The Beginning Of The End
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Do Wall Street Insiders Expect Something Really BIG To Happen Very Soon?

Do Wall Street Insiders Expect Something Really BIG To Happen Very Soon? - Photo by nosha on flickrWhy are corporate insiders dumping huge numbers of shares in their own companies right now?  Why are some very large investors suddenly making gigantic bets that the stock market will crash at some point in the next 60 days?  Do Wall Street insiders expect something really BIG to happen very soon?  Do they know something that we do not know? What you are about to read below is startling.  Every time that the market has fallen in recent years, insiders have been able to get out ahead of time.  David Coleman of the Vickers Weekly Insider report recently noted that Wall Street insiders have shown “a remarkable ability of late to identify both market peaks and troughs”.  That is why it is so alarming that corporate insiders are selling nine times as many shares as they are buying right now.  In addition, some extraordinarily large bets have just been made that will only pay off if the financial markets in the U.S. crash by the end of April.  So what does all of this mean?  Well, it could mean absolutely nothing or it could mean that there are people out there that actually have insider knowledge that a market crash is coming.  Evaluate the evidence below and decide for yourself…

For some reason, corporate insiders have chosen this moment to unload huge amounts of stock.  According to a CNN article, corporate insiders are now selling nine times more of their own shares than they are buying…

Corporate insiders have one word for investors: sell.

Insiders were nine times more likely to sell shares of their companies than buy new ones last week, according to the Vickers Weekly Insider report by Argus Research.

What makes this so alarming is that corporate insiders have been exceedingly good at “timing the market” in recent years.  The following comes from a recent CNBC article entitled “Sucker Alert? Insider Selling Surges After Dow 14,000“…

“In almost perfect coordination with an equity market that was rushing toward new all-time highs, insider sentiment has weakened sharply — falling to its lowest level since late March 2012,” wrote David Coleman of the Vickers Weekly Insider report, one of the longest researchers of executive buying and selling on Wall Street. “Insiders are waving the cautionary flag in an increasingly aggressive manner.”

There have been more than nine insider sales for every one buy over the past week among NYSE stocks, according to Vickers. The last time executives sold their company’s stock this aggressively was in early 2012, just before the S&P 500 went on to correct by 10 percent to its low for the year.

“Insiders know more than the vast majority of market participants,” said Enis Taner, global macro editor for RiskReversal.com. “And they’re usually right over a long period of time.”

There are other indications that the stock market may be headed for a significant tumble in the months ahead.  For example, as a Zero Hedge article recently pointed out, the last time that the financial markets in the U.S. were as “euphoric” as they are now was right before the financial crisis of 2008.

And as I mentioned above, some people out there have recently made some absolutely jaw-dropping bets against stocks which will only pay off if there is a financial crash at some point in the next few months.

According to Business Insider, the recent purchase of 100,000 put options by a mystery investor has a lot of people on Wall Street talking…

According to Barron’s columnist Steven Sears, someone made a big bet against the financials ETF yesterday (ticker symbol XLF), and it has everybody buzzing.

The trader bought 100,000 put options on the ETF (a put option increases in value when the price of the underlying asset, in this case, the ETF, goes down).

To put that number in perspective, Sears writes, “Few investors ever trade more than 500 contracts, so a 100,000 order tends to stop traffic and prompt all sorts of speculation about what’s motivating the trade.” According to Sears, the trade “has sparked conversations across the market.”

Reportedly, those put options expire in April.

And as Art Cashin of UBS has noted, there was also another extremely large bet that was placed recently that is banking on a financial crash within the next two months…

A Very Big Bet In A Somewhat Unlikely Instrument – My friend, Jim Brown, the ever-alert consummate professional over at Option Investor pointed us to a rather unusual trade. Here’s what he wrote in last night’s edition of his valuable newsletter:

In past years I have reported on trades that were so large it appeared someone had inside knowledge of a pending event. Sometimes those were massive put positions on the S&P. A new trade just appeared that suggests there will be a market event in the near future. Last week somebody put on a call spread on the VIX using the April 20 and 25 puts. They bought 150,000 contracts for a net of $75 per contract. That is an $11,250,000 bet that the VIX will move over 20 over the next 60 days. You would have to be VERY confident in your outlook to risk $11 million on a directional position with the VIX at five year lows and the markets trying to break out to new highs.

So does all of this guarantee that the stock market is going to move a certain way?

Of course not.

But when you step back and look at the bigger picture, it does appear that Wall Street insiders are preparing for something.

Meanwhile, the government continues to assure us that happy days are here again for the U.S. economy and that we don’t have anything to worry about.

