Wednesday, December 11, 2013

Look Out Below

This is the type of stock market that could really start to accelerate to the downside.  I woke up somewhat surprised to see the dollar had dropped to a new low for the move down it is currently making.  I really expected that the news of the Congressional budget deal - as hollow and fictitious as it is - would have at least given some superficial support to the markets.   But the dollar continues to fall hard - I'll have more to say about that later this week - and now the stock market appears to be on shaky ground.

The fact is that the stock market is, right now, historically overvalued.  Especially in relation to the underlying fundamentals.  I have been posting analysis now for about 8 weeks which shows both the auto sales and housing markets are starting to head south.  Bloomberg has a report today that details falling apartment rents in NYC and that the apartment vacancy rate is back to a 7-yr high:  LINK   I specifically remember walking around NYC back in 2007 and was stunned by the number new building skeletons for which construction had clearly been abandoned.  Sounds like now there's several new completed buildings that will sit mostly empty for quite some time, especially since we know Wall Street is about to go through a job-cutting blood bath.

I also believe that the housing market is about to head south very quickly:  New Home Sales Data Show Big Problems Ahead For Housing.  So, it's fine if you want to listen to the talking heads blow smoke about the economy or housing market, but at least make them back up their assertions with data.  The data shows a completely different story than the fairy tale being fed to us by home sale industry organizations and the blow-hards in the financial media and on Wall Street.

In addition, Zerohedge has a report out this morning detailing the housing market collapse that has been set in motion in Nevada:  LINK.  Of course, as is par for course, I'm usually way ahead of Zerohedge on the topics of housing and gold.  I published an article on October 29th on Seeking Alpha which cited data showing that the market for new home sales in Nevada had collapsed 60% from Q1 to Q3:  Housing Market Is Headed South.

The reason NYC and Nevada are important bellweathers, at least in my view, is that both markets were among the hottest during the big housing bubble and both markets started heading south ahead of the rest of the country when the bubble collapsed.  Nevada/Vegas essentially, from a demographic perspective, is East Los Angeles, so any negative trend that starts in Vegas in housing will spread to southern California like a deadly virus.  This is how it played out starting in 2005 and this is how it will play out this time around.  Only this time around it will be worse.

One more point about this, a colleague of mine was chatting with a realtor from Scottsdale, Arizona.  That was also one of the hottest markets during the housing bubble and one of the hottest markets during this Fed and Government money printing fueled dead-cat bounce.  This realtor told my colleague that the market activity in Phoenix had essentially hit a wall in November.

Be careful with your stock market exposure.  No one knows for sure when, but this stock market is set up of the biggest stock market downside disaster in history. 


  1. I don't think you linked to this...interesting.

    Long Island Foreclosures Spur Looters Amid Home Limbo

    Long Island, the 118-mile-long (190-kilometer) stretch east of New York City that’s home to middle-class commuters, blue-collar workers and Hamptons socialites, is facing a foreclosure crisis as delinquent homeowners such as Clarke wait in limbo while courts work through a record backlog of cases. Abandoned properties dot neighborhoods in towns such as Brookhaven, Islip and Hempstead, holding back a housing rebound as prices surge across the rest of the country.

    Seriously Delinquent

    Long Island’s rate of seriously delinquent mortgages, those 90 days or more past due, was 10 percent in October, according to CoreLogic Inc. That was behind only Tampa and Orlando, Florida, and Newark, New Jersey, among the 25 largest U.S. metropolitan areas. While Tampa had the highest share of loans in foreclosure, at 8 percent, the rate tumbled from 11.1 percent a year earlier. In the Long Island counties of Nassau and Suffolk, it fell 0.4 percentage points to 6.5 percent.

    “Just rewind two or three years ago and we are where Arizona was,” said Kristopher Pilles, a Riverhead, New York-based real estate broker who represents banks, mortgage servicers and hedge funds that own distressed property debt. “It’s all coming to a head. Long Island is only now just entering the thick of the foreclosure crisis.”

    New filings are likely to move more quickly because lenders are getting paperwork in order, she said.

    “This logjam has broken and cases that were backed up are going to sale,” Hanley said. “The hurt is still coming. We are nowhere near the end, no matter what you hear about national trends and the stabilization of the housing market.”

  2. Let me run an idea past you. We know the stock market has been helped by printing with money going to banks to build teir portfolios which are leveraged and showing paper gains. What has not been helped by printing is the small businessperson, or even profession like attorneys who are seeing clients watch spending.

    So, if in Vegas and AZ housing is weak, might it be a consequence of the small businessperson who is having a rough time and not able to buy a second home. Or normal professionals who are extending the time for their retirement due to all the uncertainty? many of the middle and upper middle class close to retirement have been burned twice in 13 years by market bubbles and selloffs. even though the market is up over 100% since 2009, they are not heavily equity invested due to fear. So they have not enjoyed a huge run up in portfolios.

