Gimme Shelter! Or Not

August 27, 2013

  • Is the housing rally stalling or out of gas? Ritholtz, Amoss and Mayer look under the hood
  • Suddenly Syria matters: An impact assessment on every major asset class
  • Emerging markets whacked: Peter Cooper on a 7% drubbing in Dubai, and Jim Rickards on a new campaign in the currency wars
  • New report projects 3-D printing to triple in five years… and pinpoints when the rally begins
  • End of the road for the “Montana strategy”… why America’s becoming a nation of part-timers… the reason a Canadian reader is staying in America (for now)… and more!

  “Higher mortgage rates have slammed the brakes on the U.S. housing recovery,” our Dan Amoss warned going into last weekend. “But we won’t know how much damage has been done until this fall, after another month or two.”

We got an early-warning sign this morning — the S&P/Case-Shiller home price index, up 0.9% month over month. The rate of increase is slacking…

Here’s the thing about this number: There’s a two-month lag. So what you see on this chart takes us up through June — as the big jump in mortgage rates from below 3.5% to over 4.5% was only starting in earnest.

“Note the mortgages that fund these homes were likely locked in at rates that are considerably lower than today,” cautions Fusion IQ chief Barry Ritholtz. “They predated the large interest rate spike of the summer. It’s reasonable to assume these rate hikes will impact sales and prices going forward.”

  “With bond investors’ confidence in the Fed shaken,” adds Dan Amoss, “we are not likely to revisit the prior lows in mortgage rates.

“The Fed could even remove the plans to taper its printing and long-term interest rates could remain high. The mechanics would be such that the Fed buys another trillion or two worth of Treasuries and mortgages, only this time the transactions occur at higher bond yields. Who says QE always has the power to lower long-term yields? The Fed has been pumping $85 billion per month into the bond market all summer, yet bond prices fell (and yields rose) anyway.”

100  The biggest impact on housing is showing up in the homebuilder stocks since May.

“The iShares U.S. Home Construction ETF (ITB) — made up of U.S. homebuilder stocks — is down 20%,” points out Chris Mayer. As the stock market looks forward, this is a damning view of the outlook for U.S. housing.

“Yet stocks such as Lowe’s and Home Depot are near 52-week highs. I was at the Lowe’s within walking distance of my house on Saturday. It was as busy as ever.

“I still like the idea of owning a house and renting it, but the best time to buy a house for that purpose has passed in most markets. There are still good deals, but you have to work harder to find them.”

  With Washington beating more war drums over Syria, it’s a “risk-off” day.

Stocks began tanking yesterday afternoon around the time Secretary of State Kerry opened his yap. He didn’t say anything we didn’t already know, but the official confirmation set every asset class on a trajectory that’s carried into this morning. As we write…

  • Every major U.S. stock index is down more than 1%, save for the Dow — down about three-quarters of a percent, to 14,833
  • Hot money is fleeing into Treasuries; the yield on the 10-year note has backed off to 2.75%
  • Hot money is also fleeing into gold. The Midas metal popped above $1,400 yesterday afternoon and is only pennies away now from $1,420
  • Oil is up 2.5%, touching new 2013 high of $108.59.

Only the greenback is steering clear of any drama at the moment; the dollar index is down fractionally to 81.2, right in the middle of its trading range most of this month.

  The real hurt this morning is in the emerging markets. The iShares MSCI Emerging Markets ETF (EEM) is down 2%. A push to the June lows appears likely, advises the Rude Awakening’s Greg Guenthner.

India’s Sensex closed down more than 3%. Indonesia and the Philippines tumbled nearly 4%. And the damage gets worse the closer you get to the tension in Middle East — Dubai cratered 7%.

“Dubai stocks look very vulnerable to a worldwide sell-off in equities, especially with prices having risen so far so fast!” writes Dubai-based Peter Cooper, Vancouver veteran and editor of

“After rising 83% in the past year, the market is behaving as it did in 2005 and getting way ahead of economic reality. In 2005, the Dubai index doubled and was the world’s best performing stock market, and it was the worst performer in the world in 2006.

