Wednesday, July 31, 2013

Our Government Is Now Orwell On Steroids

"Yes, Virginia, two plus two can equal five.  And since we're the U.S. Government, we can tell you that two plus two equals six."
Caution:  our Governmental system is now on full retard.

Today's GDP report was a complete Orwellian farce.  The annualized number for Q2 was reported to be 1.7%.  Of course, lost in the shuffle was the second massive downward revision for Q1 GDP, which was revised down again from 1.8% to 1.1%  What that means is that on an inflation-adjusted basis the first quarter GDP was negative - i.e. the economy is in a recession.

However today the Government rolled out its massive "revision" in the overall GDP level going all the way back to 1929.  In sparing you the ugly details, essentially the net affect of this was to raise the overall GDP level by $551 billion. How, you might ask?  The Government went all the way back to 1929 and reclassified all the money spent on "intellectual property products" and reclassified them as "investments" rather than expenses as incurred.  So, if you figure out a new way to remove the wrapper from a Hershey bar, the Government decided that 20% of the cost of that Hershey bar was an "investment" in making your life easier, so 20 cents of the dollar spent becomes an "investment" and added to the GDP.  While that may seem like an absurd analogy, it really isn't.  Here's the BEA's nice marketing flyer on this Orwellian change:  LINK

Of today's 1.7% annualized GDP estimate, .15 is attributed to the new "intellectual property products" and .41 is attributed to inventory build.  Why are businesses building inventory when consumer demand for everything except basic necessities is declining?  If you strip out the unneeded inventory build and erase the intellectual property garbage, the GDP is 1.2%. 

Recall that Q1 GDP was originally reported at 2.4%, revised the first time around to 1.8% and now has been taken down 1.1%.  Expect the same thing to happen to today's farce of a number.  As for the half-trillion dollars added to the overall level of GDP, there's only one reason this was conjured up:  it makes the Debt to GDP ratio look not quite as bad.  It goes from 105% of GDP to 101%.   Brace yourself for a big increase to the debt limit ceiling...

Orwell is laughing his ass off and Atlas just shrugs.

Monday, July 29, 2013

June New Home Sales Report Further Confirms My Bearish View On Housing

Bullishness often demands ignorance of the fundamentals -  Bill King, The King Report
Last week I published Part 3 of my series on why I think the housing market is about to head back to new bear market lows.  The day after it was published on Seeking Alpha (and posted on this blog), the Census Bureau released its new home sales report for June.  Although it beat the consensus estimate for June, the May report was revised lower by quite a bit.  In fact, it's safe to say that because of the way the Census Bureau counts a new home "sale," that the initial number published is often quite unreliable and substantially over-estimated.

The Census Bureau records a "new home sale" when an escrow deposit is taken in or a sales agreement is signed.  Keep in mind that escrow deposits are typically 1-2% of the cost of the home - i.e. a fraction of the equity required for mortgage financing.  Right now the cancellation rate in general for new homes is running in the mid-20% area.

I wrote another article explaining why, despite beating the Wall Street estimate, the new home sales report triggered a big sell-off last Thursday in the housing stocks.  You can access that article here:  The June New Home Sales Report.

June and August are typically the peak months for home sales on a seasonal basis.  I fully anticipate that the next couple of new home sale reports will have large downward revisions for the June number, as the June report only partially reflects the jump in cancelled contracts that will occur from the May spike in mortgage rates.  Existing home sales for July will also be highly affected.  Sorry, but it's all downhill from here for housing.  Watch for negative GDP reports as well.

Wednesday, July 24, 2013

The Housing "Rebound" Is Over

There is a ton of chatter today over “NAR Listed Inventory” levels being so low.  This is a red-herring.    It’s lunacy…for the life of me, I can’t understand where people get these wild haired ideas in the “new-age” housing market.  Come on…really??? One house for sale could be massive supply in a market of dead people.  [I love that quote]

Remember, one cannot compare today’s housing metrics with 7, 17, 27 or 57 years ago.   That’s because today 50% of all mortgage’d homeowners — throughout history the most influential demand cohort — are LOCKED-IN due to negative equity, “effective” negative equity, a legacy HELOC not written off preventing them from getting a mortgage, and/or insufficient income/credit needed for a mortgage loan. - Housing market consultant, Mark Hanson (LINK)
I finished the final part of my 3-part housing market series published by Seeking Alpha with my analysis of why the housing market is about head south - quickly.  In this section I focus primarily on the market for existing sales.  The combination of the big mortgage rate spike in May and June, the fact that big investment funds are largely done accumulating properties they can't rent out and a few other factors have led me to conclude that the 18 month bounce in the housing market is done and the bear market will resume:
As these factors become more apparent to a wider audience, potential home buyers will postpone purchase plans, banks will pullback on mortgage funding and those looking to take advantage of the price run-up will try to sell their home before the bottom drops out of the market again. In other words, the "negative feedback cycle" that drove the popping of the original housing bubble will exert itself, taking the market ultimately to new lows.
You can read my entire analysis here:  Housing: Look Out Below

