For those of you who claim to be students of market history or are less than 43.5 years old, let me remind you of how housing stocks used to trade.

Way back when, before this new century, housing stocks seldom traded at more than six times earnings. It didn’t matter who they were or where they were located. The deep cyclically of a normal housing market kept the lid on the housing sector for decades.

But in the year 2000, interest rates were taken sharply lower. Then after 9/11 they were taken to 1% and mortgage securitization ramped up to an unheard of level. Housing became the investment of the century and housing stocks took off. They experienced a rare “multiple expansion”. Investors were willing to pay 20-30-40x earnings for housing stocks and the group took off. Just look at the long-term chart of Toll Brothers (TOL) to see what I’m talking about.

When the housing market crashed, most of these stocks traded back to where they began. And now, with some sectors of the housing market coming out of life support, many of these stocks are market leaders, trading at 70x earning and more.

I know you just want to ride a winner, but thinking past the degenerate gambler in you, should housing stocks be worthy of trading at a roughly equivalent valuation as the fastest growing sectors of technology or biotech? Should an industry that is on life support deserve to trade at double the P/E valuation of Lululemon?

TOL has been positive 10 months in a row and is up 130% in that time. Interest rates can still go lower but not much. Does this seem like a smart bet to you? Or is it a great short? Sounds like a great short to me.

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The NYT is spreading negative propeganda. Stop them now!

They talk to Lakshman Achuthan who has been in the recession camp for months. They also quote James Paulson, so it balances out, of course. But the surprise is the guy from S&P Global IQ…

RECESSION NOW

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We are RIGHT NOW in one of those moments when the markets have accepted the realization of reality and is in the process of “pricing it in”.

Each year the first half of the year shows an economic slowdown. Markets sell off to reflect. Then Central Banks pump the cash in time for the Holiday Season and markets rally into the New Year.

Lather, rinse, repeat for the past four years. We are doing the same thing again with a notable exception. How many times do I have to say that this is 2011 all over again?

Yesterday the FED said that there’d be no new QE for now. That is because they have spend trillions training the market that they will be there with Digimoney when needed for the criminal banks and the status quo investor. Because of this strict training, the major indices have not dropped at all, and remain positive for the year, regardless of the shitstorm almost everywhere.

The market won’t drop because they’ll do QE but they won’t do QE unless the market drops (but nobody really believes them). Checkmate.

But economically sensitive individual sectors are being drawn and quartered. First it was materials, then consumer discretionary and now technology. All of these sectors have been market leadership in the past.

It feels as if the markets are stuck in the mud and going nowhere, but we have actually begun a new downtrend that could take us to Dow 11200. And if it happens in October, you’ll have a new President.

 

 

 

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Fly said he’s “Frozen Stupid”. Cronkite reminds us, the mechanisms of Capital Formation are basically halted.

If it weren’t for the Central Banks of the world, the markets would be completely seized at this  moment. But there cannot be another 2008 and so monies will be created out of thin air whenever necessary, like now. This is not bullshit. This is a very large risk should trading get “loose”.

A few weeks ago, most of retail, ex-WMT, warned of a slowing consumer. Now, the all important semiconductor area is warning. This is not bullshit. This is a key risk apparent in the global economy.

There is a major drought in the breadbasket of the country. Crops are drying up and prices are spiking. Is this the “Dustbowl” eighty years later? This is not bullshit. True supply/demand based food inflation is a real danger.

The “economy”, the banking system and the markets feel as if they have been placed in an “Induced Coma”, the kind they put patients in when their body is far gone, but they’ll likely live.

At any other time, markets might reflect the true uncertainty that is obvious, as a wall of worry can only be climbed so high and for so many years. Perhaps it is just the Summer Doldrums and everything will pick up later. But “later” are the months of September & October.

No new monster QE-related rally. No “reality-based” crash. We continue to spin on the wheel, like a hamster chasing his dinner. Enjoy!

 

 

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So, everyone knows that the economies around the world are slowing. Are we currently in a recession? I say yes, this second quarter will be the official start, but you won’t know it officially for six or more months.

Yet, through it all, the Fed Heads and the ECB Members talk about pending Monetary Accommodation if necessary. What does that mean? That the FED will by more bonds, perhaps Mortgage paper.

HOW DOES THAT HELP THE ECONOMY? Does it make housing more attractive. Not a chance.

It helps only the holders of the shitty mortgage paper. And who might that be? Why the fucked up, LIBOR-lying, cheating, fraudulent Banks, of course. Plus it makes sure the Government gets the month to month funding it needs to function.

And that Monetary accommodation will NEVER leak into the real economy. It cannot because it would create real dollar debasement and runaway inflation, a la the Wiemar Republic, and that can never be allowed to happen. And the FED can do this whenever it wants and for whatever amount it sees fit.

So the markets continue to muddle through without much movement outside the trading range. It’s going to be a long summer.

 

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We are trapped in a Groundhog Day-like market environment and we can’t get out. Each year since the breaking of Shadow Banking in the multi-trillion dollar fraudulent financial system, markets have done almost exactly the same thing at almost exactly the same schedule.

In this election year anything in possible. Are you waiting for some insane political posturing? Its here. Do you believe the worlds economies are in trouble and near a systemic failure? They are. Are you looking for governments to save the world? Its right around the corner. And amazingly, the market is in almost the exact same place.

Sure, there has been movement; down 50%, up 100% down 20%, up 30%, down 10%, up 15% etc. But we continue to drift lower and spike higher providing the cushion for the next drift lower, etc. Predictably, we spend the majority of the month flat to higher with spikes up near option expiration and month end punctuated by a couple of terrifying downdrafts that eat away at the cushion. And it happens over and over again.

It’s taken trillions of dollars in free money to train markets and their participants but the markets remain “strong” in anticipation of the guaranteed and inevitable additional free money to keep the status quo alive. Don’t worry about Libor-Gate. Don’t worry about Silver conspiracies or losses by JPM. And you certainly shouldn’t worry about the economic numbers because they are meaningless.

There will be plenty of opportunities in both overall market directional bets and specific stock selection but we should expect that the chest-pumping bulls and the crash-hoping bears will be slowly drawn and quartered as we continue this muddle-through see-saw action that is our destiny.

 

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