“Still, that did not stop the local economy motoring upward for another three years.”

  The Federal Reserve is all but telling emerging markets to “drop dead,” in the estimation of Currency Wars author and fellow Vancouver alum Jim Rickards.

Mr. Rickards has been studying the talks and papers from the annual Fed confab in Jackson Hole, Wyo. His conclusion: The Fed is far more focused on the U.S. economy than anyone else’s. “The emerging markets are just going to have to deal with it,” he tells Bloomberg TV.

Indeed, Rickards invokes the infamous words of Treasury Secretary John Connally after Nixon closed the gold window in August 1971: “He said to the G-7, it’s our currency, but it’s your problem. We’re saying the same thing to emerging markets.”

  The mainstream is catching on to the “new industrial revolution.” A research note from Citigroup projects the market for 3-D printing will triple by 2018.

We would share excerpts from the report, but by doing so we would subject you to a barrage of jargon such as, “broader adoption across more upstream production applications and the consumer end market.”

Instead, we’ll paraphrase. The big explosion in 3-D printing comes next year, thanks to the expiration of several patents that we noted earlier this month. “Soon,” as the website Quartz puts it, “you won’t have to master the (challenging, time-consuming) task of learning how to model things in 3-D, because you’ll just be copying them from the real world using cheap, effective 3-D scanners.”

We always perk up whenever we see a longstanding thesis from our editors affirmed in the mainstream… and then we immediately check to see if the investment guidance on the back of that thesis remains valid, or if it’s too late. Fortunately for you, Ray Blanco’s picks in the 3-D printing space remain buys. You can check out the fruits of his research right here.

  Iowan RV owners who used the “Montana strategy” should watch their tails…

Kudos to the alert reader who brought this tax-haven crackdown to our attention: Since the 1990s, lawyers and independent agencies have offered to set up shell companies in Montana for customers so they can register RVs, boats or even airplanes under the company’s name. The appeal? No general sales tax in Montana.

Iowa isn’t amused: “A crackdown has begun,” The Des Moines Register reports, “on recreational vehicle owners trying to escape Iowa taxes under state legislation signed in June by Gov. Terry Branstad.”

Depending on how charitable a prosecutor feels, violators could be charged with either a misdemeanor or a felony. The fine? Up to 75% of the evaded tax fee.

“For example,” the Register writes, “if someone should have paid $25,000 on a plush $500,000 motor home, they could be slapped with total fees and penalties of $43,750.”

Build a shell company. Buy a RV, boat or an airplane. What could go wrong?

Department of Transportation investigators plan to scavenge for Montana-plated RVs this fall at Iowa State football games and other places frequented by Iowan RV-ers, according to Maj. Paul Steier, commander of Iowa’s motor vehicle enforcement unit.

State Sen. Tod Bowman, the floor manager of the legislation, believes it represents good government.

“If you talked with 1,000 people,” Bowman told the Register, “999 of them would thank you for making sure everybody is paying their fair share and that you are not providing loopholes for the extremely wealthy to avoid the tax.”

Prediction: The law will snare a lot more Ma’s and Pa’s in their camper vans than the “extremely wealthy” in their Newell Class A motor homes.

  “Hey 5,” a reader writes, “How about this? The real indicator of the economic health of America requires look at the corporation’s employee practices.

“Take Home Depot, for example, where there are 340,000 employees and only 21,000 are full-time salaried. With a part-time wage of $8.50 per hour and a typical work week of 15-20 hours, there is not much money to spend.

“So how about going after the CEOs that are responsible for turning American workers into part-time temporaries in order to pay dividends and perform stock buybacks to appease the stock renters and pseudo-activist investors (methinks ‘extortionist’ is a more accurate term) like Icahn and Ackman. Isn’t the stock game now ‘Pay us dividends and do buybacks or we’ll dump your stock into the gutter’?”