Today's new homes sales report included a huge downward revision to the May report.  No doubt that was from the effect of much higher mortgage rates.  Although today's number looked good in the headlines, the revision next month will feel the full brunt of the higher mortgage rates, which hit 5% during the June contract-signing period.  Through the end of Q1, homebuilders were experiencing on average 25% cancellation rates.  I would bet good money that Q2 will see cancellation rates north of 30% just from higher rates.

In addition, it was reported today the use of ARM mortgages has reached the levels seen right before the housing bubble popped as the dregs of the buyers reach for homes they can't afford using dangerous ARM products:  LINK   And finally, it was reported that Obama's liberalized Government-funded mortgage "restructure" program - HAMP - is seeing 50% re-default rates for the 2009 taxpayer-funded refi's:  LINK  Just another one of Obama's "social welfare" programs funded by the middle class that transfers a little money to idiots and a lot of money to the banks.  Thanks Barack!

Saturday, July 20, 2013

The Negativity Of GOFO Rates And Factors That Will Spark The Next Big Move In Gold

With gold sentiment quite negative and shorts at extreme levels, upside price risks cannot be ignored especially amid evidence of consistent physical demand. Historical seasonal patterns suggest that this is likely to strengthen later in the quarter, which in turn could prompt a short-term squeeze. - UBS, London Metals Group
The physical market is starting to overwhelm the paper market. The premiums reflect scarcity and greater awareness of the fractional nature of the paper market.  This awareness is debasing the trust in paper currencies.  Possession of physical gold (and silver) is now being valued more highly than possession of paper dollars.  This is reflected in the premiums being paid all over the world for 400 oz. gold bullion bars.  Wealthy entities, Central Banks and sovereigns are will to pay a lot more in paper currency for an ounce of gold than is being reflected by the "spot" price of physical gold (as set by the paper market).  The 10-day run of a negative GOFO rate is also direct and unmitigated proof that market values physical possession of gold more than U.S. dollars (GOFO = the cost of doing a gold/$ swap - a negative GOFO means that dollar holders who need gold are willing to pay a gold-holder for short term use of that gold).

Here's my latest analysis of this situation, published by Seeking Alpha:  LINK  I review several factors that will trigger the next move up in gold, which could be a monster move.

One of GATA's main platform themes going back to like 1998 is that eventually the paper market would be revealed as the fraud that it is and the physical market would completely blow through the price levels set by the paper market and the shorts would be forced to cover.

Old-time commodities traders refer to this is a "commercial signal failure."  We are starting to see that and the negativity of the GOFO is evidence of it.

Wednesday, July 17, 2013

The Economy Is Tanking - Real GDP Is Now Tracking Negatively

I'm sure by now everyone has seen the reported plunge in housing starts and housing permits on Tuesday.  Single-family housing starts declined for the fourth month in a row.  I have been expressing the view for a few months now, and backing the view up with copious amounts of evidence, that the housing market is getting ready to tank - and tank hard. Incidentally and anecdotally, just in the past couple of weeks I've noticed a literal avalanche of "for sale" signs all around central Denver.

And more economic data was released on Monday which further reinforces my contention that entire economy is in a serious decline.  In fact, based on several recent economic reports, it's probably safe to say that the GDP, on a real, inflation-adjusted basis, is now retracting - i.e. we're in a recession.  As John Williams of explains:
Underlying economic reality remains much weaker than Fed projections. As actual economic conditions gain broader recognition, market sentiment should shift quickly towards no imminent end to QE3, and then to expansion of QE3. The markets and the Fed are stuck with underlying economic reality, and, eventually, they will have to recognize same. Business activity remains in continued and deepening trouble.
Seeking Alpha has published my latest analysis of the economy and the reasons I claim that the economy is back in recession:   Negative GDP and No Taper Coming

Please note that to measure real GDP, I'm using the latest reported annualized CPI as calculated by the Government.  In fact, the true inflation rate is significantly higher, which means that real GDP is in serious contraction.

Don't act shocked when the Fed announces even more QE before the end of the year...

