Karl Denninger

Housing Is Not Recovering - Surprise, Surprise

Get the HP12C out guys.

A move from 5% to 12% on mortgage rates basically cuts in half the financed amount for a given payment on 30yr money.

That's reality, and that's how valuations (what people can afford) ends up working when it comes to home prices.

GM: Are We in Looneyland?

On Jun 03 04:28 AM Mark Anthony wrote:

> Karl:
>
> I was hoping for getting 100 shares of GM at 2 cents for souvenir.
> Oh well now I have forever lost the chance to obtain some souvenir
> share of GM.
>
> You still have not told us precisely what position you were shorting
> up to your neck. The past few months have been some of the best bull
> months in history and you were all shorts and no long?

Where did you read that? From a disgruntled, banned ex-forum member?

I was long in size from within 10 pts of the 666 low up to around the 870 level in the SPX, where I started selling out of positions. There were a number of clean doubles or more taken, with many others radically up as well (e.g. TXT, AA, even BAC and C believe it or not.) The archive of my daily market commentary is in "Ticks" on Tickerforum, available to gold donors. Those threads never die; they are literally blow-by-blow comments on nearly every trading day, and most of the time - unless the market is just being too nuts for me to trade and type at the same time - I post when I do things. There is also the nightly video that I put out but those aren't kept around simply due to the filesize (~300MB/day is the usual across the various formats.)

At present I am lightly net short (~10% of risk capital) but not committed to the position; on a RISK basis the long side of the trade is over. That doesn't mean the market can't go further - it simply means that you're now trying to chase something that has run the majority of its course, which is nearly always a bad idea. I'm short-term position trading (down to daytrade time frames) at present simply due to where the tape is; once it shows its intentions I will commit more fully. I want some short-side skin on here as from a technical and fundamental perspective this has simply come too far, too fast and history says that failures from those sorts of parabolic blow-offs can be both vast and fast, making it very hard to find a good entry. If the market tries to take off again north I'll take the positions down and put them back on at a higher price - as of this evening they're roughly flat in terms of unrealized P&L on an aggregate basis.

GM: Are We in Looneyland?

BTW options now that GM is on the pinks are closing-trades only.

This will create yet more distortions. If you're into playing on the pinks there's opportunity for daytrading there - I have no intention of doing so, but some readers might want to take a dice roll.

Just don't hang on too long :)

PS: I made the mistake of thinking that there would be "recovery value" in the common of MCI/Worldcom back in the day. I have the trade confirms to prove it, and I keep them around to remind me of how eating the crow of a 100% loss tastes.

GM: Are We in Looneyland?

GM has been delisted as of this morning.

The stock is in fact worth zero - not 2 cents. It will be cancelled when the "old" GM winds down and liquidates, which it will following the Sec 363 sale.

I didn't change anything - I said if GM **survives** it would be worth 2 cents based on dilution in the plan filed; in a BK the common is nearly always worth zero, and in this case, a 363 asset-strip, it will be zero.

Trade it if you want, but if you were long the time to sell it was, in fact, right around when I posted that article.

Unless of course yesterday's price - at less than half of when I posted my alert - is somehow "better".

You were banned for refusing to follow the rules at Tickerforum. You can continue to come beat your chest here if you want, but it doesn't change a thing there, nor will it. Ever.

PS: Speculators can and do drive prices somewhether other than their economic value for quite some time. However, that doesn't change the economic value, and ultimately fundamentals always win. There is a difference between investing and speculating - something often lost with a lot of people's perspective, often leading to their ultimate destruction in the markets.

On Jun 01 12:55 PM Mark Anthony wrote:

> Karl:
>
> Now that GM has filed for bankruptcy. And its stock has NOT dropped
> to 2 cents. So you have been WRONG.
>
> Please have some decency to admit that you were WRONG, or at least
> dig a hole and climb into it.
>

GM: Are We in Looneyland?

What makes no sense is why they allowed this to open on the NYSE after the filing was made.

I've NEVER seen that before. Typically these stocks are immediately delisted and re-open on the pinks. That's the RIGHT thing to do.

Forcing buys in a company that has declared bankruptcy as a consequence of index membership is not only idiotic, it's criminal.

General Motors Shareholders: Poof!

How's that GM looking now?

Idiocy of speculators in the short term does not make one's view of the **VALUE** of a stock wrong. My warning was posted with the stock near $2/share in an attempt to keep people from losing their shirts playing what looked like a "cheap stock."

GM is now trading at 87 cents, and Monday it will almost certainly be pink-sheeted - if it reopens for trading prior to being canceled in bankruptcy.

