Monday, November 11, 2013

Retail Sales Confirm That Economy Is In Trouble - Twitter Already In A Bear Market

Just a quick "administrative" note first.  The homebuilder stocks took a big hit on Friday despite the massive ramp in the Dow/S&P 500.  At one point the homebuilder stock index was down 4%.  I have called a new bear market in housing when the DJUSHB (Dow Jones Home Construction index) hit 515 at the end of  January.  It's trading down another 1% today as I write this.  It's down 20% even from my call on January 29.  You can read about my call here:  Short The Housing Stocks.  That piece focuses on DR Horton and why that's a great short. You sort through my other articles to catch up on my housing market analysis.  I was a bit early on my call as the DJUSHB ran up to 550.  But that just means that the index has been in an even bigger bear market (the 20% decline rule) than measuring from when I made my initial call.  Then again, I was early in calling the demise of the first big housing bubble, but ultimately I proved to be 100% right.  History will repeat here, I assure you.

Also, I am still waiting to hear back from Pulte Homes' Jim Zeumer, who jumped all over my analysis of his company's accounting management techniques and responded promptly to my email replies. That is, all but the one in which I challenge he and his upper management team to take after-tax income cash from their bank accounts and buy a meaningful amount of shares if he was so confident that my work was wrong.  You see, PHM insiders sold copious amounts of stock all summer long and the company used $83 million shareholder money to buy back shares.  So why isn't management buying shares if they like the outlook for new home sales?  Please note, I don't expect to hear back from him and that was a strictly rhetorical question.  But I will say that it's always best to invest in companies/sectors where management is putting their money where their mouth is.  We are seeing that in a big way in junior mining shares.

So, retail sales are starting to decline on a week-to-week basis, which is contrary to the bullish headline year over year reports.  I wrote an analysis of retail sales for Seeking Alpha, which you can read here:  Retail Sales Tanking/Retailers Sending A Bad Signal.

It's incredible to me that these big retailers are going to open on Thanksgiving Day, starting with K-Mart opening at 6:00 a.m.  It's bad enough that Walmart started the trend years ago by opening at midnite on Black Friday.  But if you step back and think about what it means, it means that the retailers are fearful about the prospects for holiday sales this year.  Abercrombie & Fitch has already warned about their holiday sales expectations and The Gap is already heavily discounting.  That's about all you need to know because the cash register is where "the rubber meets the road" of truth - not media-hyped headlines and Wall Street financial tv "news" programs.

Twitter stock, which came public at an insanely high multiple of sales and is highly reminiscent of what happened of the top of the last internet stock bubble, actually hit bear market territory this morning as it traded over 20% below it's high price print on Thursday, the day it came public.  Of course, I'm sure CNBN, Bloomberg and Fox Biz will not report this fact...


  1. I think between poor holiday sales and Obama care the cards are on the table. We are going to see the economy really tank. Just these two variables could be the black swan we have been waiting for. I noticed that the Saudis picked up some nukes last week. I guess that they might be getting ready to accept other currencies besides the dollar.

  2. Meanwhile in the world of make believe everything is wonderful and recovery is gaining steam. I'm leary of what comes next but it would only be fitting that the shit hits the fan while Bernanke is
    still driving the bus. Keep up the good work Dave.

  3. You said FB was in bear market too. It's almost new high now.

    1. It went from $38 to low 40's to like $17. Didn't think $85 billion per month of QE would drive overvalued internet stocks back to early 2000 levels. If you think I'm wrong then you should load up on housing stocks. Go for it.

  4. 2014: Shaping up to be a Buzz Lightyear to Infinity & Beyond
    but only to January?

  5. Oh, Dave, the economy has NOTHING to do with the markets. Just follow the trend. Long stocks and short precious metals. It's about making money not analysing the economy.

  6. Will the homebuilder stock index ever go down as many of the miners of the last 2 years? Not to be rude, Dave, but I'd still rather be in the stock market than precious metals. You have trillions of dollars of manipulated markets and central banks behind you. I kick myself daily for getting in the precious metals market. Tens of thousands of dollars lost on the miners and value of my metals, and that still does not include the tens of thousands of gain lost by not being in the stock market. I was at least 6 years too early and paid for it dearly. To think that I could go against the Fed? What was I thinking? Eventually this will be the place to be but not now. Unfortunately, we are at least a few years from anything happening in the precious metals sector. Anyone that disagrees I just point to their "opinions" in 2011 of where we would be in late 2013. Yea, no one was calling for where we are now in this sector, which means, this can easily go on for A LOT longer than people think it can, and it will.

    1. DJUSHB already down 24.2% since the middle of May. That's a big hit. But the homebuilders have already dumped more than gold. The DJUSHB dropped from 1115 in July '05 to 143 in Nov '08. By my math - and maybe your math is different - that's an 87% decline.

