Stock Market Crash

They Denied That We Were In A Depression In 1933 And They Are Doing It Again In 2013

September 12, 2013 by Michael

The more things change, the more things stay the same. The Great Depression actually started in 1929, but as you will see below, as late as 1933 the Associated Press was still pumping out lots of news stories with optimistic economic headlines and many Americans still did not believe that we were actually in a depression. And of course we are experiencing a very similar thing today. The United States is in the worst financial shape that it has ever been in, our economic infrastructure is being systematically gutted, and poverty is absolutely exploding. Since the stock market crash of 2008, the Federal Reserve has been wildly printing money and the federal government has been running trillion dollar deficits in a desperate attempt to stabilize things, but in the process they have made our long-term economic problems far worse. It would be hard to overstate how dire our situation is, and yet the mainstream media continues to assure us that everything is just fine and that happy days are here again.

As I have already noted, the mainstream media was doing the exact same thing back during the days of the Great Depression. The following are actual Associated Press headlines from 1933…

“Decisive Break from Panic Shown in Business Figures”

“Markets Spurt To New Highs”

“New Farm Bill to End Depression”

And the following is a headline discovery from 1933 that was made by Linda Goin…

I was browsing through old newspapers the other day and discovered a page filled with news about the stock market and banks in the Daily Capital News from Jefferson City, Missouri. The date was March 15, 1933, well into the Great Depression, and the news was cautiously celebratory as a headline read, “Era of Fear is Declared at End Now.”

The Depression-era classic song entitled “Happy Days Are Here Again” was played at the Democratic National Convention in 1932 and it went on to be featured by the Democrats for many years after that. The following is an excerpt from a Wikipedia article about that song…

Today, the song is probably best remembered as the campaign song for Franklin Delano Roosevelt’s successful 1932 presidential campaign. According to TIME magazine, it gained prominence after a spontaneous decision by Roosevelt’s advisers to play it at the 1932 Democratic National Convention, and went on to become the Democratic Party‘s “unofficial theme song for years to come”.

There is only one huge problem.

The election of Roosevelt didn’t end the depression. Years of bitter economic suffering and dust bowl conditions were still ahead. The Great Depression continued all the way up to the start of World War II, and the war years were certainly no picnic for average folks either.

But at least cheery headlines can make people feel better, right?

That is what some believe.

Others believe that giving people false hope is very cruel and that it sets up people for failure.

The following are some actual headlines that were found on mainstream news sites today…

CNBC: “Recession risk gone in all US states but 1: Moody’s Analytics”

CNN: “Foreclosure crisis is drawing to a close”

NBC News: “Stocks close near highs; S&P logs 7-day rally”

Wow, those headlines sound great!

So are happy days here again?

Not quite.

In fact, things continue to get even worse in a whole host of ways. Just consider the following statistics…

-According to a brand new Gallup poll that was just released, 20.0% of all Americans did not have enough money to buy food that they or their families needed at some point over the past year. That is just under the record of 20.4% that was set back in November 2008.

-Gallup also found that the ability of American families to meet some of their other most basic needs is near an all-time low…

The Basic Access Index, which includes 13 questions about topics including Americans’ ability to afford food, housing, and healthcare, was 81.4 in August, on par with the all-time low of 81.2 recorded in October 2011.

–More than 90 million working age Americans are considered to be “not in the labor force”.

-The labor force participation rate is the lowest that it has been in 35 years.

–516,000 Americans “left the labor force” last month. That was a brand new all-time record high.

-The number of private sector jobs dropped by 278,000 last month.

–77 percent of the jobs that have been “created” so far this year have been part-time jobs.

-Approximately one out of every four part-time workers in America is living below the poverty line.

-Right now, 40 percent of all U.S. workers are making less than what a full-time minimum wage worker made back in 1968.

-The U.S. trade deficit with China has hit a brand new record high.

-The U.S. trade deficit with the EU has hit a brand new record high.

-The number of U.S. households on food stamps is at a brand new record high.

-One of the largest furniture manufacturers in America was just forced into bankruptcy…

The maker of furniture brands such as Thomasville, Broyhill, Lane and Drexel Heritage said Monday that it has filed for Chapter 11 bankruptcy protection.