Tuesday, July 16, 2013

Every American Who Cares About This Country Should Read This

email exchange between Edward Snowden and Senator Gordon Humphrey, a former 2-term Senator from New Hampshire:

Former two-term GOP Senator Gordon Humphrey of New Hampshire emailed Edward Snowden yesterday  (LINK):
Mr. Snowden,

Provided you have not leaked information that would put in harms way any intelligence agent, I believe you have done the right thing in exposing what I regard as massive violation of the United States Constitution. Having served in the United States Senate for twelve years as a member of the Foreign Relations Committee, the Armed Services Committee and the Judiciary Committee, I think I have a good grounding to reach my conclusion.  (Emphasis is mine)

I wish you well in your efforts to secure asylum and encourage you to persevere. Kindly acknowledge this message, so that I will know it reached you.

Gordon J. Humphrey
Former United States Senator
New Hampshire
After I contacted Sen. Humphrey to confirm its authenticity, he wrote to me

Mr. Greenwald,

Yes. It was I who sent the email message to Edward Snowden, thanking him for exposing astonishing violations of the US Constitution and encouraging him to persevere in the search for asylum.

To my knowledge, Mr. Snowden has disclosed only the existence of a program and not details that would place any person in harm's way. I regard him as a courageous whistle-blower.
I object to the monumentally disproportionate campaign being waged by the U.S. Government against Edward Snowden, while no effort is being made to identify, remove from office and bring to justice those officials who have abused power, seriously and repeatedly violating the Constitution of the United States and the rights of millions of unsuspecting citizens.

Americans concerned about the growing arrogance of our government and its increasingly menacing nature should be working to help Mr. Snowden find asylum. Former Members of Congress, especially, should step forward and speak out.

Gordon Humphrey
Snowden's reply to Sen. Humphrey:

Mr. Humphrey,

Thank you for your words of support. I only wish more of our lawmakers shared your principles - the actions I've taken would not have been necessary.

The media has distorted my actions and intentions to distract from the substance of Constitutional violations and instead focus on personalities. It seems they believe every modern narrative requires a bad guy. Perhaps it does. Perhaps, in such times, loving one's country means being hated by its government.

If history proves that be so, I will not shy from that hatred. I will not hesitate to wear those charges of villainy for the rest of my life as a civic duty, allowing those governing few who dared not do so themselves to use me as an excuse to right these wrongs.

My intention, which I outlined when this began, is to inform the public as to that which is done in their name and that which is done against them. I remain committed to that. Though reporters and officials may never believe it, I have not provided any information that would harm our people - agent or not - and I have no intention to do so.

Further, no intelligence service - not even our own - has the capacity to compromise the secrets I continue to protect. While it has not been reported in the media, one of my specializations was to teach our people at DIA how to keep such information from being compromised even in the highest threat counter-intelligence environments (i.e. China).

You may rest easy knowing I cannot be coerced into revealing that information, even under torture.
With my thanks for your service to the nation we both love,
Edward Snowden
Anyone else who isn't bothered by the Government spying on every single aspect of your private affairs - in direct violation of the 4th Amendment of the Constitution - and who doesn't care the Attorney General General - Eric Holder - is an insane criminal - go back to your regularly scheduled mental masturbation.

Thursday, July 11, 2013

It's Getting Closer - Don't Say I Didn't Try To Warn You

If the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse  - Seth Klarman, money manager, via Zerohedge

We'll know the collapse is coming sooner rather later when CNBC's viewership plummets to nothing - Dave and Friend of Dave circa mid-2002
That Zerohedge link is worth the quick read.  It has been reported over the past couple of weeks that CNBC's viewership has fallen to all-time lows this year.  It's a trend that's been ongoing since the economy crapped out in 2007.  In fact, the New York Post has reported that Larry "Cocaine Brain" Kudlow's show - "The Kudlow Report" has been cancelled, citing that viewership in its key demographic, 24 - 50 yr olds - is off 60%.  Kudlow's rise and fall as Chief Economist at Bear Stearns (he fell victim to a vicious cocaine, pill and alcohol addiction) was emblematic of the way in which Wall Street as a whole will rise and fall.

Interestingly, the Fed-money printing-driven pop in the stock market has done nothing to reverse the falloff in CNBC's viewership.  And Fox Biz and Bloomberg barely have any viewers.  It tells me that most people understand that the big stock market move higher is completely artificial and absurd.

And don't say I didn't warn you about your 401k's and IRA's.  Orrin "Magic Underwear" Hatch has introduced legislation to "create a new public retirement plan in which insurance companies pay benefits through annuity contracts"  (New York Times).