Good Mr. Anthony.

On May 06 11:23 PM Mark Anthony wrote:

> Karl:
>
> I guess my comment is more appropriately posted here. You have completely
> insulted your own intelligence predicting GM drop to 2 cents per
> share. Shouldn't you craw into a hole for making such an audacious
> prediction, which does not turn out to be true at all?

But Cramer Said Housing Would Improve!

Pepe, 28% front end ratio, 36% back-end ratio as a MAXIMUM.

If you're within that, its affordable. The closer you are to those lines the more dangerous it is, but it is MANAGEABLE within those limits.

If you're outside EITHER limit the loan is unsafe.

The banks have known this for more than 70 years, since they tried to play this game in the 1920s with I/O 5 Balloons and similar games and the consequence was mass bankruptcies and foreclosures in the 1930s (gee, you'd think we would have learned from that eh?)

GMAC and Its Impact on Ford

I'm sorry that you're incapable of reading.

Pumping specific stocks is only allowed in specific areas. You failed to follow the rules and lost posting privileges.

As for GM, go read for content.

Finally, I was INVITED onto SeekingAlpha; I don't choose the articles, the editors do from The Market Ticker for content they believe is relavent. The "certified" label is a complience program they run and which I have agreed to.

On May 22 10:21 AM Mark Anthony wrote:

> Karl:
> To be fair, I posted my palladium discussion onlhy on the precious
> metal section of your forum. Palladium is a precious metal as much
> as gold and silver. There was not a more proper sector in your forum.
> You were just narrow minded and when you find you could not agree
> with my opinion, you banned me. I found out that many people believe
> that you simply could not tolerate different opinions.
>
> Once again, on your FIRST Seeking Alpha article, you were NOT prediction
> a GM bankruptcy the next morning. You were prediction that a 100
> fold increase of shares, and hence dilution, will cause GM to drop
> to 2 cents, the next morning. You used frauded math. You were wrong.
> You were unable to admit your mistake in your math. That shows you
> were narrow minded. Admit your mistake publically, and I might respect
> you a bit better.
>
> As for the GM bankruptcy. Had GM been left to struggle by itself,
> it was already bankrupt a year ago. But as long as Obama is not willing
> to let GM go bankrupt it can stay indefinitely till Obama changes
> his mind. So it's all up to how the government decide. Are you going
> to pretend you were a worm living in Obama's stomach and knows what
> his next move is, and hence can predict GM's bankruptcy for certainty?
> You think you are the only one knowing that GM is in deep trouble
> and no one else in the world knows?
>
> BTW how did you obtain the "Seeking Alpha Certified" gold seal with
> the very first Seeking Alpha publication of yours?
>
> seekingalpha.com/autho...

GMAC and Its Impact on Ford

You were banned from the forum for refusing to post your metals-related threads where they belonged - in the metals forum, instead insisting on trying to spam them "above the fold".

You agreed to terms of service and violated them - intentionally.

PS: GM's stock is worthless in a bankruptcy, and what I predicted WAS BANKRUPTCY, which is the triggering event for reorganization. How about we wait and see whether that prediction comes true before we score the report card eh?

GMAC and Its Impact on Ford

I don't think so.

Consider this: The government can make GM's products "attractive", and punish Ford's.

Think they won't? Are you sure?

Hmmm... Carbon tax. MPG limits. "Pelosi Motors" may indeed be more than a bad joke, and the joke could easily be on you.

Its not worth the risk. When you have a triple in a short period of time, into this sort of risk, you take the money.

I really do wish Ford the best of luck. I think they have the best product and best management. But when the government is willing to shred contracts and priority of creditors, what else will they shred, and how dirty will they play?

I may have sold too soon, but if you're late, you get zero, or close enough to it that it is simply not worth the risk.

Obama has made that clear.


On May 21 07:00 PM helilog wrote:

> This opinion ignores product. GM and Chrysler have very little good
> stuff and very little in the pipeline. Ford has lots of good product
> and is getting even better ones soon. People are tired of getting
> 0% interest and/or rebates so they can buy below average vehicles.
> They will pay higher prices at a higher interest rate to get better
> vehicles. It sure has worked that way for Toyota and Honda. It will
> work that way for Ford also. You sold too soon Mr. Denninger.

Go Long Lawyers

Some homedebtors have plenty of assets..... I agree that a lot of them don't, but some do..... of course you do an asset search before you file :)


On May 14 12:49 PM PastTense wrote:

> "From homeowners who lied on applications"
>
> I'm not sure you understand the first principles about lawsuits:
> you only sue someone when 1. the amount you expect to win is significantly
> greater than your legal costs and 2. the defendant has the assets
> to pay you if you win.
>
> These are generally not true about homeowners who lied on applications.

