increased 400%. GDP? Not so much. Real GDP is said to have grown about 85%, but this metric is overstated by the amount that the Government underestimates the true inflation rate and by gimmicked changes to the GDP calculation for purposes of political expediency.
Debt issued behaves like printed money until that debt is payed back. That’s the dirty little secret that bona fide economists don’t discuss, at least in public. See the problem in the graph above? The level of debt NEVER declines. The small blip down in 2010 was a result of $100’s of billions in bank write-offs for defaulted mortgages, credit cards and auto loans. In order to measure the true money supply, it’s necessary to add to together the Fed’s “M” accounts plus the incremental increase in the level of debt each year.
But all of this is unnecessary in a system backed by gold. “Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset” (Greenspan, ibid).
In other words, the massive credit-induced bubbles that occurred during the Greenspan/Bernanke era, each progressively worse with worse consequences when they burst, could never have occurred if a gold standard were in place. AND THEREIN LIES THE REASON GOLD IS REVILED BY WALL STREET AND SUBJECTED TO GOVERNMENT/CENTRAL BANK PRICE CONTROLS: “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation…This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard” (Greenspan, ibid).
In this last episode of the Shadow of Truth, we discuss the manipulation of gold, directly and via targeted fake news reports about the gold market, and explain why gold is signalling one of its strongest “buy” signals in the last 16 years:
Fake News Alert: Existing Home Sales Report
I’m going to have to throw a flag on the existing home sales report for November published today by the National Association of Realtors. The NAR would have us believe that home sales occurred in November at 5.6mm annualized rate for the month, up 15.4% from November 2015 and up .7% from October. I will point out that, of course, the orignal report for October was revised lower. But who pays attention to those details?
Take a look at this graphic sourced from Zerohedge which shows existing home sales plotted vs mortgage applications back to 2013:
I hate to be cynical, or accuse anyone of presenting “fake news,” but the mortgage application data completely contradicts the NAR’s “seasonally adjusted, annualized rate” interpretation of the data it collected. Existing home sales are based on closings (escrow clears), which means the sales report for November is based on contracts signed primarily from October and some in late Sept/early November. But mortgage applications began dropping off a cliff in late August. Clearly the NAR’s seasonal adjustment interpretation of the data is highly suspect.
Looking at the data itself – LINK – you’ll note that the NAR’s data sampling shows that home sales dropped 6.7% from October. Yet, it’s “seasonal adjustments” suggest that home sales increased from October to November, despite a massive plunge in mortgage applications during the period in which contracts would have been signed for November closings.
I’ve emailed the NAR several times over the years to have them explain their seasonal adjustments calculus. Every time I am politely declined. I will note that they use the same regression analysis model used by the Census Bureau.
The annual rate for a particular month represents what the total number of sales for a year would be if the relative pace for that month were maintained for 12 consecutive months. Seasonal adjustments, which are determined by using the X-12 Variant created by the Census Bureau, are then used to factor out seasonal variances in resale activity.
They do at least disclose that, although, if anything, that fact detracts from the credibility of their calculations. Of course, if I were looking for credibility, I would not advertise that I use the statistical guesstimate package created by the Government…
I would suggest that a year from now, anyone who looks back at the data produced today by the NAR will discover that the number was revised lower by a significant amount. But who looks at revisions? The Government and industry promotion organizations know this. It doesn’t matter how far off the rails their initial “seasonally adjusted” data strays, as long as they revise them at some point in the future, when no one is looking, it gives them plausible deniability if they are ever held accountable.
In the next issue of the Short Seller’s Journal, I’m going to present a comprehensive analysis on the housing market and the damage already inflicted on it from a 1% rise in mortgage rates. Despite the fact that S&P and Dow have been pushing all-time highs almost on a daily basis, the DJ Home Construction index is down over 11% from its July 52-week high. I will show why in this next issue. You can access more information and subscribe to the SSJ using this link: Short Seller’s Journal.
Is The U.S. Stock Market About To “Super Nova?”
