The post-election run-up in stocks was fueled purely by “hope and change” energy. Now that Trump has assumed the mantle, reality will hit like an icy shower. The non-“alternative facts” about the economy continue to show contraction in real economic activity. The retail sales report for December was an utter disaster, especially if you strip out gasoline and autos.
TND Guest Contributor: Dave Kranzler
The price of gasoline rose in December, which raised the nominal level of gasoline sales but inflation-adjusted is another matter. With autos, as it turns out based on measurable dealer inventories, a large portion of the auto “sales” were deliveries to dealers financed by “floor financing programs” and not actual sales to end-users.
I found a curious chart and commentary in today’s “Daily Shot.” I love this report because the author wears rose-colored glasses and puts a positive spin on any and all U.S. data. Today he had this graph:
This was presented as a positive. But let’s review the facts. It took $4 trillion in money printing – over $2 trillion of which went directly into the mortgage market – a few trillion in Government subsidies to the housing market including the bail-out of Fannie Mae and Freddie Mac, the artificial imposition of record low interest rates and the re-stimulation of the subprime mortgage market in the form of Government-backed FHA and VHA mortgages in order to move the single-family home turnover rate back up to the “long run average.” Think about that for a moment: it took several trillion dollars of direct housing market stimulus to move the needle on the home turnover rate up just a couple percentage points to its “long run average.”
But what happens now? Now that interest rates are rising, the printed money has worked its way through the system and mortgage default, delinquency and foreclosure rates are beginning rise again, what will happen to the line on that graph? Of course, it will head south – quickly and likely below the low it hit in 2010 – unless the Fed re-ups its money printing and the Government throws even more subsidies behind housing. But all that is going to do is put people into homes who otherwise can’t afford them.
The Philly Fed business outlook index hit a 2-year high, however, the prices paid sub-index drove a large part of this at it soared to its highest level since Feb 2012. In addition, the “expectations” for prices received dropped. This would imply that gross and profit margins are expected to drop. In addition, the average workweek sub-index dropped.
Now, there’s two big caveats with this reports, and of course the mainstream media and even ZH did not bother to peruse the entire report from the Philly Fed website but SSJ did bother. First, the survey used to construct the index measures primarily future expectations. There’s clearly a high degree of “hope” associated with the Trump stock market rally. I expect a big reversal of this sentiment over the next three months. Second, the Philly Fed incorporated “new seasonal adjustment factors” into the report. This was disclosed in the actual report for January. As with all seasonal adjustment calculations, the Philly Fed does not disclose its methodology for calculating the adjustments but they are likely designed to overestimate seasonal factors and therefore overestimate the index level calculations. – From the latest Short Seller’s Journal
In the latest Short Seller’s Journal, I take apart the latest economic hopium-infused economic reports and provide several short-sell ideas to take advantage of facts, which will eventually emerge and take stocks lower. The “air” leaking out of the Trump bubble and it will translate into many profit-making trades in the stock market from shorting stocks or buying puts. The SSJ is a weekly report dedicated to helping subscribers make money on the historically overvalued stock market. You can subscribe using this link: Short Seller’s Journal. It’s monthly with no minimum time commitment.
# # # #
About Dave Kranzler:
I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my website Investment Research Dynamics. Occasionally, I publish on Seeking Alpha too. As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.