-Total mortgage activity has dropped to the lowest level that we have seen since October 2008.

Yes, those in the top 1 percent are doing very well for the moment thanks to the reckless money printing that the Federal Reserve has been doing.

But for most Americans, the last several years have been a continual struggle. The following is a list that comes from one of my previous articles entitled “44 Facts About The Death Of The Middle Class That Every American Should Know“…

1. According to one recent survey, “four out of five U.S. adults struggle with joblessness, near poverty or reliance on welfare for at least parts of their lives”.

2. The growth rate of real disposable personal income is the lowest that it has been in decades.

3. Median household income (adjusted for inflation) has fallen by 7.8 percent since the year 2000.

4. According to the U.S. Census Bureau, the middle class is taking home a smaller share of the overall income pie than has ever been recorded before.

5. The home ownership rate in the United States is the lowest that it has been in 18 years.

6. It is more expensive to rent a home in America than ever before. In fact, median asking rent for vacant rental units just hit a brand new all-time record high.

7. According to one recent survey, 76 percent of all Americans are living paycheck to paycheck.

8. The U.S. economy actually lost 240,000 full-time jobs last month, and the number of full-time workers in the United States is now about 6 million below the old record that was set back in 2007.

9. The largest employer in the United States right now is Wal-Mart. The second largest employer in the United States right now is a temp agency (Kelly Services).

10. One out of every ten jobs in the United States is now filled through a temp agency.

11. According to the Social Security Administration, 40 percent of all workers in the United States make less than $20,000 a year.

12. The ratio of wages and salaries to GDP is near an all-time record low.

13. The U.S. economy continues to trade good paying jobs for low paying jobs. 60 percent of the jobs lost during the last recession were mid-wage jobs, but 58 percent of the jobs created since then have been low wage jobs.

14. Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs.

15. At this point, one out of every four American workers has a job that pays $10 an hour or less.

16. According to one study, between 1969 and 2009 the median wages earned by American men between the ages of 30 and 50 declined by 27 percent after you account for inflation.

17. In the year 2000, about 17 million Americans were employed in manufacturing. Today, only about 12 million Americans are employed in manufacturing.

18. The United States has lost more than 56,000 manufacturing facilities since 2001.

19. The average number of hours worked per employed person per year has fallen by about 100 since the year 2000.

20. Back in the year 2000, more than 64 percent of all working age Americans had a job. Today, only 58.7 percent of all working age Americans have a job.

21. When you total up all working age Americans that do not have a job, it comes to more than 100 million.

22. The average duration of unemployment in the United States is nearly three times as long as it was back in the year 2000.

23. The percentage of Americans that are self-employed has steadily declined over the past decade and is now at an all-time low.

24. Right now there are 20.2 million Americans that spend more than half of their incomes on housing. That represents a 46 percent increase from 2001.

25. In 1989, the debt to income ratio of the average American family was about 58 percent. Today it is up to 154 percent.

26. Total U.S. household debt grew from just 1.4 trillion dollars in 1980 to a whopping 13.7 trillion dollars in 2007. This played a huge role in the financial crisis of 2008, and the problem still has not been solved.

27. The total amount of student loan debt in the United States recently surpassed the one trillion dollar mark.

28. Total home mortgage debt in the United States is now about 5 times larger than it was just 20 years ago.

29. Back in the year 2000, the mortgage delinquency rate was about 2 percent. Today, it is nearly 10 percent.

30. Consumer debt in the United States has risen by a whopping 1700% since 1971, and 46% of all Americans carry a credit card balance from month to month.

31. In 1999, 64.1 percent of all Americans were covered by employment-based health insurance. Today, only 55.1 percent are covered by employment-based health insurance.

32. One study discovered that approximately 41 percent of all working age Americans either have medical bill problems or are currently paying off medical debt, and according to a report published in The American Journal of Medicine medical bills are a major factor in more than 60 percent of all personal bankruptcies in the United States.