ETF flows tend to be a good contrary indicator when they become extreme, so the buying frenzy doesn’t bode well for U.S. equities. – David Santschi, CEO of TrimTabs
If the Federal Reserve were a private corporation and did not have a money tree, it would be technically insolvent – i.e. bankrupt. As of its latest balance sheet the Fed was reporting a book value (net worth) of $40.4 billion. But the Fed does not have to mark to market its assets. Given the recent 100+ basis point move in the 10-yr Treasury, if the Fed were forced to mark to market its $3.8 trillion Treasuries and mortgages, it would be forced to reduce the holding value by close to $400 billion, taking the Fed’s net worth to negative $360 billion.
This is the most conservative valuation scenario. The Fed has other holdings, on and off balance sheet, that would likely take the Fed’s book value well past negative $400 billion if mark to market accounting were applied.
Think about this for a moment: the U.S. dollar is backed by a Government and Central Bank, both of which are technically bankrupt. The only difference between what happened to Greece and the U.S. is the U.S.’ ability to print money unfettered.
Just like water, markets eventually find their own level of balance. At this point the U.S. stock market, is the most unbalanced financial market in the world. A Trim-tabs report out yesterday revealed that the public threw $98 billion into U.S. stock ETFs between November 8th and December 5th. Compare this to the $61.5 billion that went into stock ETFs over the entire year in 2015. Currently the rate of cash flooding into stock ETFs for December is even higher than November.
Money from the public is literally flooding into the stock market, making this the most dangerous stock market I’ve witnessed in 30+ years as a financial markets professional. If the GAAP accounting standards enforced in 1999 and 2007 were applied now to corporate earnings, this would prove to be the most overvalued stock market in history on an “apples to apples” accounting basis.
A supernova is an astronomical event that occurs during the last stellar evolutionary stages of a massive star’s life, whose dramatic and catastrophic destruction is marked by one final titanic explosion. For a short time, this causes the sudden appearance of a ‘new’ bright star, before slowly fading from sight over several weeks or months. – Wikipedia
The U.S. financial markets, specifically the U.S. dollar and the stock market, can be likened to fiat currency-based financial markets “Super Nova.” The public and the momentum-chasing hedge funds are desperately chasing the “appearance” of the stock market’s “bright new star.” Unfortunately, it’s an illusion. The stock market is headed for catastrophic destruction.
I don’t know if this final explosion will occur early in 2017 or if there will be on last “Weimar-like” push fueled by a round of money printing substantially larger than “QE 1 thru 4.” Either way, the U.S. financial system is heading toward a period of unprecedented wealth destruction.
I’m not going to sit here and urge anyone who will listen to move their money into the safety of physical gold and silver because I have no idea how diabolically aggressive the Fed and the banks will be in exerting downward pressure on the price of gold and silver using fiat paper gold. No one knows and anyone who proclaims to know is full of horse hooey. I’m moving any money not needed for expenses into physical silver. I know a sale when I see one and sovereign-minted silver bullion coins are on “fire sale” right now.
Unfortunately, the only chance you have to financially survive what is coming at us is to get your money out of all financial “assets.” These are not “assets.” They are fiat paper liabilities issued by a Federal Reserve that is technically insolvent by at least $360 billion and likely multiples of that when off-balance-sheet considerations are factored in to the equation. If you don’t want to buy precious metals, at least get your money out of the stock market.
While Wall Street shills and the financial media are busy seducing the public with their incessant “Dow 20,000” rally cry, corporate insiders are busy unloading their shares hand-over-fist. Every company (other than mining stocks) I’ve analyzed over the last month has been characterized by extremely heavy insider selling. The parabolic rise in the dollar is annihilating corporate revenues and profitability. Follow the money here because insiders are broadcasting this fact loudly.
China is dumping Treasuries and corporate executives are dumping stocks. Total U.S. debt outstanding hits new highs daily. Once again “smart money” is unloading its paper “assets” on an unsuspecting public. The delinquency and default rates in mortgage, auto and credit card debt are beginning to spike up, according to the latest reports made available and not disseminated through the mainstream media.
