Tuesday, December 24, 2013

Fact vs. Fiction - Truth vs. Lies

We can ignore reality, but we cannot ignore the consequences of ignoring reality
                                             - Ayn Rand
I was confronted at my tennis club last night by a guy who associates anyone who invests in gold with an obsession with doom and gloom. I guess he thinks that people who move their phony fiat U.S. dollars into gold are trying to get rich at the expense of general despair.  Nothing could be further from the truth in terms of what I would like to be doing vs. what I am doing.  Hell, during the 1990's I was a junk bond trader on Wall Street.  Alan Greenspan's magic money printing press was my best friend.  This particular guy is a real estate broker and his income is a "third" derivative benefit of money printing.  Anyone who works on Wall Street in the type of job I had is not only a direct beneficiary of a promiscuous Federal Reserve printing press, but also skims 90% of that benefit - i.e. a first derivative beneficiary.

The funny thing is, anyone who is receiving any benefit from the hyperbolic money printing going on right now is doing so at the expense of others.   So the real estate broker who has seen a "pop" in commissions because the half trillion dollars the Fed has tossed at the real estate market over the last year is benefiting from a temporary and very artificial "pop" in home prices and the related temporary increase in sales volume.  But what about the people who, looking back, will have significantly overpaid for their dream home when this mini-housing bubble collapses?  It's starting to drop pretty quickly already.  Prices from June to now in both new and existing homes have dropped every month since June (See My Article For The Data).  This means that everyone who bought a home in June with a 3.5% FHA down payment mortgage is now underwater on that mortgage.  I have been receiving emails from all over the country from readers describing the same kind of mess that I see all around Denver:  high end homes sitting for months on the market, "for sale" and "coming soon" signs popping up like zits on a teenager and reports from real estate agents that activity has dropped off a cliff in their city.

And guess what?  Interest rates are moving higher and the FHA, in a move that was not widely broadcast, is lowering the size of mortgage it will guarantee in 650 counties across the country.  In some cases this reduced mortgage size will be significant, especially in the mini-bubble areas.  As an example, in Clark County Nevada (Las Vegas) the limit is being reduced from $400k to $287,500.  The FHA finances over 20% of the real estate market, up from about 2% in 2008, and it has filled the void created when the big junk mortgage lenders like Countrywide and Wash Mutual went bust in the big housing bubble.  The FHA move will significantly curtail housing market activity.  FNM/FRE are also getting ready to put the squeeze on loose lending standards, but the changes have been temporarily deferred.  FNM/FRE have their own hidden landmines accumulating.

I'm not a prophet of doom and gloom, I'm trying to pull back the curtain of lies and deceit that has become endemic to our system at all levels, especially as it emanates from Wall Street, the Fed and the Government.

How about the stock market?  This gentleman mocked me by asserting that the stock market was hitting all-time highs while gold was going lower.  Notwithstanding all of the provable facts about the degree the Fed now intervenes in the all of the markets, let's take a look at some surface facts.  1)  Every time the stock market hits an all-time high, it ultimately suffers a massive drop;  2) margin debt recently hit a new all-time high - let's see how that worked out the previous two times in the new millennium:

(click on graph to enlarge - source: greedometer.com)

That doesn't look so promising, does it?  Let's layer on top of that the fact that p/e ratios are currently at all-time highs.  If you strip out the phony mark to market accounting games being played by the financial sector - which represent 25% of the S&P 500 - the p/e ratios are on Pluto;  3) How about that economy?  4.1% GDP growth in Q3, eh?  Well, those who bothered to look beyond the headline nonsense saw that 40% of the headline number is attributable to the massive inventory build that is going on.  This inventory build up is historically unprecedented:
(click on graph to enlarge)

Not only is this inventory build-up 200% greater than at any time in the last 70 years, but it's nearly 400% greater than the average change in inventory.  Even worse, every time the inventory build has spiked up like this, it's been followed by a cliff-drop decline.  There are several other problematic aspects with that latest GDP report which I plan on writing about soon.

