Bullish on Fraud

Fraud has a bright future in the US. Today the US stock markets went up on the headline:

Builders lifted by June new-home sales
Home-builder stocks rallied Monday after the Commerce Department said new-home sales rose in June. “Headline new-home sales rose a dramatic 24% in June to 330,000, but again the main story in the data is the massive revisions that have been ongoing to prior month numbers,” Deutsche Bank said in a research note Monday.

New Home Sales Surge in June, Inventory at 42-Year Low

The headline of the story was similar in every media outlet because it came verbatim from the Commerce Department’s press release and journalists are, almost without exception, too lazy and dishonest to do anything but parrot whatever appears in a press release. The “analysis” of each headline is a bit of mumblety-mumblety by Deutsche Bank or some other Wall St house of flimflam. Barely honest (maybe) without being either enlightening, comprehensible, or incisive.

So like lemmings, people bought stocks. Very very widely — ie mainly via indexes — but on low volume. But overall, the market added a few hundred billion dollars in market cap.

So what’s the problem?

Well, the FACT is that the June new-home sales were the absolute lowest ever for June. Lower than last June and lower than in any June since the government first started tracking this data in 1963 and the population of the US was about 100 million less than it is today. 30,000 new homes were sold. Nationwide. Some bloggers analyzed the data correctly – Calculated Risk. Me? I’m a real fan of graphs.

This is the 47 year graph of new home sales. Showing the 30 year increase in new homes sales as boomers became home buyers and second home buyers — until 2005 and then — whoosh. Straight down. To the point that last month is the second worst month ever.

How do you explain that home sales rose 24% in June then smartypants?

Because May 2010 was the WORST absolute month ever. AND they revised the preliminary May numbers that they released last month down so that they could compare June’s preliminary numbers with May revised-downward numbers. So in the course of two months, they have trumpeted that “May’s home sales didn’t drop as much as expected” (using preliminary numbers for May and downwardly revised numbers for April) and then that “June’s home sales rose more than expected” (using downwardly revised numbers for May)

Still – the numbers were up for June even if they weren’t up by 24%. That’s good news

And it will remain good news. Because next month, they’ll revise June downward and compare the preliminary July numbers to the revised June numbers. And it will work until summer home selling season ends and the adults return from vacation and find that their stocks are valued on hype and manure. Today alone, US stocks added roughly $6.7 million in equity market cap for each new home sold in America in June. Turns out that fraud is a much more effective economic multiplier than either new Fed money or fiscal stimulus.

It is always a good sign when a market goes up on bad news. It is emphatically NOT a good sign when markets go up on deceivingly bullish headlines built upon hidden bad news, obfuscation, and fraudulent manipulation of the statistical truth.

I am no longer interested in overweighting North America or the dollar. It is rather stupid and risky to overweight a country that is so transparently fraudulent and dishonest and apparently content with cronyism. I am reducing my “normal” portfolio weight permanently from 35-40% to 25%-30%. Allocating that 10% equally to Asia and to emerging markets.

That said, it is at least intellectually interesting to observe a Minsky melt-up (aka the attempt to reinflate a bubble and/or blow a new bubble) as it occurs.

And, in unheralded news, the BIS (the Swiss bank owned by the world’s central banks which sets out all regulations for all banks worldwide) announced its bank accounting and liquidity reform package today. Parliaments/congresses will, over the next year, enshrine these into law via grandiose sounding legislation. Expect this to have the same deleterious impact on you as the last round of “international financial reform” which resulted in the repeal of Glass-Steagall; the “deregulation” of derivatives, and the enshrinement of mortgage ratings — and thus a global housing bubble — in Tier 1 capital.


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