The U.S. markets are going Super Nova – don’t be left holding bag…
No Really, The Russians Hacked Us
Hillary and her supporters have vehemently asserted that “seventeen intelligence agencies” agree with the assessment that Russia hacked the election. It might be greater news to the American people to hear that there actually are seventeen such agencies out there. Perhaps Mrs. Clinton or Mr. Obama might explain exactly what they are beyond the CIA, the FBI, the DIA, the NSA, and DHS. Personally, I feel less secure knowing that there are so many additional surveillance services sifting through everybody’s digital debris trail. – James Kunstler, “Deep State Blues”
The public voted with its wallet and truthseeking data reveals that in any election in which the growth in average household real disposable income is less than 3.1%, the incumbent party loses the White House. The study goes back to the 1932 election. Real disposable income growth was well below 3.1% in 2016 and the Democrats lost the White House. It’s really as simple as that, for the most part.
In addition, enough of the voting public determined that, with the help of the Wikileak emails, Hillary Clinton could not be trusted. In fact, the Wikileak oeuvre revealed that the entire Democratic Party was indefatigably corrupt. At the root of this corruption is the Clinton Foundation. But beyond that it was discovered that, among other atrocities, the DNC conspired to rig the Democratic Primary against Bernie Sanders and the current DNC Chairman, Donna Brazile, slipped debate questions to Hillary ahead of the debates.
The reaction to this by the mainstream media, largely conduits of pro-Clinton propaganda, the DNC and Hillary is to blame the Wikileak truth revelations on the Russians. As a result, the generic fake news meme regarding the election results has turned into “the Russians hacked us.”
All this mind you in an utterly complete void of proof. Where’s the proof? None of Hillary’s supposed intelligence agencies can produce one shred of evidence that points to Russian email hacking. When it comes to online hacking, systems are often checked and scanned to ensure hacking isn’t possible. The question of whether to use cybersecurity audit vs assessment is one that many software users ponder over, to work out which service is best in regards to cybersecurity. It seems unlikely that a system so important wouldn’t have been more careful. Show us the money. Please. Lost in this entire Orwellian fog of lies is the bare truth, for all to see. If the Wikileak emails revealed that the Democratic Party – led by Hillary Clinton – is profoundly corrupt to the core, what difference does it make from where the source of truth, the source of holy light, appeared?
The truth is the enemy now. Rather than fearing Russia, the public should be looking for reasons to not live in fear of the U.S. Government.
The same Orwellian fog has enveloped the gold and silver markets, especially as the facts apply to the massive demand for gold in the eastern hemisphere. Mainstream western financial media has become flooded with highly misleading and outright fraudulent news stories about the precious metals markets. In this latest episode of the Shadow of Truth, we dissect through we pull away the wizard’s curtain to shed light on the facts:
It’s A Retail Sales Train Wreck
The Census Bureau reported that its advance estimates of retail sales for November show a .1% gain from October and a 3.8% gain over November 2015. Wall St. was forecasting a .4% gain. Oops. But there’s a bigger problem with that headline report of a .1% increase in retail sales for November: it’s based on guesstimates by the Census Bureau for the largest retails sales categories.
If you go through the data tables that accompany the headline retails sales report – LINK – you’ll see asterisks in the “not adjusted” data for November in most of the business categories. In a footnote the CB discloses that, “Advance estimates are not available for this kind of business.” Most people who see the headline news reports, or hear the news “soundbytes” on tv, do not realize that the retail sales number is an “estimate.”
On an inflation-adjusted basis, the .1% “gain” reported for November is a decline. Most are not aware of that fact as well. Also, the .8% gain reported for October was revised down to a .6% gain. It is highly probable that November’s number will be revised to negative when December’s retail sales report hits in January. But the revision for November is typically not reported at all.
According to a research piece published by Cowen & Co. on December 14th, mall traffic fell 6.4% in November from October and December month-to-date traffic was down 9.9%. Granted, there’s no question that some portion of that mall traffic has shifted to buying online for its holiday purchases. However, even with the growth in online retail sales, e-commerce accounts for less than 10% of total retail sales (the Census Bureau estimated e-commerce represented 7.7% of total sales in Q3 2016.