My point here is that the stock market is not only at an all-time high and at an all-time level of overvaluation, but it also reflects the extreme fraud and manipulation going on behind the headlines and rhetoric.  Just a few more points of fact:   The U.S. Government debt hits a new all-time everyday;  the number of people receiving welfare hits a new all-time high every day;  the percentage of people who are actually employed on a full-time basis as a percentage of the total population declines every day.

One last point about the economy.  I had forecast back in November that we would have very disappointing retail sales this holiday season:  Holiday Sales Will Disappoint.  I didn't put that out there because I thrive on doom and gloom, contrary to my acquaintance's assertion.  I put that out there because based on the facts that I was looking at, our economy is dropping off a cliff.  Well guess what?  We already know that retail sales were a bust over the Black Friday weekend.   It turns out that last week through Sunday retail sales dropped 3.1% - that's before stripping out inflation - and shopper traffic dropped 21%:  Retail Sales Tank Before Christmas.   Just one note of observation:  to the extent that online sales might be "cannibalizing" mall traffic, it's a fact that online e-commerce is only 6% of total retail sales.  So don't expect a big contribution from online sales reports even though the year over year percentage headline gains will be big.  As I've discussed ad nauseum, the year over year comparisons right now are exceedingly deceptive.

The point of all of this is that I don't feed and thrive on doom and gloom.  What I do thrive on is trying to expose as many people as possible to the truth as supported by the facts about what is really going on in this country.  What is really going on is that our system is collapsing in every aspect:  economically, politically, ethically, spiritually.  And I don't advocate gold because it's a way to make money off of this collapse.  I advocate gold because it's the only I can see that people have a chance of surviving the economic meteor coming at our system.   Anyone who superficially reads the headline business reports or looks at the stock market and thinks things are getting better is not looking at the facts as they exist and the truth as it is.  My only goal is to help people see those facts and then they can draw their own conclusions about the truth.

One last point of fact:  the U.S. dollar is slowly and subtly being vacated by the global monetary system while gold is slowly being re-introduced.  The Chinese are leading this effort but they have a wide array of economic allies supporting the changes being implemented.  Anyone who moves dollars into gold is going to be better off when the transition to the new global monetary system accelerates.  The U.S. dollar, like all paper fiat currencies before it throughout all of history, will be nothing but a museum relic.

Merry Christmas to all who celebrate the holiday - to everyone else who will be going out for Chinese food tonight (a big Xmas Eve tradition in NYC) have a great day off tomorrow.


  1. Dave , You know the old saying, one step ahead your a smart guy, two steps ahead your nuts. I also have been trading paper for 17 years. There is no possible way to create valuation models in this current environment . These markets as you know have been distorted by floods of money and manipulated government propaganda numbers. Your acquaintance obviously has no clue as to the magnitude of what is coming. I know that having bought bullion and property away from any major metro and prepped my family for survival I'm ahead of the curve(sheeple). As for your acquaintance how prepared is he? I say not so much. Thanks, I will enjoy my Chinese tonight. You have yourself a great holiday and keep fighting the good fight. Peace.

    1. I could not agree more. Dave thrives on the truth.

  2. Student loans are the second highest debt with mortgages being first. I'm getting more information of students getting BS degrees in good fiels and can't find a job when they get out of College. They then end up defaulting on their loan(s) and end up sleeping in their car. What if that bubble starts to unravel?

  3. Dave, save your breath with the sheeple. Especially the 50% getting a check from uncle scam or some RE hustler dependent on the Feds suicidal policies. They can't understand because they are paid not to understand.
    thanks loads this year for your excellent analysis and best of luck next year !
    Fellow doomer .....lol

    1. LOL. Have a great holiday season - I think next year could get turbulent

  4. I keep hearing you about the housing drop and wondered about SRS. Is this a good time to get some as the price is around 21 with the 52 week low being 16 and the high 24?

    1. Yes. Don't buy it on margin and leave yourself room to double down if keeps going higher. Then, sit tight and be right.

      When I first shorted DHI at $23.90 area, it shot up over $27 quickly. I added some in the high $26's. How's that looking?

