"Lights Out" On The Housing "Recovery"

I'm not a Rand Paul fan, but he made a comment yesterday that makes complete sense:  (to paraphrase) If Obama likes Obamacare so much, why doesn't he voluntarily enroll in it?  To that I'll add:  Everyone in Congress is exempt from Obamacare as well.  Any Congressman who voted for it should have to enroll in it.  I'll also propose this:  how about everyone in Congress doesn't get paid until the Government ratifies an official budget - something that hasn't been done for several years now - and come to an agreement on the debt ceiling.

 Yesterday's new home sales report for August and today's pending home sales report for August further confirms that the "housing recovery,"  which I prefer to call a "dead cat bounce," has run its course.  While new home sales for August were reported as a healthy "gain" over July in the headlines, when you analyze the details the data shows otherwise.  In fact, July's plunge in new home sales was revised even lower.

I review the August data - along with a quick overview of KB Homes quarterly earnings report - which further confirms my thesis in this article published by Seeking Alpha:  Lights Out For The Housing Recovery.

In addition, the National Association of Realtors released its Pending Homes Sales Index for August.  This index supposedly tracks future home sales based on contract signings.  It was reported to be down 1.6% for August.  This is not a good sign because typically August is the second or third biggest month seasonally for home sales.  The fact that contract signings dropped like this in August is a very bad sign.

Speaking of "signs," I'd love to know how the NAR calculates its inventory of homes report.  I say this because I've noticed over the past 6-8 weeks that there has been a literal avalanche of "for sale" and "coming soon" signs posted all around the metro Denver area.  The NAR must "seasonally adjust" the listings that get reported to it.

I travel pretty much along the same routes from central Denver to south Jefferson County every week and every few days I notice more and more "for sale" signs posted.  To me it's a sign of desperation when a homeowner or a home-flipper puts a home on the market right on the cusp of the slowest seasonal selling period of the year.  My observations lead me to believe that the NAR reported inventory numbers are substantially off the mark.  Perhaps intentionally to create the illusion of low inventory.  Whatever the case may be, there's a lot of homes in Denver that are on the market that were not on the market in June and my observation stretches across all neighborhoods in terms of demographics.

I'm sure the Fed knows everything I've just stated and I'm sure that the probable re-collapse in the housing market played a tertiary consideration in their decision to not taper.  Of course, big bank solvency and Federal Government solvency are the primary and secondary considerations, with most of the emphasis place on the "primary" factor.

The Denver Gold Forum - Get Ready For Lift-Off

We are in a totally irrational market. Investors are throwing money at the major exchanges so they can capture the very last 2% of the climb but totally ignoring the best run and most potential resource shares out there. This situation isn’t going to last for long. Investors will wake up, they will see great value in stocks and they are going to make gains they never dreamed of before.  -  Bob Moriarity, 321gold.com

The Denver Gold Forum is held every September and is considered to be one of the most prestigious gold and silver mining stock conferences in the world.  It attracts mining investment professionals from all over the world. The cost to attend is too high for me to justify attending the entire show, but I always try to set up off-site meetings with the management of the mining companies we own in the fund.

Yesterday I met with the top brass (CEO and the Co-Founder) at Exeter Resources (XRA) and the CEO of Alamaden Minerals (AAU).  Without going into the details specific to each company, let me just say that based on what is going on in terms of resource development at each, the stocks are very cheap at $1300 gold as "value" plays.  They are 5-10x home runs if gold does what we all know what it is going to do.  I'll leave it at that and you all can do your own due diligence.

I did happen to post an article on AAU last week on Seeking Alpha, which you can read here:  AAU Is An Early Christmas Gift.  I will update it eventually based on my conversation with CEO Duane Poliquin.  But after an in-depth discussion of the potential size and quality of their primary resource in Mexico, AAU is easily worth over $3/share in the context of today's price of gold.  As for XRA, it is sitting on one of the largest untapped gold reserves in the world (30 million ounces) down in Chile.  If the price of gold does what I think it can do in the 12-18 months, it is highly likely that a major producing gold company like Goldcorp will take out XRA at a hefty premium to yesterday's closing price (76 cents/sh).  In the meantime, XRA has nearly 50 cents per share of cash on the balance sheet and a slow burn rate.

Having said that, both companies independently commented to me that this year's gold forum was the most well-attended in the history of the conference.  I found this quite surprising, considering that the market sentiment toward gold, silver and the mining stocks is near all-time lows.  XRA specifically said that their one-on-one investor meeting schedule was fully booked this year, vs. last year when it was completely empty.  