    In fact, the upper end of the middle class might not be prepared for retirement financially. (and I wonder if they are now throwing in the towel and buying the market just like people rushed into nasdaq in early 2000.

    1. Hal, what % of the population owns or tries to buy a second home? Second home buying is not a factor. The markets are crashing, as I predicted, because big and small investors rushed in to buy homes intended to fixed up and rented or flipped. As we will find and as we've seen already via IPO disclosures, including the IPO that Colony Capital pulled in June or July, investors are having trouble renting out what they've bought.

      Now in 2014 I bet we see investment funds start to unload en masse. If you read that article on Nevada, you'll see that's happening.

    2. OK, I did the dirty work. 6% of Americans have a 2nd home. Given income, employment and general demographics - as in, something like 1/3 of all adults under 35 live with their parents - my bet is that over the next 5 years that 6% becomes 3% and many 2nd homes with mortgages will be abandoned.

      2nd home buying does NOT drive the housing market. Employment, the ability to make a down payment and pass credit bars, etc is what drives housing.

      Soon the supply side will drive prices a LOT lower

  3. Dave, In case you missed this little ditty, Las Vegas leading again. Beginning to look a lot a sequel to 2007/8.

    1. Yes I have that linked in my post. I also noted that I talked about Nevada crashing in a Seeking Alpha piece I published about 8 weeks ago.

      For the record, my housing market and gold market analysis is usually way ahead of Zerohedge

    2. Dave, what is meant by a line in the ZH article,"Las Vegas Housing Demand Has Crashed While Supply Surging" 'ii) money laundering by "all cash" foreign buyers using the NAR's anti-money laundering exemption loophole'?

    3. Demand for homes has dried up while supply is soaring. We knew that and I detailed that in November on one of articles I linked in the post. That is happening everywhere.

      As for the other thing, it's well known that foreign buyers like Chinese, Russians and Arabs - wealthy ones - are buying big expensive homes with all cash. Apparently the NAR has some kind of loophole in its realtor regulations that enables buyers using cash without any questions asked.

      When the other factors fall away, the foreign money-laundering buying won't be a factor in helping to drive the market higher at the margin.

    4. Thanks Dave,
      I follow your site regularly and appreciate your expertise on these economic matters.
      I am in the same vein of economic philosophy, as yourself, and have been preparing and trying to keep safe, my wife and I.
      I comment on ZH occasionally, but only on comments and views that I can intelligently contribute and make observations on.
      Your site needs to be mentioned on ZH.

    5. Thanks for the feedback DF. ZH has never been interested in publishing my work. I think maybe because the analysis and views they claim to originate have been presented here before they figure something out.

      I see they're back with a taper prediction for December. Just like the last 3 times around, they'll be wrong.

  4. As a play on housing, I want to short HD (again).

    1) New construction falls, so does HD sales
    2) People don't put money into homes their underwater on
    3) Hedge funds will exit the rental prop market, once rents collapse
    4) I hate the company
    5) Every time I leave the store, I feel as if I was with my whore. I feel unsatisfied, empty, and lighter in the wallet......and it burns when I pee.

    Am I missing something?

  5. Soaring home-price growth to slow down in 2014: analyst

  6. Haven't seen the dollar fall below 80 (USDX) before but, granted, I'm haven't been watching very long. I think it was Jim Rogers who predicted dollar collapse at around 70.

  7. White House Is Near Naming Stanley Fischer To Be Vice-Chairman of the Fed

    EPJ has previously reported on the strong M.I.T. influence at the Fed. Indeed, in many ways it could be considered the "Fischer influence."[...]He is a member of the Bilderberg Group and attended the Swiss 2011 Bilderberg conference in St. Moritz, Switzerland. Consider this Yellen being put on notice. If she doesn't play ball with the banksters, whatever dirt they have on Yellen is going to come out real fast and Stanley will slide into position.

    you think something is up?

  8. When you say be careful with stock market exposure, does that include the gold and silver miners? They have been a disaster the last two years and can't imagine them getting much worse but I have been saying that for 18 months now.

    1. No. Look at a 13 yr chart of the HUI. We're at the equivalent of when the HUI hit 150 in 2008. Once gold gets untracked, I bet we'll see at least 800 on this next run up. Some of the juniors will go from .15 to $10.

      I remember buying ECU at .20 and unloading some as high at $3.30.

  9. I have lived in Nevada (Reno) for 37 years. There's all sorts of problems for Nevada besides housing - employment, tax revenues, gaming revenues, mining taxes. Even salvation army donations are getting smaller. People can't buy stuff they don't need so they can donate to them.

    This state is heading for a major crash. But the "smoke screen" doesn't stop at the national media level; it's all foggy on the state level as well. Nevada is now hoping on taxes from amazon (while many nevadans will quit buying jan 1 when it goes into effect) and illegals who have never paid into anything and neither have their employer as they are paid under the table. There's a great loss of taxes by this. But the Governor thinks he is going to get money by offering driver licenses to them. But they have gotten along fine without one and car insurance either.