33. Each year, the average American must work 107 days just to make enough money to pay local, state and federal taxes.

34. Today, approximately 46.2 million Americans are living in poverty.

35. The number of Americans living in poverty has increased by more than 15 million since the year 2000.

36. Families that have a head of household under the age of 30 have a poverty rate of 37 percent.

37. At this point, approximately 25 million American adults are living with their parents.

38. In the year 2000, there were only 17 million Americans on food stamps. Today, there are more than 47 million Americans on food stamps.

39. Back in the 1970s, about one out of every 50 Americans was on food stamps. Today, about one out of every 6.5 Americans is on food stamps.

40. Right now, the number of Americans on food stamps exceeds the entire population of the nation of Spain.

41. According to one calculation, the number of Americans on food stamps now exceeds the combined populations of “Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming.”

42. At this point, more than a million public school students in the United States are homeless. This is the first time that has ever happened in our history. That number has risen by 57 percent since the 2006-2007 school year.

43. According to U.S. Census data, 57 percent of all American children live in a home that is either considered to be “poor” or “low income”.

44. In the year 2000, the ratio of social welfare benefits to salaries and wages was approximately 21 percent. Today, the ratio of social welfare benefits to salaries and wages is approximately 35 percent.

But there is no way that we are actually in another economic depression, right?

If that was the case, the mainstream media certainly would have told us, right?

According to John Williams of Shadow Government Statistics, if the U.S. government actually used honest numbers, they would show that the U.S. economy has actually been contracting continually since 2005.

In other words, if the numbers were not being manipulated they would show that we have had negative GDP growth every single year since 2005.

I don’t know about you, but that sure sounds like a depression to me.

What do you think?

This Is The Biggest Cluster Of Hindenburg Omens Since The Last Stock Market Crash

August 13, 2013 by Michael

Are we heading for a major stock market decline? Warnings about a crash of the financial markets are quite common these days, and usually they don’t materialize. But this time may be different. A number of top analysts are pointing out the fact that the biggest cluster of “Hindenburg Omens” has appeared since the last stock market crash. And those that have studied this insist that the more “Hindenburg Omens” there are in a cluster, the stronger the signal is. Meanwhile, another very disturbing sign is the fact that the yield on 10 year U.S. Treasuries is starting to soar again. On Tuesday it shot up from 2.62% to 2.727%. As I have written about previously, the yield on 10 year U.S. Treasuries is the most important number in the U.S. economy right now. If that number continues to rise, it is going to be very, very bad news for the financial system.

But before I discuss rising interest rates any further, I want to talk about this unusual cluster of Hindenburg Omens that we have just witnessed. In a previous article, I shared a list of the criteria that are commonly used to determine whether a Hindenburg Omen has appeared or not…

1. The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.

2. The smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.

3. That the NYSE 10 Week moving average is rising.

4. That the McClellan Oscillator ( a market breadth indicator used to evaluate the rate of money entering or leaving the market and interpretively indicate overbought or oversold conditions of the market)is negative on that same day.

5. That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs).

When the Hindenburg Omen makes an appearance, it is supposedly a signal that the U.S. stock market will likely experience a significant decline within the next 40 days.

But of course this has not always happened when a Hindenburg Omen has appeared. However, what we are seeing right now is a highly concentrated cluster of Hindenburg Omens. According to SentimenTrader’s Jason Goepfert, the last time such a cluster appeared was before the last stock market crash…

Sometimes a topic in the market takes hold and it’s hard to shake it off. One of those is the technical “market crash” signal called the Hindenburg Omen.

It has its boosters and its detractors, and we’re not going to get caught up in debating its merits. We’ve discussed it for 12 years, always with the same arguments.

On June 10th, we outlined the market’s historical performance after suffering at least 5 signals from the Hindenburg Omen within a two-week period. Stocks were consistently weak afterward, and proved to be so again, at least for a while.

With the latest market rally, the Omens are flaring up again.There have been 5 Omens triggered out of the past 8 trading sessions (your data may vary—we’re using the same sources we’ve always used for historical data). That’s actually the closest-grouped cluster since early November 2007.

It’s extremely rare to see as many Omens occurring together as we’ve seen over the past 50 days. The last time was prior to the bear market in 2007.