However, this means that online competition among e-commerce retailers is fiercer than ever, with big retail giants fighting to be the highest-ranked result on search engines during the festive period. Do you work for an online retailer? If so, you might already understand the need to be producing SEO driven content to help your site stand out from the crowd. Looking for a little extra help? Reaching out to a Digital Agency Stoke on Trent such as Ram Digital could be the game-changing solution your business needs to dominate the online sphere. For more information, head to ram-digital.co.uk.
Retail businesses, who use things like a pos stand to process transactions from customers, are able to do this securely and efficiently through this system. However, businesses are now looking to further their presence online by offering their products to customers over the internet may want to look into the methods of accepting secure payments online. However, it’s important that business owners have an understanding of what MID is and how it relates to processing card transactions.
I have no doubt that the Government’s Census Bureau is going to put forth its best effort to manipulate the sales data it collects in order to present a positive light on December and holiday sales this year. However, the actual reports coming from the retailers themselves reflects a retail environment in which the stores are fiercely competing for a “shrinking pie” of consumer disposable income.
Restoration Hardware stock did an 18% cliff-dive two weeks ago when it reported its Q3 earnings. Over the last six trading days, the XRT retail ETF is down 4.2%. It was down every day last week despite the SPX and Dow hitting new all-time highs.
In the latest Short Seller’s Journal released Sunday evening, I dive into the retail sales numbers in-depth and present a lot more information which should satisfy proof of concept that this year’s holiday retails sales will be a complete disaster. Note: I have no doubt the Census Bureau and industry promotion organizations will manipulate the data for the holiday season in order to report positive sales results. But the reality check will come from the companies themselves, which have a harder time faking the numbers.
I present several retail-related short ideas in the latest SSJ, including options trading suggestions. On of the ideas is already down 1.3% today. You can access these ideas plus in-depth data and analysis using this link: Short Seller’s Journal. SSJ is a monthly subscription. New issues are published weekly and there’s no minimum time commitment.
Merry Christmas! Silver and Gold Smashed – Back up the Sleigh
From The Daily Coin:
All [last week] the criminals on the COMEX and LBMA have been working their magic. While the precious metals “markets” are not rigged, *cough-cough*, just ask Jeffrey Christian or any other member of the CMP crime syndicate, and they will be happy to explain it all as normal, natural trading. Oh, that’s right, Deutsche Bank ratted out a bunch of criminal banks rigging the markets!!
The artificially low acquisition costs during the Shopping Season should get your attention. Today would be a good day to back-up-the-sleigh and off-load some very inexpensive precious metals.
According to didthesystemcollapse.com chart backwardation/premium to physical on the SGE remains above $50 per ounce for gold and just below $2 per ounce for silver.
You can read the rest of this here: Merry X-Mas From The Comex
Housing Starts Crash – Sales Volume And Prices To Follow
In many areas of the country prices are already down 5-10%. I know, you’re going to say that offer prices are not reflecting that. But talk to the developers of NYC and SF condos who are trying to unload growing inventory. Douglas Elliman did a study of NYC resales released in October and found that resale volume was down 20% in the third quarter vs. Q3 2015. A report out in November published by Housing Wire said that home sales volume in the SF Bay area fell 10.3% in the first 9 months of 2016 vs. 2015. Price follows volume and inventory is piling up.
NYC led the popping of the big housing bubble. It will this time too. Prices in the “famed” Hampton resort area down 20% on average and some case down as much as 50% from unrealistic offering prices. Delinquencies and defaults are rising as well. While the mainstream media reported that foreclosures hit a post-crisis low in October, not reported by the mainstream media is that delinquencies, defaults and foreclosure starts are spiking up. Foreclosure starts in Colorado were up 65% from September to October.