Both XRA and AAU told me that the majority of the attendees - aside from the usual bankers, analysts and mining stock fund analysts - were "generalist" fund analysts, meaning analysts and portfolio managers who run the large macro-oriented diversified institutional stocks funds.  They said that this cohort of investors was there because they think the mining shares have become too cheap relative to their fundamental value (ya, no shit) and that these large macro funds are looking at taking their allocation to the sector up significantly.

One of the primary components of my investment thesis for this sector has always been that eventually the big institutional investment funds would significantly increase their allocation to the mining shares - as in from almost nil to at least 5%.  Let me put the size of this capital flow into perspective.  There's roughly $17 trillion in retirement assets.  5% of this is $850 billion.  The combined market cap of every publicly traded mining stock - in total - is less than the market of each of the individual top 10 companies by market cap in the S&P 500.  So, for instance, the market cap of Intel (INTC) is roughly $117 billion.  Imagine the affect it will have on the smaller cap mining shares when some part of that $850 billion starts to buy into these companies, at least up to the point at which they are no longer "value" plays.  I know that AAU, for instance, is fundamentally worth $3/sh at $1300 gold.  What is it worth at $2000 gold?

One last point, for those of you who are not aware of this fact:  since the Fed started QE in 2008, gold and silver have been the best performing asset class.  Also, since the FOMC announced last Wednesday that it was not going to taper, gold has outperformed the S&P 500.  In fact, gold is up 1.4% since then and the SPX is slightly negative.  I know both facts don't seem likely, but that just demonstrates how bad the sentiment is toward the precious metals.  Historically, when the sentiment is in the gutter for any asset class it, has been the best time buy into that asset class with both hands.

The Brain Damage Continues

I see the Einstein Foundation at Bank of America is now forecasting a taper in December of $10 billion.  I guess they expect that the unemployment will be below 6.5% by then?  Doubtful.  They just suffer from irreparable brain damage.

I also see that non-FOMC member James Bullard was on Bloomberg saying the Fed could taper by $10 billion in October.  The part that's being left out of the headlines is that he said "if the economic data warrants it."  Thanks James.  Thanks for regurgitating the message that Bernanke already gave us on Wednesday.  What a f#cking waste of time Bullard is.  Can someone please hand James mop and a bucket so he can wipe up his mess.  Thankfully Fed officials are not paid by the taxpayers.  Unfortunately, the mental midgets are Bank of America indirectly are being fed by our tax dollars...

Perhaps James Bullard and the brain trust at Bank of America are better suited to join the Obama supporter behind the counter at obese America's favorite fast food joints:

Have a good weekend.  You all better enjoy what you can, while you can, as much as you can - it's going to start getting very "bumpy" for everyone except the top 0.5% soon.

Brain Damage - And, Uh, QE Is Working (I'll Explain)

The Fed has lost control of the markets and Wall Street economists, media analysts and most blog writers suffer from tragic and terminal mental disabilities.

First off, I'd like to say that I'm really quite amazed at the degree of "surprise" over the FOMC policy statement yesterday.  Anyone who understands the nature of QE and why it's being done knew back in May when Helicopter Ben first mumbled the word "taper" that the Fed wouldn't reduce QE.  Given the response reflected by the media and the fact that 100% of Wall Street's brain trust expected a $10-15 billion "taper," I'd say that every single Wall Street economist is brain damaged.  What he hell are they getting paid for when they get their forecasts so egregiously wrong every god damn week?  Seriously.

And now I'm seeing articles which are reporting that now the big debate is the timing of an eventual taper.  Einstein is credited with attributing insanity to the act of making the same mistake repetitively.  I guess Wall Street, and the media who regurgitates Wall Street's vomit, must not only be brain damaged, but they all must be insane as well.  Analyze this you brutes:   Ben Bernanke said - almost verbatim - that the Fed will reduce its stimulus policy when the unemployment is below 6.5%.  He specifically said that  "we are tied to the data, we don't have a fixed calendar schedule" and that a low interest rate policy will be in effect until unemployment goes below 6.5%.  The Fed is tied to the data not the calendar.  Bold, italics, underlined.  If you know how to use google you can find the exact quote from Bernanke's mouth.  If Wall Street's overpaid finest - and paid with taxpayer largesse, I might add - wants to figure out when the Fed will "taper," then they should spend their time figuring out what it will take to get unemployment below 6.5%.  Here's my call:  we won't see that number in our lifetime.

Now I'll explain for Zerohedge, CNBC, Fox Business, Bloomberg News and ALL the severely mentally challenged Wall Street analysts exactly why the Fed is printing money.   Follow the f#cking money.

