Privately compiled and reported economic indicators started rolling over in 2012, which is why the Fed continued to “re-up” its money printing. With most S&P 500 companies having now reported Q4 2015 earnings, there’s been four consecutive years of declining net income – both GAAP and “non-GAAP.” If I had told you two years ago that the S&P 500 revenues and earnings would decline but that stock prices would continue higher, you would have asked me if I was smoking crack. – Short Seller’s Journal
A big driver of the economy for the last four years has been the auto and housing markets. While it may not be evident in some areas yet, both sectors of the economy are starting to seize up.
Auto sales in February missed analysts’ forecasts and were down from January. Not mentioned in the still-bullish reports was the fact that GM’s and VW’s sales declined, while Ford’s jump in sales was driven by a big bulge in rental fleet sales. Note to crackheads: rental fleet sales are not the best measure of the demand for autos. At the same time, new car inventories at dealers soared to a 14-year high. With subprime auto loan delinquencies beginning to spike up, along with repo rates, on whom will the dealer/lending syndicate unload all this inventory?
Similarly, the housing market in previously red-hot areas is starting to fizzle, led by a rapid escalation in listings in the higher end of the market. Housing market expert Mark Hanson describes the popping bubble in Silicon Valley: Tech-Head Housing Cities Seizing Up. This article describes the collapsing Houston housing market: Oil crash is crushing Houston’s housing market. The virus popping Houston’s real estate bubble is now spreading throughout Texas. Miami’s market was white hot for a few years. Of course, as is par for the course, Miami is now perilously overbuilt: Miami’s Epic Condo Boom Turns Into Glut. That same market condition is hitting the southwest coast of Florida, as a flood of existing home listings are helping the continuous “price reduced” notices chase the market lower.
The same scene is now starting to play out in many major MSA’s – NYC, Washington DC/northern Virginia, etc. While the lower end of the market is still somewhat firm in many areas because the Government is proliferating the availability of low credit rating subprime nuclear mortgages to first-time buyers who can barely afford a pot to piss in, the upper-middle and high end of the housing market is being perilously flooded with listings. In one high-end enclave south of Denver that is averaging at least one listing over $800k per block, a friend of mine who lives near there asks: “who is going to buy these homes?”
Not only is the stock market not even remotely discounting the underlying economic reality, but the S&P 500 spent the last four weeks clawing back 78% of the 249 point (12%) drop that occurred just after New Year’s despite the continued plethora of increasingly negative economic reports.
At some point the Fed is going to lose its ability to jump-start the stock market with its monetary defibrillator. There is a lot of money to be made taking the other side of whomever is chasing stocks higher right now. The Short Seller’s Journal will help you take advantage of the highly overvalued stock market with weekly ideas for shorting stocks. Each issue includes exclusive market commentary, a minimum of two short-sell ideas plus strategies for using puts and calls. Subscribers will also have free access to all future IRD short-sell research reports plus a discount to the Mining Stock Journal. You can subscribe by clicking HERE or on the image to the right.