Annuities?  I have written some posts over the years in which I said that eventually the Government will takeover the retirement fund system and replace what you have with an annuitized fund that will be primarily funded with Treasuries.  It's a most convenient way to keep the Treasury bond treadmill funded when foreign buyers like the Chinese disappear.  I also said back in 2003 that before the system collapsed, the elitists would sweep every last crumb of public wealth off the table and into their own pockets - the last great asset of the public being the $16 trillion in retirement assets.

If you look at Hatch's biggest contributors by industry, #1 is Securities and Investments and #4 is Insurance:  LINK  I suspect that at some point in the legislative process that JP Morgan and Goldman Sachs will barge their way into seats at the retirement fund feeding trough.  Certainly they've given Mr. Magic Underwear enough money to earn that seat.

Now that the Government spies on every aspect of everyone's life - with Hatch's full support, especially given that the massive multi-billion dollar NSA facility which houses all the computers used for its esponiage is conveniently situated in Utah and Obamacare is proving to be a complete financial clusterf*ck, now it's the Government's turn to takeover your retirement funding.

Good luck to you all who keep your money in your IRAs.  Don't cry that you weren't warned when it happens in totality.

Wednesday, July 10, 2013

GOFO Explained And Why It's Now Very Bullish For Gold

This (the price correction in gold) is good news. Gold is doing what it should do. And it is giving us another good opportunity to buy a life vest before the boat sinks.                              - Bill Bonner, LINK 
Something curious and very rare has occurred in the "bowels" of the gold market.  The Gold Forward rate (GOFO) has gone negative.  This has occurred only four times in the last 14 years.  Each time a negative GOFO has been connected to significant bottom in the gold market:  in 1999 a secular transition from a 20-year bear market into a yet-undetermined in length bull market;  in 2000 + 2001 it correlated with a move that lead to the 1st cyclical bull market high of $1020 in 2006;  in 2008 it correlated with the price correction from the 2006 high and marked the climb to the all-time record cyclical high of $1900 in 2011;  and now.

A negative GOFO rate means that gold in hand today is worth more than U.S. dollars in hand.  Think about that the next time someone tries to explain to you why gold has no value.  This is a sophisticated transaction being executed by sophisticated banks.  They are not in the business of leaving money on the table for others.  If they are willing to pay money to get their hands on gold, it means they are placing a higher value on gold than on dollars.  That's just the law of the time value of money in action.

The severity and degree of manipulation that has been required to "help" along the current 2-yr price correction in the metals sector is testament to the degree of desperation the Fed and the Government are feeling in order to try and support the dollar's use as the global reserve currency.  Like all good things, that is coming to an end.  The negative GOFO rate being observed right now is in unprecedented territory.  The previous three observations were one and two-day affairs.  Today is the third day in a row we are observing a negative GOFO.   That this is occurring is also testament to the degree of manipulation that underlies the market right now.

Why?  You can read what the GOFO is and my analysis of what it means here:  Why The GOFO Is Very Bullish For Gold

In short, the GOFO is the interest rate that is used in a gold-for-dollars swap transaction.  Someone who is long gold and needs dollars for short term use can use his gold as collateral and get a much lower interest rate in borrowing the dollars.  But when the GOFO is negative, it means that someone with dollars needs the short term use of gold and is willing to pay the owner of the gold a rate of interest plus use dollars for collateral. 

What it really means is that the massive shortage of good to deliver 400 oz. bars we've been hearing about in Europe, Asia and the Middle East is true.   It tells us that not only is delivery situation for 400 oz bars extraordinarily - maybe historically - tight, BUT the western Central Banks are having problems finding enough gold to alleviate the situation.   Also, this is the second day in a row GOFO is negative out to 6 months and the 1 month negative rate has become more negative 3 days in a row.

Just like the previous three times, I am confident that the current GOFO means the bottom of the 2-yr correction in gold and silver is over and that there is a very high probability that the next cyclical move higher will see new records for both the price of gold and silver.

Sunday, July 7, 2013

The Hypocrisy Of Obama At It's Finest

Anyone who supported Obama's Presidency and still does after all the evidence of his track record vs. his campaign promises is tallied up, is either a complete moron or just as vile a human as is Obama.

I said 100 days into Obama's first term that he would end up being an even worse President than his predecessor.   The primary reason is that at least with Bush we knew what we were getting - a complete liar who was obviously working for the elitists who control our system.  Obama gave everyone illusion he would clean up the corruption and fraud.  Not only has he NOT tried to clean it up - he enables it even more than Bush did.

