Thursday, November 14, 2013

Unfortunately, I'm Going To Right About The Housing Market - Again

Home prices, as with aggregate wealth, only really ever increase at the rate of population growth.  So if the population of households and home owners is actually declining, as it is today, what does this imply for future home price appreciation and personal wealth?  - Alex Pollock, Resident Scholar - American Enterprise Institute
Fortunately, if you have not been unfortunate enough to get sucked into buying a home in the last 12 months at these QE/Cheap debt-fueled prices, consider yourself better off.  If you have a house you are trying to sell and want to really sell it, do it now and price it to move.

DR Horton, the nation's largest new homebuilder  reported its Q4 and full year results two days ago.  I pulled up the SEC-filed financials and dug into them a lot deeper than any Wall Street analyst does, or at least presents to the public.  What I found was quite troubling, especially considering that DR Horton is the best possible statistical representation of what is going on fundamentally because it's the largest homebuilder and caters to the middle to lower-middle market demographics.

Keep in mind that headline reports only offer year over year comparisons which, given the amount of QE and Government stimulus pumped into the housing market over the past 3 years, is an easy beat.  But I have been analyzing quarter to quarter comparisons for the homebuilders' last two quarters through September because they incorporate the 6 best home selling months of the year on a seasonal basis.  The drop in numbers from the June quarter to the September is quite startling, and so far it's been across the board with the companies who have reported.

As an example, DR Horton's new order backlog dropped 17% from its fiscal Q3 to Q4 this year.  Please note that its fiscal Q4 includes July and August, which are typically the 2nd and 3rd best seasonal months for sales, so one would think that at best case DHI's orders should have been flat.  It's cancellation rate spiked up to 31% from 24% in Q3.  That's big.  The market was expecting a 25% cancellation rate.  The list goes on.   You can read my article here:   Red Flags All Over DHI's Earnings Report.   You will also note that DHI's management has been very heavy sellers the stock this year, especially compared with the scant number of buys - one to be exact in the last 12 months.

If you want to see the true fundamentals underlying the housing market, here it is in 3 graphs - these graphs tell us that the economy is not generating jobs and income to even come close to supporting growth in the housing market - in fact, it's telling us that the housing market is getting ready to drop hard again (please click on the graphs to enlarge):

(Read median household income)

(Home ownership rate in the U.S.)

Either a substantial amount of QE is coming in order to prop up this mess, or the housing market - and the stock market - are set up for a bigger fall than we saw in 2008.


  1. But Dave, every guest on cnbc says buy, that the retail investor is back.

    1. LOL. Probably is. That's usually the sign that top is near...

    2. Although this could go on for a longer and get a lot crazier. For every $1 the Fed prints can be theoretically leveraged 10x by the banks and right now about 5x by the hedge funds.

      My quote at the top of yesterday's blog post is the key.

  2. Dave, Off topic, did you see those gold premiums in India ? U.S dollar equivalent is $1565 per ounce. This is getting interesting !

    1. Yes. I get data on the Indian market every morning from a pay subscription we get. The import duty is $135/oz right now and the market premium above that was around $120/oz last night. $235 over spot right now. It's been that way since the Indian Govt put import controls on gold.

      My bet is that the U.S. Govt had a very heavy influence in that because the U.S. Govt has a physical gold supply problem. GLD can satisfy China for now, but during India's heaviest buying season, India + China might have busted the LBMA.

  3. The ugly misery of Bernanke's demagogy

    Back in 2008, Congressman Ron Paul vainly tried to explain to Bernanke that unorthodox money had already caused grave damage; more unorthodox money would only be injurious. Seven years later, Bernanke printed trillions of dollars in quantitative easing and various forms of stimulus, yet the economy never fully recovered nor was full-employment restored. He pushed stock prices to record highs, and he is trying to push housing prices to their highest possible level so housing becomes unaffordable for average American families.

    Extremely high home prices mean for him a housing recovery. For seven years of zero interest rates, he has denied savers any income on their saving. With zero interest, government continues to borrow massively and consume capital that could generate growth and employment.

    Bernanke's actions were only redistributive; he confiscates wealth from workers, creditors, pensioners in favor of beneficiaries of government welfare, borrowers, and speculators.

    Inflationism causes mass-unemployment and never cures it. Inflationism is far worse than unemployment, its consequences are far-reaching; the medication is worse than the disease. Long ago, it was denounced by prominent politicians and writers.

    The third US president, Thomas Jefferson, stated, "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

    In respect to inflationism, US senator Daniel Webster (1782-1852) noted, "We have suffered more from this cause than from every cause or calamity. It has killed more men, pervaded and corrupted the choicest interests of our country more, and done more injustice than even arms and artifices of our enemy."

    Allais wrote: "In essence, the present creation of money, out of nothing, by the banking system is, I do not hesitate to say it in order to make people clearly realize what is at stake here, similar to the creation of money by counterfeiters, so rightly condemned by law. In concrete terms, it leads to the same results."

