Friday, August 21, 2009

Run Forrest Run!

Before I get started I wanted to make an announcement: The Housing Time Bomb was just officially approved to be a contributor on Seeking Alpha. Here is the link to the last article that got published(Yesterday's post). I want to thank Economic Disconnect for getting this ball rolling. I was notified this week by Seeking Alpa's editors that they would be publishing some of my work.

Seeking Alpha has been rated the #1 financial website on the net by a variety of publications. You can click on the "follow me" button over at SA if you want to start reading me over there. They have a rather large comments section. Thanks for everyone's support of the blog, and I look forward to working with Seeking Alpha!

It was another Ponzifest on Wall St today as better than expected home sales took stocks to new highs.

There was also a negative side in this report: Home inventories failed to shrink as more condos were dumped onto the market. This part of the news of course was ignored as Wall St's bubble making machine rolls on!

I find it amazing how the street can tune out all of the bad news and take stocks higher based on one meaningless data point. What the bubble boys need to realize is the housing crisis will continue as long as inventories are bloated.

This home sales bump should have been expected as many buyers took advantage of the $8000 first time home buyer tax credit.

I spoke to a mortgage analyst today who explained to me that this is where the big jump in sales is. Basically this boost is nothing but first time home buyer's buying low end 1-300k houses.

I fail to see why the street is so giddy about this recent bump in sales.

Anyone stuck in a bubble loan at 600k and up is still basically screwed because most buyers are no longer able qualify for mortgages that are needed buy these homes.

The lending products that were used to purchase homes at such high prices are no longer available. This is why inventories at the high end still stand at around 20 months or so.

The analyst I noted above also shared with me that he is extremely concerned about what happens to the housing market after October 1st when this tax credit expires.

The thought of the tax credit disappearing at a time when real estate seasonally slows down anyway probably sends chills down the spines of the Realtors. I can hear the crickets now!

I understand the government's premise behind stimulus deals such as the home tax credit and "cash for clunkers". The problem with such programs is you are stealing future growth away from the economy.

I can't wait to see the car and home sales after these programs vanish. All these programs have done is further burden our consumers with more debt. This is what got us here in the first place!

Is the World running away from our debt?

I don't normally post much from the gold bugs, but I thought this chart was extremely interesting:

My Take:

Some of this article seemed a bit "tinny" to me but the data above is both interesting and frightening.

Other than treasuries, the world is pulling a "Forrest Gump" and sprinting away from our various types of corporate and agency debt.

This is happening because the world isn't stupid. They realize that our market is filled with fraud in the form of asset prices that are nowhere near marked to market.

Banks in this country are allowed to carry loans at "fantasy" prices without any penalty. Our previous accounting standards have been thrown out the window as the fraud on Wall St rolls on.

This reckless behaviour makes the risk of default too high for the rest of the world's taste.

You need to begin to wonder if the Fed might start monetizing the debt if they run out of bidders.

The Fed has claimed that they would never do such a thing. However, based on the graph above, they may not have a choice unless they decide to pull the plug on liquidity which will then trigger a 1930's style collapse. I wouldn't want to be Ben right now: Rock Meet Hard Place!

Its going to be very interesting to see how long the world continues to have an appetite for our treasuries. The Fed announced another $200 billion in treasury auctions this week. We just recently finished up a $250 billion auction week. At this ridiculous pace, we will be selling $5 trillion of treasuries per year! Can you say unsustainable?

The Bottom Line:

At some point, the world is going to say "no mas" as we continue to build trillion dollar deficits. IMO, the Fed continues to arrogantly march this country right into default.

The 10-year was up sharply today as the bond market nervously awaits the results of the next round of massive auctions. You need to be careful in the short term if you are shorting treasuries right now.

A credit trader explained to me that these rises in yield prior to auctions is an "old school" bond game from the '70's. The bond market sells off treasuries heading into the auctions so that the PD's(primary dealers) can buy up whats left of the auctions the following week at a cheaper price.

Then once the auctions get completed, treasuries rise and the PD's turn around and sell the bonds and make a nice profit on the spread.

The bond market is currently extremely profitable for the PD's as long as the appetite for treasuries remains high. If yields start to steadily march higher then they are going to be in a world of hurt. However, so far, the auctions have ran fairly smoothly except for a blip or two.

This has made bonds extremely profitable for the PD's of Wall St.

Remember folks: Never underestimate Wall St's ability to find a game that can make them billions. This is a classic game that's right out of the old playbook.

Shorting treasuries via TBT before the announcement of the auction results at 1:00 PM is a nice play when you see a moonshot in yields leading up to the auctions. This trade looks like its setting up nicely after today's move in the 10-year.

Long term however, this action in bonds is not sustainable as the world prepares to pull a Forrest Gump and runs for the hills.

Disclosure: Short treasuries via TBT in long term accounts.


Anonymous said...


You still holding on to SRS? I am thinking of adding a new position soon. Just waiting for a good entry point.

Jeff said...


Unfortunately yes. That nightmare still lurks in my portfolio. I would strongly advise shorting the iyr via puts instead. I wouldn't hold srs for more then a daytrade. The slippage is terrible. There have been several warnings around these etfs being trading vehicles vs long term holds. That being said commercial shorts look more juicy by the day!

Herb said...

Hey congrats man!

I have the feeling that the $8k tax credit for purchasing a house will be back next year (and perhaps at a higher number). Its going to be politically very hard to take that away.

Jeff said...



I heard the heard the housing industry wants it raised to 16k. Everything I am hearing is its over in october.

They could very well bring it back next year. Especially if housing is sucking wind!

Tom said...

Hi Jeff
Congrats on the new site. I am sure you will have a lot more readers. I hope you keep this site up it is a lot more pleasing to the eye and senses.

Jeff said...



Don't worry. This site is going nowhere.

All I do is copy what I write here and submit it to Seeking Alpha.

If I do something special for them I will always copy it here.


CT-Hilltopper said...

Glad to hear that.

I'm all for moving up, don't get me wrong, it's just that I like this site so much better.

It's much easier to read, like Tom said, and we kind of have a little family of posters here, of a sort. It's kind of a shame to lose all of that in the name of progress.

Leave it to me to think of all the sappy crap! LOL

BTW, we were speaking about computers the other day...I was shopping in Wal-Mart about two weeks ago looking at computers when I was in the market for one, and there was a Dell Inspiron i537 there for for $498. I decided to go to Best Buy and found a higher end Acer for less money and went with that.

Well, imagine my surprise when I went back into Wal-Mart today, and the same Dell desktop computer was marked down to $298. I couldn't believe that, so I pretended that I was interested in it, and I asked one of their people to scan it to see if the price was right. Sure enough, it scanned for $298.

Imagine that!

Herb said...

Windows 7 will be coming out in a few weeks, so maybe they were just clearing inventory.

Jeff said...


I love our community and this site is my first priority period.

Congrats on the computer! Deflation can be good!


FA in CA said...


I'm still dropping by from time to time as I catch up with the other 10 blogs I follow.

Good luck all.