NEW TRADES TODAY.
We have a couple of trades today. We are selling BZH, Beazer Homes. We are told that the Housing Sector is recovering. We don't believe it. If housing were really recovering the government, through Meisetersinger Bernanke would not be trying so hard to seduce us back in. Bernie likes the housing prices elevated, because he knows that banks will fail if housing goes lower, and he also knows that all the toxic debt he bought so joyfully and energetically in 2009 will become worthless if he is not able to ignite another housing bubble and have prices soar above 2007 prices.
I am quite sure he realizes gains of 200-300% in housing in three years was not normal, and attempting to return prices to such stratospheres is essentially impossible -- prices zoomed up in the Housing Bubble Golden Age because: 1) Wall Street created exotic financial instruments that ignored the quality of the borrower; 2) the banks created liar loans, loans-guarantee-to-fail, and cheater-loans for House-Flippers; 3) rating agencies such as Standard and Poors (for which they are now being sued by the US government) mis-rated bundled loans (loaded with many of these liar-loans and time-bomb loans, with a few AAA mortgages sprinkled on top) as AAA financial instruments, the highest rating known to man. That is what created our Housing Bubble; and the Fed helped, jacking down interest rates with the vigor of a religious votary at exactly the time it should have been making money MORE expensive, 2001, at the end of the Business Cycle expansion. This was a devilish attempt to lure people into debt slavery at exactly the wrong moment, when the economy was preparing a contraction to last 18 years.
So, how do we mimic all these mistakes in 2013, to make it happen again? The fact that this seems to be the Fed's goal should tell us how desperate the Fed is. I think they know something about the banks hidden liabilities that they are not telling us.
Is housing back? Doesn't seem to be. New Home Sales seem to be pausing before reversing course, and falling more.
Real housing prices also seem to be considering making new lows. And if the global economy is preparing to vanish again into the waters of recession, how will prices advance during another recession, with workers being laid off, salaries contracting, and prospects for the future getting less and less hopeful. Americans need cheaper housing, not inflated housing prices, backstopped by Fed money printing that destroys the US Dollar.
Mortgage Bankers Association Purchase Applications do not show any recovery happening in US housing. We know that the Fed is greasing the wheel for institutional investors (hedge funds and private equity funds) to buy bundled mortgages of abandoned and foreclosed housing in areas hurt badly by the Housing Bubble collapse, but we do not see any substantive return of Americans to the American housing market -- and we will not for another decade.
Here is the Fed's own estimate of where they expect America's housing prices to be in 2015.
Is the economy recovering? Yesterday I presented three US manufacturing charts that showed contraction continuing. The labor force participation rate show a bad situation getting worse -- no matter what the cheerleaders on television tell us about 'recovery'.
Growth in non-farm payroll jobs can't keep pace with the growth in Americans forced to use food stamps in order to survive.
America has quite a few bubbles that still need to burst: bonds; stocks, higher education costs; medical costs. Many students are borrowing money to go to school because there are no jobs. But there will not be jobs when they finish school either probably.
I used to work in academia, at the University of Oregon. In the years of my employment, thirty years, tuition costs increased over 3,000%. Student loans, for many graduating students, were/are in excess of $100,000. Students are defaulting on student loans at an increasing rate.
We have to pop these bubbles. Yes, this will cause pain. It will also cause pain to our lending institutions, and the interest rates are going to go through the roof. If we would have begun raising rates in 2001, we would have avoided all these bubbles Greenspan/Bernanke have given us. We need to learn a lesson for the future. When the Business Cycle of growth ends (1929; 1965; 2001; 2037...), loans need to be grimly DISCOURAGED. When the Business Cycle of growth begins (1911; 1947; 1983; 2019...) loans need to be blithely encouraged. Interest rates have two sides; failure to use both sides leads to catastrophic consequences.
We see that the Fed 'inflation mania' and bond purchase program (QE) has propped up stocks. But it is not propping up anything else.