      What we have now, and what I'm arguing is that we've had a mini-bubble bounce in the homebuilders fueled by a couple trillion in stimulus from BOTH the Fed and the Government and that this bubble is bursting and the mini bounce in the DJUSHB is going back to plumb the lows of 2008.

      Now you can disagree with my view, that's fine, but by standard math, so far I've been dead right. My avg cost of my DHI short is 26.50 and my KBH short is $18.10. I'll let you run whatever math you want to figure out the ROR on those thru today.

      And one more point, despite DHI's ebullient earnings report today, I've found several things that are highly problematic with their outlook and with the underlying numbers. I will be submitting a piece to Seeking Alpha detailing that hopefully by tonight or tomorrow morning.

  7. Dave...

    Your call on Horton was spot on.

    I noted a comment above about FB stock. That steaming pile of shit, along with Twitter and every other steaming pile of shit sill soon be recognized for what they are.

    Tulip bulbs. A whole world of idiots buying tulip bulbs. Keep up the good work. Chiefs come to town and finally numb nuts will see a real defense coming after him non stop. This should tell us all we need to know. Can't hardly wait.


    1. LOL. Ya I've been trying to write up something on DHI but I've been sidetracked. I saw the cancellation rate this morning. There's other big problems with DHI's financials as well. Going to try and write to piece on it Seeking Alpha this afternoon.

    2. I bought SRS at 19.52...hoping for some big returns...

    3. Make sure you leave room to add if the DHUSHB bounces here. It's technically oversold right now. You can also sell short out of the money puts if the homies bounce a bit. I love shorting volatility premiums on something I want to own anyway.

  8. How America LOST ITS MIND — Oliver Stone

    Published on Nov 12, 2013
    Oliver Stone talks about how terrorism has caused hysteria and military panic for the last hundred years, and what has gone wrong in America. The Department of Homeland Security and propaganda of the power structure is examined, as well as whistleblowers and Obama's messianic trappings in this clip from the full Buzzsaw interview with Sean Stone and Tyrel Ventura.

  9. Sick of The Lies and The Liars

    You see, gold manipulation is not a "conspiracy theory", it is a HISTORICAL FACT. Those that deny this FACT can only do so under the following conditions:

    That person is underinformed and/or naive.
    That person is an ardent believer in the status quo (see bullet point above).
    That person has an agenda and is purposefully trying to mislead you.

  10. Ex-Bank Executive May Face Death in Vietnam Fraud Trial

    A Vietnam court will consider the death penalty for two former executives if they’re convicted in a $25 million fraud scheme, signaling an aggressive stance as leaders seek to clean up the banking system.

    The People’s Court of Ho Chi Minh City may hand down the death penalty for Vu Quoc Hao, the former general director of Agribank Financial Leasing Co. (FLKO) No. 2, who is charged with embezzling 531 billion dong ($25 million) of state property, the official Vietnam News reported yesterday. Dang Van Hai, the former chairman of a construction company, also faces the death penalty in the case, the newspaper said.

    “It would be a signal: You could be executed for being caught doing large-scale corruption,” said Adam McCarty, the Hanoi-based chief economist at Mekong Economics. “It has implications for the whole bank restructuring the government is about to do. They want to really dig into these bad debt issues and find out who is responsible for the problems.”

    Vietnamese courts held 278 corruption trials this year while the state inspectorate has uncovered 80 new fraud cases involving state funds, according to a government report released yesterday that did not give comparable figures for previous years.
    Leasing Contracts

    Eleven defendants, including Hao, 58, and Hai, are charged with embezzlement, mismanagement, abuse of power and fraud, according to a statement on the court’s website. Prosecutors allege that Hao and Hai formed 10 fake financial leasing contracts to disperse almost 800 billion dong.

  11. Markets Evolve, as Does Financial Fraud

    It is usually the case that there are not new frauds, just new avenues for deception. As the financial world has evolved into a high-speed race to trade assets while investment strategies are kept secret, both regulators and investors face the challenge of finding the fine line between permissible trading and manipulation aimed at generating unfair profits.

    As the markets have changed, with high-frequency trading firms buying and selling financial instruments in the blink of an eye, so have the monikers used to describe misconduct. Yet the underlying goal of manipulating prices remains the same. Long ago, stock trades were reported over ticker tape, and one type of manipulation was called “painting the tape.” Traders would enter orders to give the appearance of activity in a stock to entice others to buy shares, thus pushing the price higher.

    Today, a slightly more sophisticated scheme is called “banging the close,” in which transactions are made in one market at the end of the day to benefit a trader’s positions in another market, say derivatives. Same scheme, different means.

    The growth of high-frequency trading firms and transactions executed on alternative trading systems, called dark pools, have made it more difficult to police potential manipulative conduct. High-frequency traders buy and sell millions of financial instruments but rarely hold a position for more than a day. While such trading provides greater liquidity to the markets, helping to lower costs for all investors, it can also offer new opportunities for manipulating prices.

  12. This is like too much of information. Great post.