The time before that was prior to the bear market in 2000.

Will the pattern hold up this time?

We’ll see.

But without a doubt we have been witnessing some very unusual activity in the markets over the past couple of weeks. In fact, according to Tyler Durden of Zero Hedge, we have now seen a Hindenburg Omen occur five times in the last seven trading days…

For the 5th time in the last 7 days, equity market internals have triggered an anxiety-implying Hindenburg Omen. Based on our data, this is the most concentrated cluster of new highs, new lows, advancing/declining based confusion on record. The last few occurrences have not ended well (though obviously not disastrously) but as the creator of the ‘Omen’ notes, the more occurrences that cluster, the stronger the signal.

But the Hindenburg Omen is not the only sign that a stock market crash may be coming. Marc Faber, the publisher of the Gloom, Boom & Doom Report, says that the markets are repeating the exact same pattern that we saw just before the stock market crash of 1987…

“In 1987, we had a very powerful rally, but also earnings were no longer rising substantially, and the market became very overbought,” Faber said on Thursday’s “Futures Now.” “The final rally into Aug. 25 occurred with a diminishing number of stocks hitting 52-week highs. In other words, the new-high list was contracting, and we have several breaks in different stocks.”

Faber says that’s exactly where we find ourselves this August.

Faber is projecting a stock market decline of “20 percent, maybe more” in the month ahead.

Meanwhile, as I mentioned at the top of the article, the yield on 10 year U.S. Treasuries shot up to 2.727% today. The Federal Reserve is starting to lose control of long-term interest rates, and the only way that Fed officials are going to be able to get control back is to substantially raise the level of quantitative easing that they are doing, but of course that would create a whole bunch of other problems.

For now, the Fed keeps dropping hints that “tapering” is coming. But if the Fed does “taper”, there might not be any support for bond prices from the private sector. BAML credit strategist Hans Mikkelsen recently detailed why this is the case…

Since the financial crisis, Treasuries have been supported by numerous types of investors, including mutual funds/ETFs, banks, [emerging market] central banks and the foreign official sector (in addition to the Fed of course). However, these four sources of Treasury demand are unlikely to support the market in the short term going forward.

First, with continued outflows from non-short term high grade bond funds, money managers are unlikely to provide support for Treasuries any time soon.

Second, with increasing loan demand reducing the need for banks to support profitability by buying Treasuries, as well as significant mark-to-market losses in [available-for-sale] portfolios that in the future will count against capital, banks are unlikely to add long-duration assets in a rising interest rate environment.

Third, in light of continued depreciation of [emerging market] currencies, it appears unlikely that [emerging market] countries are experiencing inflows that need to be reinvested in Treasuries.

Finally, custody holdings of Treasuries continue to decline, suggesting foreign official sales of Treasuries.

If the yield on 10 year U.S. Treasuries continues to rise sharply over the coming months, that could potentially cause the 441 trillion dollar interest rate derivatives bubble to implode. As John Embry recently told King World News, that would be “disastrous” for the global financial system…

Interest rates have already risen dramatically, so any tapering will simply throw gasoline on that fire and torch the banking system which is up to its eyeballs in interest rate derivatives. This would be disastrous for the entire financial system.

Someone recently suggested that there was already a $4 trillion hole in the European banking system. If we look at the Japanese situation, that is totally unstable as well. So the destruction of paper money will only accelerate, and this is what you are seeing reflected today in the prices of gold and silver.

We also have this shortage of physical gold, which is reflected by the fact that the gold lease rates have been negative for 25 consecutive days. We then had the revelation that the Bank of England had dumped a staggering 1,300 tons of physical gold into the market that they were supposed to be safely storing for other countries. The Bank of England wouldn’t even comment, they just pleaded the 5th.

Hopefully these Hindenburg Omens will pass and nothing will happen.

Hopefully the yield on 10 year U.S. Treasuries will not continue to rise.

But you know what they say – hope for the best but prepare for the worst.

I hope that you are getting prepared for the worst while you still can.