We read that America's manufacturing is recovering. This chart suggests that is just another 'feel-good' lie.
We read that Europe is turning the corner on her own Debt Bubble collapse. Is this true? No. Greece will apparently exit the EU in the next three months. Spain is reeling under political scandal, as is Italy. Recessions dig deeper and deeper. Spanish banks are going to need more more to protect European banks (world banks). We must remember that all the money spent to 'save Greece' did not go to Greece but to save the banks. Europeans all over the EU paid more tax money into a fund to save Greece that went directly to the banks. Greeks were ordered to fire government workers, cut people off from health-care, raise retirement ages, cut back on pension costs....but all the money raised by Europe for Greece went to world banks to keep them from collapsing.
We read about the currency wars and how Japan's decision to 'spend more' and to devalue their own currency (to attempt to monetize debt through currency depreciation) has infuriated the Germans, especially, and the Europeans. Of course Germany wants to sell cars to Chinese, Europeans, and Americans, and Japanese cars become cheaper and cheaper as the yen falls.
How much is the yen falling. You won't believe these pictures. Against the Chinese Yuan:
The American Dollar has risen against the Japanese Yen:
The Euro has risen against the Yen:
So far, South Korea is the most angry 'trading partner' with Japan. Korea sells cars also, undervalued/underpriced cars that some say are lower quality than Japanese cars. Now the price of Japanese cars are plummeting toward the costs of Korean cars. Korean stocks are sinking. And Korean politicians are demanding retaliation.
We read on ZeroHedge an article they lifted from the Telegraph:
This is a near copy of the remarkable experiment in the early 1930s under Korekiyo Takahasi, described by Ben Bernanke as the man who "brilliantly rescued" his country from the Great Depression. Takahasi was the first of his era to tear up rule book completely. He took Japan off gold in December 1931. He ran "Keynesian" budget deficits deliberately, launching a New Deal blitz before Franklin Roosevelt took office. He compelled the Bank of Japan to monetize debt until the economy was back on its feet. The bonds were later sold to banks to drain liquidity. He devalued the yen by 60pc against the dollar, and 40pc on a trade-weighted basis. Japan's textile, machinery, and chemical exports swept Asia, ultimately causing the British Empire and India to retaliate with Imperial Preference and all that was to follow -- and there lies the rub, you might say. Takahasi was assassinated by army officers in 1936 when he tried to tighten by cutting military costs. Policy degenerated. Japan later lurched into hyperinflation.
Kyle Bass adds:
"Banks hold JGBs worth 900pc of their Tier 1 capital. Their portfolios would be decimated if long rates punched above 2pc. Japan might then face a banking disaster as well. These are the hard choices that Mr Abe has to make. "
Reading between the lines, we begin to understand that currency wars can lead to shooting wars. Some historians argue that World War II was caused by currency wars.
At least that is what James Rickards claims -- that hyper aggressive devaluation of currencies led to World War II.
Business Insiders come to the same conclusions:
John Butler also writes about the currency wars of the 1930's and the 1970's.
I hope Ben Bernanke understands what he has started with his QE debt-monetization.
TODAY'S TRADES: Our first continues to highlight our T11D Sunmarry 2A trading system.
SELL BZH, Beazer Homes. This is what got us started on housing today, isn't it. Take profits. Long-term trend is still positive
The trading system we highlight today is very much a 'buy dips' trading system -- CGTS FLOW 2. See the two lines in the top pane: the red line, CGTS 112 pre-basic flow, indicates when the dip has occurred; and the brown line, T11D Sunmarry, tells us what the trend is. When the trend is up, and the flow is down, we buy. When the T11D Sunmarry trend breaks down, we sell.
BUY VPHM, Viropharma Inc.
CGTS FLOW 1, a modification of the above trading system, is giving a buy signal of BBRY, Blackberry.
Best good fortune in a time of trouble.
Michael J. Clark, CGTS