Housing Market Update - Pulte Home's Misleading Earnings - Short Homebuilders On Every Bounce

The housing market bulls never cease to amaze me.  Pulte Homes pulled a brazen earnings management stunt in their Q3 earnings reported yesterday and now I've got some former Big-4 accounting firm audit geek harassing me about my interpretation of accounting guidlines.  It's hilarious.  I couldn't resist but point out that it's the big accounting firms that tend to go under after they've been prosecuted and found guilty for aiding and abetting accounting fraud.  Anyone remember Enron?  That's why what used to be the Big 8 is now the Big 4.  In order to prevent further embarrassment to the highly paid regulators who are supposed to oversee the accounting standards being applied, the FASB and the SEC just made the accounting rules and standards significantly more liberal and  more open for a very wide range of "opinion."

At any rate, I never expect to leg into a short position at the very top of a trend - especially when I take short positions in volatile stocks with a high level of existing short interest in them, like the homebuilders. I always give myself room to double down - or "double up" in the case of shorting.

The homebuilder stocks spiked up dramatically on the back of what I consider to be very questionable net income numbers reported by Pulte Homes yesterday.  You can read my analysis of the situation here:  Pulte Home's Earnings Management Game

Remember as you read this, my analysis is in the context of my view that the housing market is in a long term bear market that started in 2006-2007.  The homebuilder stock bear market actually began in mid-2005.  What have seen in the last 18 months or so is a small "dead cat" bounce that was fueled by a couple trillion dollars in direct housing market stimulus by the Fed and the Obama Government.  Now this stimulus has run its course, the demand "pool" of available buyers has largely been depleted and the bear trend in pricing and volume is about to resume.  It will be a very cold shower for a lot of people who use "hope" as their investment strategy.

Have a great weekend.

Existing Home Sales For September: The Real Decline Is Worse Than The Headline Reports

The National Association of Realtors released its report on September existing home sales on Monday this week, which showed that on a seasonally adjusted, annualized basis existing home sales dropped 1.9%. However, a look behind the "adjusted" numbers shows a much bigger decline in existing home sales and a housing market that is fundamentally in trouble.

In fact, quite frankly there's quite a bit of misleading information that has been communicated to investors and observers via the headline reports and the television media sound-bytes.  Not only is the market for existing home sales now in decline - independent of seasonal factors - but prices are also starting to decline.

I review the data beneath the headlines and analyze the implications in this article published by Seeking Alpha:   LINK

What's even more interesting is that the Government is getting ready to roll out new mortgage market regulations which will tighten the clamps on underwriting standards and decrease the availability of mortgage financing to large segments of the population as well as reduce the capability and willingness of mortgage brokers/bankers to finance riskier mortgage applicants. 

I will be publishing more on this soon.

Record Surge In Treasury Debt

The one day explosion of $328 billion to the U.S. debt load smashed the previous record of $238 billion in one day, set two years ago. These are figures that would normally be seen in banana republics.  - Goldcore.com (LINK)

Well, I certainly was way off the mark on my prediction for the outcome of the Broncos/Colts game last night.  And the comments on the blog post were sure to let me know it!  But the game attracted a lot of interest, as it posted the highest tv ratings for an October football game in 15 years.  It also was NBC's highest Sunday night prime time tv rating since February's Academy Awards.

But I digress with useless boob-tube trivia there...The most interesting data point of the last week was the one-day jump in the United States' Treasury debt outstanding, which soared by $328 billion the day after the debt ceiling agreement was reached.  Hell, the ink wasn't even dry on the deal and the total amount of Treasury debt increased overnight by 2% (source: www.treasurydirect.gov, edits in red mine):

Given that there were not any Treasury auctions held to sell more debt, the only way I can think of that the debt loaded exploded like that is that all of the funds borrowed from places like the Federal pension fund and the Social Security Trust - you know, the accounting games that Jack "I'm A Thief" Lew referenced back in the spring - were converted into Treasury IOU's aka Taxpayer liability Treasury bonds.