Housing starts for November were reported today to have crashed 18.7% from October led by a 44% collapse in multi-family starts. No surprise there. Denver, one of the hottest marekts in the country over the last few years with 11k people per month moving here, is experiencing a massive pile-up in new building apartment inventory. I got a flyer in the mail last week advertising a new luxury building offering 2 months free rent and free parking plus some other incentives. Readers and subscribers from all over the country are reporting similar conditions in their market. Yes, I know some small pockets around the country may still be “hot,” but if you live in one of those areas email me with what you are seeing by June.
Here’s a preview of some of the content in Sunday’s Short Seller’s Journal (click to enlarge):
The graph above is from the NAHB’s website that shows its homebuilder “sentimement” index plotted against single-family housing starts. You’ll note the tight correlation except in times of irrational exuberance exhibited by builders. You’ll note that starts crash when exuberance is at a peak. Exuberance by builders hit a high in November not seen since 2005…here’s how it translated in the homebuilder stocks:
Note the crash in housing stocks a few months after homebuilder “sentiment” index peaked. From a fundamental standpoint, the homebuilders are more overvalued now than they were in 2005 in terms of enterprise value to unit sales. This because debt and inventory levels at just about every major homebuilder is as high or higher now than it was in 2005 BUT unit sales volume is roughly 50% of the volume at the 2005 peak. The equities are set up of another spectacular sell-off.
Refi and purchase mortgage applications are getting crushed with mortgage rates up only 1% from the all-time lows. What will happen when mortgage rates “normalize” – i.e. blow out another 3-5%?
The next issue of the Short Seller’s Journal will include a lot more detail on the housing market and some surprisingly bearish numbers on retail sales this holiday season to date. You can find out more about the SSJ by clicking on this link: Short Seller’s Journal subscription link.
Who Is Buying China’s Dumped Treasuries?
According to the latest Treasury International Capital report (for October), China unloaded nearly $42 billion in Treasuries in October. In the last 12 months, China has unloaded nearly $150 billion in Treasuries, equivalent to more than one month’s worth of new Treasury issuance by the U.S. Government.
The Zerohedge/mainstream financial media narrative is that China is selling Treasuries to defend the yuan. They hold reserves other than dollars. Why not sell those? They are trying to unload their Treasuries w/out completely trashing the market. Imagine what would happen to the bond market if China announced a bid wanted in comp for $1.1 trillion in Treasuries. They are working with Russia to remove the dollar’s reserve status and the U.S. doesn’t like it which is why there is an escalating level of military aggression toward Russia and China by the U.S.
Too be sure, China’s Treasury selling has contributed heavily to surprising spike up in long term Treasury yields. But who is buying what China is selling? Japan has been unloading Treasuries every month since July. On a net basis, foreigners unloaded $116 billion Treasuries in October. A colleague in the pension industry told me today that pensions are not buying Treasuries because the yield is too low.
Phil and John (Not F) Kennedy invited me on to their engaging and entertaining podcast show to discuss the chaos that has enveloped the global financial markets including the Fed rate hike, the manipulated take-down of gold and silver and the deleterious effects from the spike up in interest rates.
Adios To The Housing Market
That popping sound you just heard is the Fed popping the housing bubble. The housing bubble that it inflated with ZIRP and zero-bound credit requirements to qualify for a mortgage. But first, let’s get this out of the way: Goldman’s Jan Hatzius – apparently the firm’s chief clown economist commented that the Fed’s “faster pace” of rate hikes reflects an economy close to full employment. That statement is hand’s down IRD’s winner of “Retarded Comment of the Year by Wall Street.”
I guess if an economic system in which 38% of the working age population is not working can be defined as “full employment” then monkeys are about to crawl of out Janet Yellen’s ass. I guess we’ve witnessed more stunning events this year…
Before we start assuming the Fed will raise rates three times in 2017, let’s consider that Bernanke’s “taper” speech was delivered in May 2013. 3 1/2 years later, the Fed Funds rate has been nudged up a whopping 50 basis points – one half of one percent.
I hope the Fed does start raising rates toward “normalized” rates, whatever “normalized” is supposed to mean. Certainly there’s nothing “normalized” about an economic system in which real rates are negative – that is to say, an economic system in which it’s cheaper to borrow money and spend it than it is to save.