The 5: Your case would be more credible if you got the facts right. Home Depot’s salaried workforce totals 21,000, per USA Today. Presumably, not all of the remaining 319,000 are part time; there are surely many who are full-time hourly and, thus, entitled to overtime.

Now… to be sure, private business investment remains sluggish by historical standards — despite a huge slug of cash on many corporate balance sheets. Why is this?

A recent study by the San Francisco Fed makes a surprising amount of sense, concluding that “heightened uncertainty about economic policy during the recovery [has] made businesses more reluctant to hire workers.”

“Government-driven uncertainty continues,” writes the Independent Institute’s Lawrence McQuillan, “with Washington delaying the Obamacare employer mandate, while rolling out an estimated 20,000 pages of rules and regulations implementing the health care law and some 14,000 pages of regulations implementing the Dodd-Frank financial reform law.

“Imagine the harm,” he adds, “if governments randomly changed which color traffic light meant ‘go’ or which side of the road to drive on.”

  “Looks like the mainstream might be catching on to the civil forfeiture abuse such as you documented way back,” a reader writes. He cites a story from PBS NewsHour in which a man with cancer had his house taken away because his son sold $20 of pot on the front porch.

“As a Canadian living in the U.S.,” our reader goes on, “I can tell you that although your country is falling apart at the seams (with respect to the things it used to stand for — personal liberty, equality and independence), it’s still more profitable for me to live here than in my homeland. When that ceases to be the case, you can bet that I’ll be gone in a heartbeat, looking for greener pastures.

“For all the complainers about the format of The 5, I think they’re missing the point. I like the quick snips of relevant news, whether it takes me two minutes or 15 minutes to actually read. If I want more details, I have an Internet connection and a brain.

“I only wish you would stop giving so much print space to people who feel the need to complain about your free service — I feel that reader letters that don’t actually add to the conversation are becoming a bit of a crutch for you on the days you feel too lazy to fill out the letter. In spite of that, I appreciate the work you do.

“A side note: I would be interested in your Agora Financial’s Microcap Millionaires service if there wasn’t a ransom. I’m sure you can understand my wariness of such a service, as such microcap stock advisories are often only slightly better than rolling the dice (no matter who is advising). I can’t judge the quality of the service without first seeing the results, and I can’t see the results if I don’t pony up the ransom. As such, I will pass for now, since I am not in the position where I can afford to give away $500 for nothing.”

The 5: We understand. The service is not cut out for everybody, and some of the recommendations are so thinly traded we don’t even include this service within the Agora Financial Reserve.

For those who are interested in such a service, we hope to open it back up to a new group of members within a few days. Stay tuned…

  “After my politically incorrect idea of introducing tigers into Texas to rid of us feral hogs,” one of our regulars writes, “your correspondent on Monday hopes to end the discussion by introducing the idea of illegal aliens, fresh feral hog meat and EBT cards? Sadly, it’s so far-fetched it just might work! The proverbial can of worms has been opened.

“Another great Monday 5 with input from two of my favorite Agora writers, Chris Mayer and Jonas Elmerraji. Mondays don’t get much better than this!”

The 5: Thanks!


Dave Gonigam
The 5 Min. Forecast

P.S. In only six more days, the Pentagon is set to issue $110 million in cybersecurity contracts — the first wave in a $16.1 billion tsunami.

“Using history as a guide,” says our Byron King, “investors could see nothing short of 55,000% gains in this wealth explosion.” Seriously… it’s happened before.

There’s still time to review Byron’s confidential briefing on the seven companies he believes have the inside track. And we do mean confidential. Because he doesn’t want to burn the sources he’s called upon in the course of his research, he’s asking you sign a confidentiality agreement before you look.

There’s no obligation… You simply agree you won’t share the information with anyone, initial the form, and you’ll be taken immediately to a Web page where you can review Byron’s research. Click here to get started.


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