But that's okay.  Keep issuing debt and printing up paper money to fund that debt and everything will be alright.  At least that's the message the stock market gave us last week.  In fact, now that everyone knows there's no actual debt ceiling in place for the time being we may as well just borrow and print our way into nirvana, right?

While Obama gets on television and lies through his teeth by telling us he's cut down the size of the deficit, in reality the amount of money borrowed over the last 5 months - funded by $400 billion in borrowing since May - actually implies deficit spending at an annual rate of $960 billion.  However, the last 5 months also include some one-time, non-recurring payments back to the Treasury from Fannie Mae and Freddie Mac.  So, in reality, the deficit spending "ex" those payments is back on track to be occurring at a rate well in excess of $1 trillion.  It also means that over the next 12 months we can expect the debt outstanding to approach, if not exceed, $18 trillion.   Still feel good about the latest agreement between Harry Reid, John Boehner and Barack Obama to kick that old can down the road?

But hey, at least there's not a debt ceiling limit in place right now so at least the Government can fearlessly issue the amount of Treasury bonds required to fund that deficit spending - even it the Fed has to print the money to make it happen...

Broncos vs Colts: Take Denver And Lay The Points

Manning goes back to Indianapolis to deliver a Mile High butt-kicking and let the city know it was a mistake to get rid of him:

Denver wins 45 - 21.  Game is over by the end of the 3rd quarter.

The Budget/Debt Ceiling Bill Potentially Eliminates The Debt Ceiling Limit

Paper money eventually returns to its intrinsic value – zero.  (Voltaire, 1694-1778)

Often rather quickly, I might add to that nugget of wisdom.   Unbeknown to most people in this country - and certainly not reported in the mainstream media - is a Provision buried within the Continuing Appropriations Act of 2014 that - in effect - gives the President the ability to unilaterally waive the debt ceiling limit.  Although Congress can override the President's move to lift the debt ceiling entirely, it would take a 2/3 majority in both Houses of Congress to block the action.  That just would not be possible for all practical purposes.

It's amusing because when I first saw the news that a deal had been reached, I spent time scouring the internet to see if I could find out the new debt ceiling limit - i.e. how much more deficit spending could occur between now and February 7, the next drop-dead date.  I could not find any numbers.  Now I know why.

It looks to me, based on reading the Bill, that Harry Reid and Lisa Murkowski, who is on the Appropriations Committee, slipped the Provision into the legislation at a late stage in the game, when they realized that Boehner had caved in and the world was begging the Government to avoid default.  I would bet a lot of money that probably 90% of the Congressmen who voted "yes" on the Bill didn't even know that the Provision was in there.  I can guarantee that as fact.

In addition to this, there is no specified limitation on the amount of debt that can issued between now and Febraury 7th, when supposedly Congress reconvenes to vote on extending the debt ceiling limit.  But now it appears as if February 7th is a meaningless date.

In essence, while most people feel a sense of relief over the passage of the Bill enabling to Government to pile on even more debt, the cold reality is that the legislation is a ticking time bomb for the U.S. dollar and it sets up the next stage of systemic collapse.  I wrote an article for Seeking Alpha which lays out my analysis, which you can read here:  LINK.

The truth is, the U.S. political and economic system is now akin to a runaway freight train in which the brakes have failed and it's headed toward a gorge where the bridge has collapsed.

Obama's Frankenstein

First, as a follow-up to yesterday's post, I'd like to comment that I find it truly amusing that the stock market has shot up over 1% today on the fantastic news that Congress has reached a deal that will give the Government the ability to ramp up spending deficits and debt outstanding for another four months.  I guess when you're trapped in a speeding car with no brakes and headed for a cliff, you may as well celebrate and make whoopie until the car goes over the edge...

I wanted to present an informative piece about Obamacare, written by a doctor who seems to have caring for her patients as her only real agenda.