The Congressional Budget Office has just released a report that contains their outlook for the next decade.  The report is entitled “The Budget and Economic Outlook: Fiscal Years 2013 to 2023″, and if you want a good laugh you should read it.

Here are some of the things that the CBO believes will happen…

-The CBO believes that government revenues will more than double by 2023.

-The CBO believes that government revenue as a percentage of GDP will rise from 15.8 percent today to 19.1 percent in 2023.

-The CBO believes that the unemployment rate will continually fall over the next decade.

-The CBO believes that the federal budget deficit will fall to just 2.4% of GDP in fiscal year 2015.

-The CBO believes that the federal budget deficit will only be $430 billion in 2015.

-The CBO believes that we will not have a single recession over the next decade.

-The CBO believes that inflation will stay at about 2 percent for the next decade.

-The CBO believes that U.S. GDP will grow by a total of 67 percent by 2023.

Wow, all of that sounds great until you go back and take a look at how CBO projections have fared in the past.

In fact, Bruce Krasting has gone back and looked at the numbers from the Congressional Budget Office’s Budget and Economic Outlook 2003.  I think that you will find the differences between the CBO projections and what really happened to be very humorous…

Estimated 10-year budget surplus = $5.6T.

Reality = $6.6T deficit. A 200+% miss.

 

Estimate for 2012 Debt Held by Public = $1.2T (5% of GDP).

Reality = Debt Held by Public = $11.6T. A 1000% miss.

 

Estimated fiscal 2012 GDP = $17.4T.

Reality = $15.8T. A $1.6T (10%) miss.

So should we trust what the CBO is telling us now?

Of course not.

Instead, perhaps we should listen to some of the men that successfully warned us about the last financial crisis…

-“Dr. Doom” Marc Faber recently stated that he “loves the high odds of a ‘big-time’ market crash“.

-Economist Nouriel Roubini says that we should “prepare for a perfect storm“.

-Pimco’s Bill Gross says that we are heading for a “credit supernova“.

-Nomura’s Bob Janjuah believes that the financial markets will experience one more huge spike before collapsing by up to 50%

I continue to believe that the S&P500 can trade up towards the 1575/1550 area, where we have, so far, a grand double top. I would not be surprised to see the S&P trade marginally through the 2007 all-time nominal high (the real high was of course seen over a decade ago – so much for equities as a long-term vehicle for wealth creation!). A weekly close at a new all-time high would I think lead to the final parabolic spike up which creates the kind of positioning extreme and leverage extreme needed to create the conditions for a 25% to 50% collapse in equities over the rest of 2013 and 2014, driven by real economy reality hitting home, and by policymaker failure/loss of faith in “their system”.

The truth is that no matter how much money printing the Federal Reserve does, it is only a matter of time before the financial markets catch up with economic reality.

The U.S. economy has been in decline for a very long time, and things just continue to get even worse.  Here are just a few numbers…

-The percentage of the civilian labor force that is employed has fallen every single year since 2006.

-According to John Williams of shadowstats.com, truly accurate numbers would show that U.S. GDP growth has actually been continuously negative all the way back to 2005.

-U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent.

-One recent survey found that nearly half of all Americans are living on the edge of financial ruin.

-According to the U.S. Census Bureau, there are more than 146 million Americans that are considered to be either “poor” or “low income” at this point.

For many more statistics that demonstrate that the U.S. economy has continued to decline in recent years, please see this article: “37 Statistics Which Show How Four Years Of Obama Have Wrecked The U.S. Economy“.

So where is all of this headed?

Well, after the next major financial crisis in America things are going to get very tough.

We can get a hint for how things are going to be by taking a look at what is going on over in Europe right now.

Can you imagine people trampling each other for food?  That is what is happening in Greece.  Just check out this excerpt from a Reuters article

Hundreds of people jostled for free vegetables handed out by farmers in a symbolic protest earlier on Wednesday, trampling one man and prompting an outcry over the growing desperation created by economic crisis.

Images of people struggling to seize bags of tomatoes and leeks thrown from a truck dominated television, triggering a bout of soul-searching over the new depths of poverty in the debt-laden country.

The suffering that the Greeks are experiencing right now will come to this country soon enough.

So enjoy this false bubble of debt-fueled prosperity while you can.  It is going to end way too soon, and after that there will be a whole lot of pain.

Wall Street - Photo by Andrés Nieto Porras

The Federal Reserve Saves The Stock Market?