Whenever Margin Debt Goes Over 2.25% Of GDP The Stock Market Always Crashes

June 17, 2013 by Michael

What do 1929, 2000 and 2007 all have in common? Those were all years in which we saw a dramatic spike in margin debt. In all three instances, investors became highly leveraged in order to “take advantage” of a soaring stock market. But of course we all know what happened each time. The spike in margin debt was rapidly followed by a horrifying stock market crash. Well guess what? It is happening again. In April (the last month we have a number for), margin debt rose to an all-time high of more than 384 billion dollars. The previous high was 381 billion dollars which occurred back in July 2007. Margin debt is about 29 percent higher than it was a year ago, and the S&P 500 has risen by more than 20 percent since last fall. The stock market just continues to rise even though the underlying economic fundamentals continue to get worse. So should we be alarmed? Is the stock market bubble going to burst at some point? Well, if history is any indication we are in big trouble. In the past, whenever margin debt has gone over 2.25% of GDP the stock market has crashed. That certainly does not mean that the market is going to crash this week, but it is a major red flag.

The funny thing is that the fact that investors are so highly leveraged is being seen as a positive thing by many in the financial world. Some believe that a high level of margin debt is a sign that “investor confidence” is high and that the rally will continue. The following is from a recent article in the Wall Street Journal…

The rising level of debt is seen as a measure of investor confidence, as investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against. The latest rise has been fueled by low interest rates and a 15% year-to-date stock-market rally.

Others, however, consider the spike in margin debt to be a very ominous sign. Margin debt has now risen to about 2.4 percent of GDP, and as the New York Times recently pointed out, whenever we have gotten this high before a market crash has always followed…

The first time in recent decades that total margin debt exceeded 2.25 percent of G.D.P. came at the end of 1999, amid the technology stock bubble. Margin debt fell after that bubble burst, but began to rise again during the housing boom — when anecdotal evidence said some investors were using their investments to secure loans that went for down payments on homes. That boom in margin loans also ended badly.

Posted below is a chart of the performance of the S&P 500 over the last several decades. After looking at this chart, compare it to the margin debt charts that the New York Times recently published that you can find right here. There is a very strong correlation between these charts. You can find some more charts that directly compare the level of margin debt and the performance of the S&P 500 right here. Every time margin debt has soared to a dramatic new high in the past, a stock market crash and a recession have always followed. Will we escape a similar fate this time?

What makes all of this even more alarming is the fact that a number of things that we have not seen happen in the U.S. economy since 2009 are starting to happen again. For much more on this, please see my previous article entitled “12 Clear Signals That The U.S. Economy Is About To Really Slow Down“.

At some point the stock market will catch up with the economy. When that happens, it will probably happen very rapidly and a lot of people will lose a lot of money.

And there are certainly a lot of prominent voices out there that are warning about what is coming. For example, the following is what renowned investor Alan M. Newman had to say about the current state of the market earlier this year…

“If anything has changed yet in 2013, we certainly do not see it. Despite the early post-fiscal cliff rally, this is the same beast we rode to the 2007 highs for the Dow Industrials. The U.S. stock market is over leveraged, overpriced and has been commandeered by mechanical forces to such an extent that all holding periods are now affected by more risk than at any time in history.”

Unfortunately, most Americans never get to hear such voices. Instead, most Americans rely on the mainstream media to do much of their thinking for them. And right now the mainstream media is insisting that we are not in a stock market bubble…

Forbes: “Why Stocks Are On Solid Footing And This Is No Bubble”

ABC News: “AP Survey: Economists See No Stock Market Bubble”

Businessweek: “Prognostications: It’s Not a Stock Bubble”

Yahoo: “This Is NOT a Stock Bubble! Says Ben Stein”

MarketWatch: “Is a stock bubble coming? No, say economists”

So what do you think?

Do you believe that we are in a stock market bubble that is about to burst, or do you believe that everything is going to be just fine?

