First the Baltic Dry Index, then oil – now lumber. The price of lumber has dropped 13% since the end of January (source: Finviz.com, edits are mine) – click to enlarge:
All three of those indicators are telling us the economy is collapsing.
What will be Wall Street’s excuse for this? If the price of lumber is dropping like this, it means new homebuilders have significantly reduced their purchase of lumber to build new homes. If they are building less new homes, it means the demand for their new homes is falling quickly, especially in relation to their overbloated inventories.
It could not be a worse predicament for the people running our system. Zero percent interest rates, near-record low mortgage rates – and in many cases zero-percent mortgages are now available for qualified buyers – significantly easier credit standards, and supposedly rapid jobs “growth.” That should be a recipe for soaring home sales and a soaring price of lumber.
The homebuilder stocks represent the best short-sale opportunity since the peak of the housing bubble. The only other time there’s been a more obvious short opportunity was with the internet stocks in early 2000….HOMEBUILDER REPORTS. I detail directly from SEC filings how and why these homebuilders are sitting on more inventory and more debt than they had at the bubble peak in 2005/2006. It sounds crazy but it’s true.
What’s even better is that – based on watching SEC 13-G/A filings, all of the big mutual fund complexes (Blackrock, Fidelity, Putnam, Vanguard) and many hedge funds have already placed their long side bets in the sector. In other words, there’s no one left to sell to when the real selling begins…
Existing home sales dropped 5% in January and – if you put faith in the “seasonally adjusted, annualized rate” that the National Association spits out at us – were well below the Wall Street consensus forecast. The first time buyer as a percentage of overall sales fell once again to just 28% of the sales mix, with investors/flippers once again continuing make speculative purchases.
Of course the goons at the NAR are blaming the sales drop on a plethora of excuses. Perhaps the lamest of them all are “restrictive” mortgage conditions. Nothing could be further from the truth as the FHA has reduced its mortgage insurance requirements, Fannie Mae/Freddie Mac now allow 3% down payments, down payments can be gifted, mortgage rates were very close to all-time record lows in Januray, a wider range of buyers now qualify for 0% down payment mortgages and credit scores down to 580 now qualify for mortgage terms that were formerly restricted to 700 or higher.
If you look at the not seasonally adjusted number, home sales from December to January fell 32%. This is the largest December to January drop that I can recall in quite some time is more consistent with other key statistics which are showing that U.S./global economy is starting to crash, like the price of oil, commodities and the Baltic Dry Index.
I’ll have more detail later, but with the recent run-up in the homebuilder stocks, which was fueled by momentum-chasing hedge funds and a short-squeeze, every single homebuilder in my report section is overly ripe to be shorted: HOMEBUILDER REPORTS.
Here’s a testimonial from reader who made a lot of money shorting one of the stocks in my reports: I’ve never got a bigger return for the value. $25 for the report, 4k invested in XXX Jan 2015 16-strike puts for 15 cents in August and sold them for $3.2k of profit after the company posted a terrible earnings report.