The Federal Reserve has saved the stock market!  Well, at least for a day.  That was one heck of a “dead cat bounce” that we saw on Tuesday.  Normally, after the kind of dramatic decline that we saw on Monday there is some sort of a rebound, but on Tuesday the market did not begin to soar until the Federal Reserve pledged to leave interest rates near zero until mid-2013.  Once the Fed made their announcement, the market went haywire.  At one point the Dow was down more than 200 points, but by the end of the day it was up 430 points.  It was a desperate move for the Federal Reserve to pledge not to raise interest rates for the next two years, and it has stabilized financial markets for the moment.  But what is the Fed going to do to save the stock market when it starts crashing next week or next month?  The underlying financial fundamentals continue to get worse and worse.  Europe is a mess, Japan is a mess and the United States is a mess.  The Federal Reserve can try to keep all of the balls in the air for as long as possible, but at some point the juggling act is going to end and the house of cards is going to come crashing down.

This move may calm nerves for a day or two, but there is still a tremendous amount of fear out there at the moment.  Many investors are pouring money into “safe havens” right now.  Huge amounts of cash are being poured into U.S. Treasuries and the price of gold is absolutely soaring.  The price of gold is up about $220 in just the last 30 days alone.

So how high could the price of gold go in the coming months?  Well, analysts at JP Morgan are forecasting that the price of gold could hit $2,500 by the end of this year.

Yes, that is how wild things are becoming.  The Federal Reserve is painting itself into a corner.  Never before has the Fed pledged to leave interest rates near zero for the next two years.  The following is an excerpt from the statement that the Fed released earlier today….

To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent.  The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.  The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.  The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

Needless to say, the rest of the world is not pleased by this nonsense from the Fed.  Yes, the Fed has stabilized financial markets for the moment, but a lot of ill will is being created with the rest of the globe.  The following is what Bruce Krasting had to say about how the rest of the world is going to react to this latest Fed move….

Brazil, Argentina, Korea, Indonesia are going to scream bloody murder over perpetual ZIRP. Russia is likely to get downright ugly with their rhetoric. I wouldn’t be surprised if they took this opportunity to vote with their feet and just abandon the dollar as a reserve holding. China will also make noise. They will make more calls for a new international currency to replace the dollar. The Central bankers in Japan and Switzerland are puking in the trashcan over this. Bernanke is exporting US deflation to them. Shame on the Fed for pursuing Beggar my neighbor policies. They deserve all the global criticism they are about to get.

The Federal Reserve is using up all of the ammunition it has available and the game has barely even begun.

Things are going to get a lot worse.  The U.S national debt continues to pile up at lightning speed.  The debt ceiling deal essentially does nothing to fix our debt problems.  Thousands of businesses and millions of jobs continue to leave the United States.  As a nation, we are constantly becoming poorer and we are constantly getting into more debt.

Meanwhile, Europe is on the verge of a financial meltdown and Japan has a “zombie economy” at this point.

Many fear that we could be on the verge of another major global recession.  The following is how a recent Der Spiegel article described the current global financial situation….

Many economists have been pointing out that last week’s panic resembled the fear that swept financial markets after the collapse of US investment bank Lehman Brothers in September 2008.

Then as now, banks stopped lending each money. Then as now, banks’ cash deposits at the central bank doubled within days. The European Central Bank reacted by assuring banks of unlimited liquidity in the coming months. It was an emergency measure that led to short-term relief but sparked anxious questions among bankers and stock market players. How long can the central bank keep up its market-soothing liquidity operations before it finally loses its credibility, the most important asset of a central bank? Is the financial crisis about to escalate?

In the old days, the U.S. and Europe could just borrow gigantic stacks of cash in order to solve any problems.  But now things are dramatically changing.

China’s official news agency recently stated that the U.S. needs to understand that things are different now….

“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone”

Not that the U.S. government and the Federal Reserve are going to suddenly give up their old habits.  The U.S. government is addicted to debt and the Fed is addicted to printing money.  When push comes to shove, they are going to resort to their favorite tricks.

But at some point the rest of the world is not going to play along anymore.  When that moment arrives, it is going to be very interesting to see what happens.

Meanwhile, the U.S. economy continues to slowly unravel, and people in this country are getting very angry.  Millions of Americans families are barely scraping by right now.  Most Americans just want someone to “fix” things, but unfortunately there are no easy “fixes” to our financial problems.

As our economic problems grow even worse, frustration inside the United States is going to continue to escalate.  A brand new Rasmussen survey found that only 17 percent of Americans now believe that the U.S. government has the consent of the governed.

That was a brand new all-time low.

Faith in the major institutions of our society is already dangerously low and the economy is not even that bad yet.

As horrible as things are now, the truth is that this is rip-roaring prosperity compared to what is coming.

In the months and years ahead, America is going to be greatly tested.  As the recent London riots have shown, things can spiral out of control very quickly.

When the economy completely collapses will America be able to handle it?

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