Having said all that, put a big pitch-fork into the housing market. Notwithstanding the highly manipulated “seasonally adjusted annualized rate” data puked on a platter and served up warm by the National Association of Realtor and the Census Bureau – existing and new home sales data, respectively – the housing market in most areas of the country is deteriorating at an increasing rate. I review this data extensively and in-dept in my Short Seller’s Journal.
Even just marginally higher mortgage rates will choke off the ability of most buyers to qualify for anything less than an conventional mortgage with 20% down and a 720 or better credit score. With a rapidly shrinking full-time workforce – the Labor Department reported that last month the economy lost 100,000 full-time jobs – the percentage of the population that has a 720 credit rating and can afford 20% is dwindling rapidly.
The Dow Jones Home Construction index is down 2.5% today. What will happen to the stocks in that index when the Fed cranks back up it’s “we’re raising again” song and dance?
Despite the rampant move in the Dow/SPX since the election = while the Dow and SPX were hitting all-time highs almost daily – the momentum was not enough to propel the homebuilder stocks even remotely close to a 52-week high. Hell, the 50 dma (yellow line) has remained well below the 200 dma (red line) and has not even turned up. THAT is the market sending a message.
Here’s a weekly version of the same graph that goes back to 2005, when the DJUSHB hit an all-time high:
When looked at it in that context, one has wonder where this great housing boom has been hiding? The stock market certainly didn’t price in a booming housing market. That’s because the truth is that the housing market since 2008 has been driven by massive Fed and Government intervention. The intervention enabled a segment of the population to buy a home that could not have otherwise afforded to buy a home. It was really not much different than the previous bubble fueled by liar loans and 125% loan-to-value mortgages. As I detailed yesterday, the system is now re-entering a cycle of delinquencies, defaults and foreclosures.
If you are thinking about buying a home – primary, vacation or investment – wait. You will be happy you waited. Prices have been pushed up to near-record levels by 3% down payment mortgages and credit assessment that gears the amount of mortgage available to a buyer based on maximizing the monthly payment based on monthly gross income. That system is over now. Prices and volume are going to spiral south.
If you need to sell your home, you better list it as soon as possible. You will find that you will be competing with a surge in new sellers that descend like locusts. “Price reduced” signs will blossom everywhere. Just like 2008…
A Bearish Signal From Housing Stocks
The yield on the 10-yr Treasury has blown out 109 basis points since July 3rd – 70 basis points since October 30th. 30yr fixed rate mortgage rates for 20% down payment buyers with a credit score of at least 720 are up 90 basis points since October 1st.
Interestingly, the Dow Jones Home Construction index has diverged from the S&P 500. While the DJUSHB index is up since election night, it has been lagging the S&P 500 since the beginning of the year:
The graph above is a 1yr daily which compares the ROR on the SPX with that of the DJ Home Construction Index. I use the DJUSHB because it has the heaviest weighting in homebuilders of any of the real estate indices. As you can see, the DJUSHB has been in a downtrend since late August, almost as if stock investors were anticipating the big spike in interest rates that started about 6 weeks later. You can see that, while the volume in the DJUSHB spiked on December 5th, it’s been declining steadily since then. The SPX volume spiked up on December 5th and has maintained roughly the same daily level since then. Note: volume often precedes price direction.
Here’s another interesting graphic sourced from the Mortgage Bankers Association:
The data is through December 2nd, as mortgage application data lags by a week. As you can see, mortgage application volume – both refinance and purchase – has been negative to highly negative in 9 of the last 12 weeks. So, if you want to sell mortgage note it is worth doing thorough research before you do.
A report by Corelogic was released today that asserted that foreclosures had fallen to “bubble-era” lows. This is not unexpected. Historically low rates have enabled a lot mortgagees who were in trouble to defer their problems by refinancing. Unfortunately, the Marketwatch author of the article did not do thorough research – also not unexpected.