Nothing Suggests We're Anywhere Near the Bottom

Go see my 2009 prediction Ticker - I predicted a 50% trading range for the S&P 500 this year, but I also said that I expect a "5" handle on the SPX this year at some point, and that there will be no real recovery.

Volatility does not equal economic recovery. Indeed, the trading pattern from the bottom implies an increasing rate-of-change, which is not characteristic of recovery - it is characteristic of a parabolic blow-off top built on BS and "animal spirits."

For instruction on what is likely to come next, look at the Chinese indices after they similarly blew off over a year ago, and what came next.

You can't get the leverage back that allowed the so-called "earnings" that drove market prices in the past. That model is broken - permanently - because it was fraudulent at the outset and now everyone knows it.

If you think valuations are reasonable here, buy stock. I'll be happy to sell you some because I don't believe there's a snowball's chance in hell that valuations, especially in the financials, are supportable.

On May 11 03:51 PM Cetin Hakimoglu wrote:

> But the stock market keeps surging. Keep in mind that these indicators
> such as employment tend to be lagging. If the market keeps rising
> and the economy shows more evidence of recovery will you eventually
> concede to maybe being wrong? There is nothing wrong with admitting
> mistakes. iamend.com/blog/
>
> ----------------------...
> We best not go there, because if we go down that road too far Americans
> will be needing all those firearms that they've been buying since
> Obama was elected - not for a revolution, as some suppose, but rather
> for self-defense as our political, social and economic structures
> collapse.

Nothing Suggests We're Anywhere Near the Bottom

Do you realize that paying pensions to firefighters of $200,000 a year from the taxpayer's teat is absolutely unsupportable - and unsustainable?

The fact of the matter is that we OVERSPENT by borrowing at all levels - consumer and government.

The solution for being an alcoholic (debt junkie) is not to mainline some Everclear!

You may not LIKE the solution but that doesn't make it invalid.

When that is the only solution that will work (and it is) whether you like it or not becomes immaterial.

On May 11 02:46 PM notblind wrote:

> Karl Denninger, I know you have a good rep, but unfortunatley, I
> had to file you away under "Crackpot" when you posted the tea party
> videos on your blog.
>
> Its interesting that you talk about the abysmal state of California.
> Just curious, are you even aware that as CA and the country were
> tipping into this recession, the Governor of CA was dead set on a
> negative stimulus policy of balancing the CA budget, and reducing
> spending? Are you aware he was sending state workers home on a fraction
> of their pay at a time when recession clouds were forming.
>
> Now you are surprised that CA is hurting? When the historians study
> the causes of this recession they will pinpoint the Budget cuts in
> summer of 08 as the tipping point into the full blown credit crisis.
>
>
> Karl Denninger you are cheerleading the abysmal state of CAs economy
> while supporting the Tea Party (lets cut all spending, it wont cause
> another great depression) crackpots that would cause in all 50 states
> the same devestation we see in CA.
>
> No credibility.

Nothing Suggests We're Anywhere Near the Bottom

Uh, no it didn't.

I covered that last week - the B/D adjustment and Census hiring account for the "improvement."

Bluntly put, it was false.

The best high-frequency data we have is state sales tax information. It is essentially impossible to game, comes out for each month, and is a pure reflection of consumer spending - 70% of the economy.

So long as that data continues to deteriorate there is no recovery happening - the people claiming otherwise are lying.

On May 11 12:04 PM mplaut wrote:

> A lot of the "green shoots" crowd are encouraged by the fact that
> the DECLINE is SLOWING, not that there is any upturn yet. For example
> the fact that we "only" lost 500,000 jobs in the most recent month
> and not more than 600,000 like we had been doing for several months,
> is a sign that the decline is slowing and that a bottom is NEAR,
> not that it has been reached. The stock market is supposed to be
> forward looking and that crowd is trying to help it to do its job.
> They are not arguing that we have bottomed, but only that the bottom
> is in sight and we are no longer in free fall.

The Case for Getting Short

Mostly because the printing press is a misnomer. You can't solve a deflationary credit collapse with printing of currency.

It'd be nice if they could, but its not reality. If it "worked" we wouldn't still be seeing credit demand collapse and home prices continue to fall, but they are.

BTW see my morning entries - Fannie is doing some truth-telling on the latter point.


On May 08 06:45 AM Iconoclast421 wrote:

> Why bet against the printing press now that we're so close to the
> 200dma? They ran SPX up this far, they'll probably run it up to 955
> at least.