    Bastiat (1877) deplored the redistributive injustice of paper money inflation. It steals wealth from losers and showers it for free on the gainers. He wrote: "I must inform you that this depreciation, which, with paper, might go on till it came to nothing, is effected by continually making dupes; and of these, poor people, simple persons, workmen and countrymen are the chief. Sharp men, brokers, and men of business, will not suffer by it; for it is their trade to watch the fluctuations of prices, to observe the cause, and even to speculate upon it. But little tradesmen, countrymen, and workmen will bear the whole weight of it."

    In the same vein, Carroll (1848) severely condemned the redistributive of fictive money and credit; he noted that of all the contrivances for cheating mankind, none has been more effectual than that which deludes them with paper money. "This is the most effectual of inventions to fertilize the rich man's field with the sweat of the poor man's brow."

    Keynesian diagnosis that mass unemployment was due to demand failure and that stimulating demand through government programs of digging holes and refilling them was pure demagogy. In no time or country has there existed a demand failure. In no time or country, has there existed natural mass-unemployment.

  4. Jim Rickards stated in an interview that stocks could rise until mid to late 2014, and he and Schiff say Yellen will INCREASE QE, which should drive up stocks higher. The smart minds are in your camp with the only question being the timing. My question to you is do you think PMs will take over treasuries as the hot place to put money when stocks fall? What else but PMs will be the next bubble when even the MSM realizes that QE has been a failure?

  5. Treasuries Not Good Enough as Swaps Collateral in CFTC Rule

    Rules under consideration by federal regulators could require clearinghouses to back up Treasuries pledged as collateral in the $693 trillion over-the-counter derivatives market with credit lines, according to industry executives.

    The Commodity Futures Trading Commission, moving to toughen safeguards in a market blamed for worsening the credit crisis, is weighing a regulation that would mandate Treasury collateral be subject to a “prearranged and highly reliable funding arrangement,” according to documents on its website. Federal Reserve officials told banks and exchanges that the language means bonds must be covered by credit lines, according to three industry executives briefed on the matter.

    fiat hose to help the F.I.R.E.

  6. #AskJPM tweets performed by voice of American Greed & @PuppetOH

    Published on Nov 14, 2013
    Someone at JP Morgan said, "Let's ask the American public what they'd like to say to one of our top bankers...on Twitter." Turns out that wasn't such a great idea. The tweets generated from #AskJPM range from funny to snarky to down-right nasty. So someone at CNBC said, "Let's have award-winning actor, Stacy Keach...the voice from American Greed read them verbatim." Almost a brilliant idea. Then we added the blue puppet.

    wonder if cnbc will air....

  7. China's Stealth Move in the Currency Wars

    Five years on from the Great Financial Crisis and whilst it might feel like little's changed for us as individuals, different nations and their central banks are engaged in heated currency wars. In a race for exports and to inflate away huge debts it often looks like a game to print as fast as you can.

    However, amidst all this China is stealthily pursuing another strategy, little noticed by most in the West.
    Whilst ensuring her banking system has sufficient liquidity, China is quietly accumulating stunning amounts of gold bullion. The Chinese authorities are also actively encouraging their citizens to stock up on gold bars too. Some of the most powerful politicians, bankers and academics in China are overseeing China's gold plan.

    China has identified gold as a strategic financial asset and is acting on this conviction.

    Explaining China's gold fever

    What's the end game for China?

    In the short term China is looking to safeguard the value of her reserves, whilst in the medium and long-term she is looking to grow beyond American and Western financial power.

    To meet her goals in the short-term China has not just been buying gold but also mines and mineral interests around the world. She wants to own real assets during a time of heavy currency debasement.
    In the longer term gold is a crucial part of her strategy too.

    Understanding the power and privilege of owning the world's reserve currency - something the Americans have enjoyed for over 50 years - China is looking to make the yuan a challenger to the US dollar. China wants a future where more trade is conducted with her currency than the dollar and to achieve this she needs to make her own currency the more attractive option to use.

    Replacing the dollar

  8. There's an International Plan to Censor the Internet in the Works -- Let's Stop It in Its Tracks
    How the Trans Pacific Partnership making its way through Washington seriously undermines citizens’ rights to participate in a free and open Internet.

    Described by experts Lori Wallach and Ben Beachy of Public Citizen as “one of the most significant international commercial agreements since the creation of WTO”, the TPP is more than a trade agreement - it’s an underhanded attempt by old industry interests to censor the Internet.

    The lack of general awareness about the TPP is exactly what unelected trade officials and lobbyists hope for; the more covert the negotiations, the easier it is to usher in extreme new Internet censorship rules.

    The TPP’s extreme Internet censorship plan

    The changes proposed by the TPP could seriously undermine citizens’ rights to participate in a free and open Internet. We know from leaked drafts that these draconian measures could criminalize your everyday use of the Internet, force service providers to collect and hand over your private data, and give old industry conglomerates more power to fine you for Internet use. As opposed to fostering a global forum in which citizens can engage with one another, the TPP would stifle any kind of innovation within the Internet community.

  9. Hedges: Jeremy Hammond Exposed State's Plan to Criminalize Democratic Dissent