The Fed is printing money in order to keep the banks - both the domestic too big to fails AND the foreign too big to fails - from failing.  That's the policy.  In fact, I believe that in the whirlwind of wealth transfer in 2008 - led by the Obama Government - that Congress may have even legislated into law the too big to fail idea.

If QE is about the economy and jobs, why is more than 50% of the money being printed going to - and sitting in - the Fed bank account held by the U.S. subsidiaries of foreign-owned banks?  Here's the money trail.   Since "QE" began, the Fed has printed up roughly $2.8 trillion dollars.  I've gone through this exercise in past posts, but here's the updated numbers.  Of that $2.8 trillion,  roughly $2.3 trillion is sitting in the banks' "excess reserve" account at the Fed.  Of that $2.3 trillion, $1.193 trillion has gone to U.S. banks charted in this country.  However, $1.225 trillion has gone to the foreign banks with operations in the U.S.  You can find these numbers in the Federal Reserve Board report on Assets and Liabilities in the United States, Table H.8 - here's the pdf for you:  LINK

I'm not sure I need to state the obvious here, but if QE is all about trying to stimulate an economic recovery, then how come 82% of everything the Fed has printed up is sitting in the "cash accounts" of the banks at the Fed?  The only explanation is that the Fed is engaging in this money printing in order to prevent the banks from collapsing.  There can be no other explanation.  None.  Not to throw salt on the wound but, as I've demonstrated ad nauseum in previous posts, the economy is not recovering.

And this is why I never believed that the Fed would "taper."  Especially after that interest rate spike in May.  I think the Fed actually wanted to extend a token taper, which it knew would have to be reversed, but could not even do a meaningless token amount after Helicopter Ben's mid-May faux pas caused the biggest interest rate spike in 50 years of data.

The fact that they can't even dish up a token taper really says a lot about how bad things are behind the scenes with bank balance sheets. The banks that have a big exposure to interest rate derivatives got crushed when the interest rates spiked up in May. That spike was the biggest spike in 50 years of data. What that means is that bank hedge models weren't even close to predicting that event AND the banks weren't even close to being properly hedged against this mega-multi-trillion dollar interest rate derivatives exposure. 

Think about Long Term Capital. Remember that abortion?  It was "outlier" black swan type market movements that sent LTCM to its grave. That's the kind of market movement we had in May with interest rates in the context of the kind of interest rate derivatives exposure that the banks have when there's an outlier move like that.  There is no other explanation and this is why the Fed kept injecting money into the system that went directly to the banks cash account at the Fed even after Bernanke mumbled something about it being time to pull back on QE.

Here's how it works:  the banks need that $2.3 trillion in cash to put up as collateral against their multi-trillion dollar market-to-market losses on their interest rate (and credit default) swaps.  That keeps them in the game longer and extends the amount of time they have for a divine miracle to come along and save them from completely incinerating from a big nuclear derivatives melt-down.   The fact that the Fed can't even pull back by a token amount tells us that the situation is still unstable and probably getting worse.  You could see that I'm right in the expressions on Bernanke's face and in his eyes when he was giving his post-FOMC press conference.  He's frightened and that's why he's leaving the Fed.

Any other analysis of this is nothing more than sound and fury, a tale told by an idiot.  Anyone who thinks that QE is about helping "main street" and the middle class is severely brain damaged. And, by the way, as long as the banks don't collapse, QE is indeed working.  It will probably take a collapse of the dollar for it to fail, but stay tuned on that one because if you pay close attention to what China is doing with the yuan and with gold, on a clear day you can see the dollar's cliff.

YESSS! I Was Correct Back In June When I Said "There Will Be No Taper"

            

QE to INFINITY!  Ben Bernanke = Buzz Lightyear with a printing press!!!

 Here's what I said in June:   There Will Be No Taper

Just for the record, Zerohedge was adamant for months that there would definitely be a taper.   Let me just say - even though they refuse to publish my work - that they do a great job reporting news, and especially hard to dig out news, but their analytic work functions on a grade school level.
    

Are You Sure You Understand What Your Financial Advisor Has You Invested In?

“This looks like to me like 2007 all over again, but even worse,” said William White, the BIS’s former chief economist, famous for flagging the wild behaviour in the debt markets before the global storm hit in 2008.  - Article Link

That short article is a must-read, by the way.  For those who don't know, the BIS is the global Central Bank of Central Banks.  In the U.S., banks are supposedly supervised by the Fed (we know that's b.s. though).  But the Central Banks in each country are ultimately controlled by the BIS.  Some think the BIS is ultimately hidden "heart beat" of the global power structure.