    Because the pillars that have kept this state going are weakening, a major crisis is brewing. I am surprised that a special session hasn't been called yet but that's the state's "smokescreen". gotta keep on the smiley face to promote tourism.

    1. I'm sure Harry Reid is letting the people who own him rape and pillage everything. Love the signs I've seen in Ely: "Anyone Butt Harry Reid"

      He was much better at mopping up the floors in the brothels where his mother did the laundry when he was a boy.

    2. according to various estimates the federal government owns from 80-90% of Nevada. no problem Uncle Sugar can't solve! lol. btw, who is this a&*$#@e "kid Dynamite" who is on your case? I encountered him over at Gene Arsenberg's Gotgoldreport site. Incidentally Gene published some astounding stats showing an unprecedented long position in gold by the Producer Merchant on the COT. Shortly thereafter gold took the elevator up a floor by $30 to $1260 and then crashed back down to $1227 or such today. Watching the charts you see a stair step pattern with moderately higher highs and at least a stable floor to the downside. ?????

    3. Kid Dynamite? Who the hell calls themselves kid dynamite? After spending 90% of my professional time doing this sector for the last 13 years, if I haven't heard of them then they aren't relevant.

      You'd be surprised at the list of analysts I no longer waste my time and brain space reading. I go to where I believe the best source of facts can be found, I have my views, and then I read a few more people to test and challenge my views.

      a kid dynamite is mind over matter - I don't mind and he doesn't matter

    4. kid dynamite?

      Sounds like someone with the attributes necessary or proclivity for spontaneous human combustion.

    5. ROFLMAO. Sounds like someone who got beat up a lot in grade school and was last one picked for playground teams.

  10. Leading the pack Dave. Great posts !

  11. From the WTF files

    In the week ending December 7, the advance figure for seasonally adjusted initial claims was 368,000, an increase of 68,000 from the previous week's revised figure of 300,000. The 4-week moving average was 328,750, an increase of 6,000 from the previous week's revised average of 322,750.


    The advance number of actual initial claims under state programs, unadjusted, totaled 461,422 in the week ending December 7, an increase of 146,241 from the previous week. There were 429,188 initial claims in the comparable week in 2012.

  12. Cashless society: A huge threat to our freedom

    Econgularity, shorthand for economic singularity, is an ugly word I created to describe an unfortunate approaching moment in time when our current technological snooping prowess, the ease of big data manipulation and our sprint to a cashless economy will converge. This will happen in such a way as to permit governments to exercise incredibly powerful control over all human behavior.

    While this may sound like a paranoid doomsday scenario to some, as a real world finance professional, I believe that this scenario is not only eminently possible, but most of the technology is already available — albeit not yet fully marshaled — to frighteningly make it reality.
    Technological advances have led to the creation of algorithms that can instantaneously review financial transactions, determining the nature, location and even the appropriateness of a purchase decision. These have been freely used by credit- and debit-card companies.

    If current government trends continue, a cashless economy could thus very well lead to an econgularity. Imagine a future in which soon, a government staff member could suspect an individual of some misconduct, or perhaps deem that person's politics or speech unacceptable. It would take just a few keystrokes to order all financial institutions to decline any withdrawal or payment from that individual and to transfer any deposits or payments of that person to the government, or at least freeze any access to funds. Perhaps this would need to be reviewed by a secret court that would approve 99.7 percent of all requests, but would provide a veneer of due process. It is fair to think that the targeted individual might starve to death. This could be insured by cutting off access to the payment system of anyone suspected of helping the targeted individual.

    things are going the wrong way....

  13. not gonna happen.. We have the largest leveraged hedge-fund in the history of the world "Da Fed"
    and its very existence is predicated on "up"
    These days down dont last for more than 3-4 days as you cant have leverage approaching 100:1 and be able to survive a 5% down move.
    How is that gold thing doing Dave?........(insert crickets chirping)......

  14. Anyone believe this?
    They make it sound like these newbie unemployed knew ahead, & went out in one last grand spending splurge.

    (Reuters) - U.S. retail sales rose solidly in November, adding to signs of a strengthening economy that could draw the Federal Reserve closer to reducing the pace of monetary stimulus.

    The upbeat picture was clouded somewhat by other data on Thursday showing the biggest jump in a year in first-time claims for jobless benefits.

    btw, isn't there supposed to be a so-called budget deal passed by dec 13. nothing much anywhere.
    maybe they're just going to leave it to mid-Jan 2014.

  15. It is more than curious that a similar announcement from JP Morgan in July of 2013 noted that the bank’s exit from commodities trading did not include an exit from precious metals. The exclusion of gold from the newly enacted Volcker rule is the reason these banks are able to retain their precious metals proprietary trading activities. It appears that in the eyes of Washington policy makers, all commodities are not created equal.

    did everyone know that?..I didn't.