  5. Dave -
    you r not alone in having to deal with the sheep who remain entranced and embedded in the MoneyChangers matrix...here is but one email from a former friend who has turmed his back on real money and real money advocates....

    "let me lay out the facts again

    and now 14

    but none of that matters to you guys because it all 'manipulated'

    what you guys never address is that "manipulated" dont put food on the table----so guys like me have been wiped out as we waited for years trying to hold on to this pipe dream about the value of metal blasting off, the dollar fails, hyper-inflation, riots in the streets and on and on with all that crap spewed since late 07------so now metal is a buck an oz and the market tries to bust 17000-------you people could not have been more wrong in your predictions

    what you dont see is that the guys for the stock market are just like you---they made a fortune and laugh their ass off at us dudes who bought metal at 50 an oz-----now they buying a new suits and guys like me in our 60's are destroyed-------and one day the market will go down and metal will go up----big deal-----by then guys like me who tried to hold on for a decade will be wiped out so it wont matter

    the facts are the market goes into 2014 roaring and metal aint worth shit and going down----but the metal guys, like Krugman said, will never admit how wrong they were

    yeah, at the end of 07 metal dudes saw the market trying to bust 17000 and metal at 19 an oz by 2014---man, who they kidding?

    so if 2014 is just more of the same crap a whole new boat load of guys like me will have lost everything and be working the rest of their lives trying to pay their PG and E bill

    fact: it's 2014 and metal is 19 an oz and the market wants to pop 17000

    constantly saying "manipulated" to the guys like me who have now lost their life savings on this fiasco means nothing in the face of reality---the bills still have to be paid------what good does "manipulated" do me in 2014?

    but I already know the response------somehow it's the guys like me who went broke are at fault----and the metal guys will argue the same stuff they argued since 07----the fact that reality is so bitterly different for us guys in the trenches means nothing to them

    1. It's a mystery to me how you (or anyone else) could have "lost their life savings" when both gold and silver remain at solid levels. Should they be trading higher? Sure. Are their prices manipulated? Yes. But no one who has bought bullion – even at their tops – has come remotely close to losing everything.

      Now, if you made the mistake of putting every penny that you had into them, and have no income stream from which to support yourself, then you made a foolish mistake. The only real question was always going to be "when", not "if" metals will appreciate dramatically.

      Finally, while all holders of bullion can empathize with your frustration, we are living through a remarkable and unique economic period, and no matter how clear the fundamentals may be, it is folly to imagine that trades can be accurately timed.

  6. Having Chinese at the in-laws tonight-- a family tradition. Merry Christmas and all the best to you and yours Dave! You are not doom and gloom, you are honest and straightforward.
    Justin from Canada

  7. "Sunday retail sales dropped 3.1% - that's before stripping out inflation - and shopper traffic dropped 21%". Is it really possible that with only 80% as many shoppers, sales could have dropped only 3%? Something is statistically amiss, IMHO (and don't tell us it is because everyone was shopping on line)

  8. Colossal Fraud-There are No Free Markets-Rob Kirby

    Financial analyst Rob Kirby says, “There is colossal fraud and price control going on. There are no free markets.” Kirby goes on to say, “What we’ve seen over the last six months is a ramp-up in interest rate swaps to the tune of $12 trillion . . . . What the build in these interest rate swaps is achieving, it’s stemming the rise in interest rates.” Kirby, who has 15 years experience in trading derivatives, says these complicated derivatives overseen by the U.S. Treasury control the price of virtually everything. Kirby contends, “I refer to this as a price control grid. They are able to dictate and arbitrarily set the price of all strategic goods in the market, whether it’s capitol, whether it’s energy or whether it’s precious metals.” As an example of control, Kirby explains, “We have 10-year U.S. bond rates under 3%, and I would say the United States is actually insolvent, and we have countries like Greece where 10-year bonds are yielding over 9%.” When does this end? Kirby points to the finite physical gold market and massive Chinese global buying for a clue. Kirby says, “When China doesn’t get their gold, that’s when this ends, and that might be when we have a war.”


  9. Very difficult to understand the economic system.