Before I link the article, what I would love know - and I wish one of the media's zombie-like reporters would directly ask Obama this question and not give up until he gives an answer - is whether or not Barack envisioned that most big companies would downsize as much as possible their labor force from full-time to part-time in order to shed the cost of providing health care onto the individual and the Government.  As  the non-farm payroll data has shown - and for as manipulated as the numbers are, the Government can't hide the fact that big companies are shifting their workforce from full-time to part-time jobs - the percentage of part-time jobs vs. full-time jobs in the economy has increased this year.  And overall the percentage of people who are actually counted as part of the labor force is at 30-year lows.

I guess what's most ironic about Obamacare is that - despite the El Hefe's claim that Obamacare would create jobs and cut the cost of health care for everyone - full-time jobs are being shed and, as you'll read below, the cost of health care for most people is going to go up dramatically while the quality declines.  You'll also note that doctors are now rolling out what is being referred to as "concierge," fee-for-service practices.  In other words, for those who can afford it - and that's a very small percentage of the population - doctors will set up practices for those who will pay out of their pocket for superior health care.  I wonder if Obama saw that coming...

In addition, the cost of implementing and rolling out Obamacare has already far exceeded what we told it going to cost the taxpayers.  Obama is one of the best natural-born liars I have ever seen.

Here's the article which gets the the golden truth about Obama's Frankenstein, aka the Affordable Healthcare Act:  10 Things To Expect From Obamacare In 2014

It's frightening to contemplate that there's people in this country who still approve of the job Obama is doing.  But it's truly horrific to think about what Obama and his Monster are going to do to our system and way of life.

This Sure Isn't The America I Grew Up With

I just can't believe that the average American looks at the stock market and says, "this country is in great shape - just look at the Dow."  There is no way that the public is THAT stupid or blind.

The increasing degree of corruption in our financial and political system continues to blow my mind.  Every day I uncover new evidence and facts about just how rotten to the core our system has become.  What's even more staggering is that the average American just "turns the other cheek" and let's it happen.  The Government has zero opposition to its frightening move towards a Totalitarian State.

And this stage show going on DC between Democrats and Republicans is nothing more than idle entertainment.  MTV for the political class and for the masses who are glued on a daily basis to the farce that is disguised as news being broadcast on Fox News, CNN, Bloomberg and CNBC.  Amazingly to me, intelligent, educated adults just stare and absorb and accept.  It's Huxley's "Brave New World" unfolding before my eyes.  What passes for "news" and accurate reporting of the facts is a complete insult to the intelligence of the few of us left who have the willingness to question what's happening and to grasp the real truth.  The truth is that this country is collapsing.

Whatever you want to call going on in DC right now, it is an unmitigated fact that the end result will be an even bigger disaster for our country.  What really staggers me is that Americans are pounding the table for a resolution to the budget and debt ceiling impasse.  For what end?  So that the Government can continue its deficit spending and INCREASE the ability to print money and create more debt in order to fund that spending.  It's the equivalent of the chickens in the barnyard cheering for Colonel Sanders - on their way to the slaughterhouse.   You got that America:  anyone who is supporting either Party in this DC debate is no better than one of Colonel Sanders' chickens - about to be fried and eaten.

I was having a discussion with a friend earlier this morning about what's happened to this country:

It's amazing how robotic Americans have become - Huxley's brave new world is here.  What irritates me the most is this insistence and widespread acceptance that you have to be "socially/politically correct."

The people running the show behind the scenes - the true elitists - were brilliant in choosing a black man to be President.  His policies are more fascist than were Bush's but you can't disagree with Obama or you risk being labelled "anti-black."   I had that aspect figured out right after he was elected in '08.

You can't name one campaign promise Obama has fulfilled other than Obamacare, which is going to probably be - ironically - the sledge hammer (not straw) that breaks this country's back.

And if you think I'm wrong about our country slipping into Orwell's or Huxley's vision for our future back in the 1940's, just think about the significance of these current images of our country:

"Of course, things are a bit different now since we became a nation of overfed clowns dedicated to getting something for nothing, but despite the abject futility of American life in its current incarnation, there is room for plenty of violence and destruction. The sad and peculiar angle of the current struggle is that both sides in government wish heartily to keep all the rackets of daily life going — they just disagree on the distribution method of the vig."  James Kunstler: Creepily Close