As it turns out, mortgage delinquency rates are quickly rising:
Black Knight Financial Services, which provides data and analytics to the mortgage industry, released its Mortgage Monitor report for October. It reported that the 30+ day delinquency rate had risen “unexpectedly” by nearly 2%. The overall national delinquency rate is now up to 4.35%. It also reported a quarterly decline in purchase mortgage lending. The highest degree of slowing is among borrowers with 740+ credit scores. The 740+ segment has accounted for 2/3’s of all of the purchase volume – Short Seller’s Journal – December 11, 2016
Even more interesting, it was reported by RealtyTrac last week that home foreclosures in the U.S. increased 27% in October from September. It was the largest month to month percentage increase in foreclosures since August 2007. Foreclosures in Colorado soared
64%, which partially explains the rising inventory I’m seeing (with my own eyes). Foreclosure starts were up 25% from September, the biggest monthly increase since December 2008.
Finally, again just like the mid-2000’s housing bubble, NYC is showing definitive signs that its housing market is crumbling very quickly. Landlord rent concessions soared 24% in October, more than double the 10.4% concession rate in October 2015. Typical concessions include one free month or payment of broker fees at lease signing. Days to lease an apartment on average increased 15% over 2015 in October to 46 days. And inventory listings are up 23% year over year. Note: in the big housing bubble, NYC was one of the first markets to pop. Short Seller’s Journal – November 13, 2016
Finally, I saw an idiotic article in some rag called “The Sovereign Daily Investor” that was promoting the notion that another big boom in housing was about to occur because of a surge in buying by millennials. Unfortunately, the dope who wrote this article forgot to find data that would verify proof of concept. On the other hand, here’s actual data that applies heavily to the millennial demographic:
The Fed reported on Wednesday that household debt had hit a near-record $12.35 trillion led by new all-time highs in student loan debt ($1.28 trillion) and a new all-time high in auto loans ($1.14 trillion). 11% of aggregate student loan debt was 90+ days delinquent or in default at the end of Q3 2016. Fitch has projected that it expects the subprime auto loan default rate to hit 10% by the end of the year. At the time of the report, it was at 9%. – Short Seller’s Journal – December 4, 2016.
The point here is that the millennial demographic is overburdened with student loan, auto loan and personal loan debt and with pay day loans constantly rising, homeownership is becoming a challenge for these people. In addition, it’s becoming increasingly hard to find post-college full-time employment that pays enough to support the cost of home ownership, especially with the mortgage payments associated with a 3% down payment mortgage. This means that more homeowners are looking to loan companies similar to Happy Loan in Calgary for their lending needs. This is the dynamic that has fueled the rental market boom (and soon the rental housing bust).
Speaking of which, Blackstone, the largest player in the buy-to-rent game, quietly filed an IPO of its housing rental portfolio about a week ago. If Blackstone thought there was more value to be squeezed out of its portfolio – i.e. that housing prices and rents had more upside – it would have waited longer to file. I’m sure that Blackstone would love to get this IPO priced and its equity stake in this business unloaded on to the public before the market cracks.
The housing market data tends to be lagged and extremely massaged by the mofst widely followed housing data reporters – National Association of Realtors and the Government’s Census Bureau (existing and new home sales reports). The reports from these two sources are highly unstable, subject to big revisions that go unnoticed and entirely unreliable. But the fundamental statistics cited above will soon be filtering through the earnings reports of the companies in the DJ Home Construction Index. I would suggest that the market has already sniffed this out, which explains why the DJUSHB is diverging from the S&P 500 negatively in both direction and volume.
The Short Seller’s Journal is a subscription-based, weekly publication. I present in-depth detailed data, analysis and insight that is not presented by the mainstream financial media and often not found on alternative media websites. I also present short-sell ideas, including recommendations for using options. Despite the run-up in the broad market indices, there’s stocks everyday that blow-up. Last Restoration Hardware plunged 18% after reporting its earnings. You can subscribe to the Short Seller’s Journal by clicking on this link: SSJ Subscription. It’s monthly recurring and there is not a minimum number of months required.