It's impossible to dispute the facts.  Why is Guantanamo still open and fully operational?  I recall Obama promised to close it within his first 90 days...the list is endless...

Friday, July 5, 2013

The Government's Numbers Are A Complete Farce - Part Time Jobs +322k, Full-time down 240k

[Please note:  the S&P 500 futures have plunged 26 pts from their intra-day high, the Dow briefly went red after opening up over 100 points.  This fact confirms my analysis below]

In fact, our entire system is a joke.  I see where it's being reported that the "inquiry" into Steven Cohen's insider trading will take years.  That tells me everything I need to know:   the rogue billionaire hedge fund trader has all the right people in all the right places paid off handsomely.

As for today's employment report, to say I'm nearly speechless over how just absurd it is would be nothing more than social correctness.  I hope everyone takes note that 322k of the supposed jobs created were part-time - full-time jobs declined by 240k.  I'm not going to take the time to dissect the entire report - you can go to for that.  It's really a waste of time to try and analyze fraud.  But here's my thoughts:

Today's jobs report featured 322k increase in part-time jobs.  That would be in the services industry.  The same services segment of the economy for which the Institute of Supply Management announced on Wednesday that its employment index plunged to its 2009 level:  LINK

Who's right?  The Govt bean counters or the businesses who do the actual hiring?  I'll let you decide.
Please note that new orders per the ISM report plunged to 2008 levels.

Also please note that while the Govt released a number than enables the momentum traders to juice the SPX and hit the metals today, the Govt also made sure that the unemployment rate stayed comfortably above the 7% level and it was actually a bit higher than expected.  The 7% level being the number everyone on CNBC is watching to decide if the Fed will really "taper."

Also note that overnight last night that India and Viet Nam were aggressively buying despite Govt attempts in both countries to curb gold buying.

Let the boys have their fun today with the low volume in all the markets and not many players around, now that the rest of the world has left for the weekend except our British lapdogs.  And in a couple hours the Brits will go to their kennels for the weekend.

Next week and over the rest of the summer, it's going to become harder for the Government to lie about what's really going on the economy as the evidences of the truth will become more apparent to everyone.

Tuesday, July 2, 2013

The Economy Is Quickly Headed South - QE 4 To Follow

Sure baby, mañana. It was always mañana. For the next few weeks that was all I heard––mañana a lovely word and one that probably means heaven.  - Sal Paradise, main voice in Jack Kerouac's  "On The Road"
That famous line from "On The Road" came to mind after I read a summary of the Fed's Bill Dudley's speech today in which he admitted that the Fed is often "too optimistic" in its economic forecasts but that he himself saw a stronger economy in 2014:  "Tomorrow and tomorrow and tomorrow...It's a tale told by an idiot, full of sound and fury, signifying nothing" (Macbeth).

For two days in a row now, the stock market - as represented by the S&P 500 - opened up with big moves higher, only to reverse course and close well off its highs of the day.  As I write this, the SPX has sold off into negative territory.   If the outlook is for a better economy, why this market action?  In fact, yesterday the Dow Jones homebuilder Index closed negative and over 2% off of its early-day highs.  This is the action of a market that wants to go lower and it wants to go lower because fundamentals are deteriorating.

I wrote an article last Friday published by Seeking Alpha in which I outline the real numbers beneath the headline facades reported by the media - the tales told by idiots.  You can see the true facts here:  Economy Is Headed Down The Tubes

Since that was published, some more statistics presented bullishly in the headlines further reinforce my thesis.  Yesterday was the Chicago Manufacturing PMI index, which registered a slight gain primarily because of the prices paid component (inflation) but the employment sub-index was not only lower, it hit a low not seen since September 2009.

And today's factory orders headline gain - although it missed expectations - was driven by defense orders (we borrow to pay for defense spending, by the way).  Technology and electronic orders both registered big drops and inventories were flat (per my article linked above, inventory-build represented 33% of Q1's lower-revised GDP number).

The economy is not in good shape, despite what "they" say.  The last gasp in the housing market is being fueled by homebuilders and mortgage brokers pushing 5-yr ARM mortgages (remember those in the last bubble?) and auto sales are being fueled by 0% financing from all auto manufacturers now.

If I don't post anything tomorrow, have a happy and healthy July 4th holiday.  With Greece, Italy and France imploding on derivatives, the fun begins on Monday and my forecast calls for much higher gold and silver prices by the end of July as my thesis on both housing and the economy proves accurate and the market begins to price in a new round of QE.  Ciao et buon fine settimana lungo.