The quote above is from a former chief economist of the BIS, who was there when the U.S. banking system hit the wall - a de facto collapse that was "stick-saved" by massive Fed printing and a  massive amount of Taxpayer dollars.  You can thank Hank Paulson, Tim Geithner, Ben Bernanke and Barack Obama for handing your tax dollars over the big banks.

At any rate, there were a couple of troubling indicators in that article that might directly affect any of you who have turned your retirement nest-egg over to your "trusted' financial advisor, in some cases probably someone who calls you a "best friend forever" (in the superficial sense, of course).  Truth be told, 90% of all of the financial advisors I've known in my time are nothing more that glorified car salesmen who somehow managed to pass some exams that I passed without studying and could have done in my sleep.

Here's the first extremely troubling thing - aside from the quote above - that Mr. White said:

The BIS said in its quarterly review that the issuance of subordinated debt -- which leaves lenders exposed to bigger losses if things go wrong -- has jumped more than threefold over the last year to $52bn in Europe, and jumped tenfold to $22bn in the US.

What's the big deal there?  You see that $22 billion of subordinated (i.e. risky) debt number for the U.S.  Who do you think funds that?  Most of that is funded indirectly YOU - either via your "safe" 401k bond fund or your "safe" IRA, in which your Einstein-esque BFF-advisor probably has told you he has you well-diversified into U.S. and European corporate bond funds.  Please see what happened to Drexel Burnham to understand what can happen to the price of subordinated debt - hint: it can go to near-zero.   And that number cited by the BIS, in the absence of any meaningful growth in anything other than the global money supply tells me that most of the subordinated debt that your portfolio is invested in is really just junk bonds in disguise.

Worried yet?  If not, this do the trick:

The share of “leveraged loans” used by the weakest borrowers in the syndicated loan market has jumped to an all-time high of 45pc, ten percentage points higher than the pre-crisis peak in 2007-2008...The BIS said investors are snapping up “covenant-lite” loans that offer little protection to creditors.

Let me translate that:  What it means is that the amount of low quality bank debt being issued by an expanding universe of risky companies is now at a level that is 10% higher than it was just before the financial collapse of 2008.  Think about that for a minute.  The "covenant-lite" adjective means that the bank debt and bonds that are being issued offer a lot less protection to investors in the event that the issuer (the company borrowing from you) gets into financial trouble.  By the way, in the search for yield, I can guarantee you that your bond portfolio has exposure to this debt.

In other words, the actual leverage - i.e. financial risk - embedded in the financial system, and therefore embedded in your "diversified, safe bond portfolio" is even greater now than it was in 2008 before the financial crisis hit.  Better think about that one a littler longer and harder.

Finally, Mr. White issued this warning - and it's something you will NEVER hear from your BFF-advisor because it's something that is well beyond his ability to intellectually comprehend - and even if he did he would assure you that it's not the case now:

Mr White said the five years since Lehman have largely been wasted, leaving a global system that is even more unbalanced, and may be running out of lifelines.

"Running out of lifelines."  There's no question we are almost at that point on the global collapse time curve.  The last remaining "lifeline" we be for the Central Banks to engage in outright hyper-printing of their respective currencies.  Oh wait, Japan is already doing that.  I may be wrong about this - and if I am  then it means our system here in the U.S. will soon completely collapse - but the U.S. Fed is probably not too far away from following Japan's footsteps with the printing press.  Or, as Ben Bernanke would say - in a perverted distortion of Milton Friedman's original proposition - "drop money from helicopters.

The engines on the whirly-birds are warming up, regardless of the what the FOMC announces today.  The ONLY way you can protect yourself is to load up on physical gold and silver that you safekeep in your own possession or with a money manager who keeps the gold outside of the banking and financial system.  Capire a tutti?

The Richest Households Live Near The Capitol

That three of the five richest States per capita are located around Capitol Hill should not surprise anyone who has spent any time living in the DC area.  When you walk around DC or drive around the metro area - which includes northern Virginia and the part of Maryland encircled by the DC "beltway" - you can just feel taxpayer largesse oozing from everywhere.  Just like New York City and northern New Jersey have a lot of obvious mafia wealth everywhere, DC has even more wealth connected to the Government, politicians and YOUR tax money.  It really is a truly appalling sight.

As they say, a picture says 1000 words:

This is just another sign that the U.S. is in economic and political collapse.  I really hope no one really wonders how someone like the perverted Mormon, Harry Reid, can enter the Senate with barely a pot to piss in and amass wealth estimated to be at least $10 million during his time there.  I know after taxes and living expenses that Senators don't make a lot of money - legitimately, that is.