Please feel free to express your opinion by posting a comment below…

History Tells Us That A Gold Crash + An Oil Crash = Guaranteed Recession

April 17, 2013 by Michael

Is the United States about to experience another major economic downturn? Unfortunately, the pattern that is emerging right now is exactly the kind of pattern that you would expect to see just before a major stock market crash and a deep recession. History tells us that when the price of gold crashes, a recession almost always follows. History also tells us that when the price of oil crashes, a recession almost always follows. When both of those things happen, a significant economic downturn is virtually guaranteed. Just remember what happened back in 2008. Gold and oil both started falling rapidly in July, and in the fall we experienced the worst financial crisis that the U.S. had seen since the days of the Great Depression. Well, a similar pattern seems to be happening again. The price of gold has already crashed, and the price of a barrel of WTI crude oil has dropped to $86.37 as I write this. If the price of oil dips below $80 a barrel and stays there, that will be a major red flag. Meanwhile, we have just seen volatility return to the financial markets in a big way. When volatility starts to spike, that is usually a clear sign that stocks are about to go down substantially. So buckle your seatbelts – it looks like things are about to get very, very interesting.

Posted below is a chart that shows what has happened to the price of gold since the late 1960s. As you will notice, whenever the price of gold rises dramatically and then crashes, a recession usually follows. It happened in 1980, it happened in 2008, and it is happening again…

A similar pattern emerges when we look at the price of oil. During each of the last three recessions we have seen a rapid rise in the price of oil followed by a rapid decline in the price of oil…

That is why what is starting to happen to the price of oil is so alarming. On Wednesday, Reuters ran a story with the following headline: “Crude Routed Anew on Relentless Demand Worries“. The price of oil has not “crashed” yet, but it is definitely starting to slip.

As you can see from the chart above, the price of oil has tested the $80 level a couple of times in the past few years. If we get below that resistance and stay there, that will be a clear sign that trouble is ahead.

However, there is always the possibility that the recent “crash” in the price of gold might be a false signal because there is a tremendous amount of evidence emerging that it was an orchestrated event. An absolutely outstanding article by Chris Martenson explained how the big banks had been setting up this “crash” for months…

In February, Credit Suisse ‘predicted’ that the gold market had peaked, SocGen said the end of the gold era was upon us, and recently Goldman Sachs told everyone to short the metal.

While that’s somewhat interesting, you should first know that the largest bullion banks had amassed huge short positions in precious metals by January.

The CFTC rather coyly refers to the bullion banks simply as ‘large traders,’ but everyone knows that these are the bullion banks. What we are seeing in that chart is that out of a range of commodities, the precious metals were the most heavily shorted, by far.

So the timeline here is easy to follow. The bullion banks:

Amass a huge short position early in the game

Begin telling everyone to go short (wink, wink) to get things moving along in the right direction by sowing doubt in the minds of the longs

Begin testing the late night markets for depth by initiating mini raids (that also serve to let experienced traders know that there’s an elephant or two in the room)

Wait for the right moment and then open the floodgates to dump such an overwhelming amount of paper gold and silver into the market that lower prices are the only possible result

Close their positions for massive gains and then act as if they had made a really prescient market call

Await their big bonus checks and wash, rinse, repeat at a later date

While I am almost 100% certain that any decent investigation by the CFTC would reveal that market manipulating ‘dumping’ was happening, I am equally certain that no such investigation will occur. That’s because the point of such a maneuver by the bullion banks is designed to transfer as much wealth from ‘out there’ and towards the center, and the CFTC is there to protect the center’s ‘right’ to do exactly that.

You can read the rest of that article right here.

There are also rumors that George Soros was involved in driving down the price of gold. The following is an excerpt from a recent article by “The Reformed Broker” Joshua Brown…

And over the last week or so, the one rumor I keep hearing from different hedge fund people is that George Soros is currently massively short gold and that he’s making an absolute killing.

Once again, I have no way of knowing if this is true or false.

But enough people are saying it that I thought it worthwhile to at least mention.

And to me, it would make perfect sense:

1. Soros is a macro investor, this is THE macro trade of the year ~~so far~~ (okay, maybe Japan 1, short gold 2)

2. Soros is well-known for numerous market aphorisms and neologisms, one of my faves being “When I see a bubble, I invest.” He was heavily long gold for a time and had done well while simultaneously referring to it publicly as a speculative bubble.

3. He recently reported that he had pretty much exited the trade in gold back in February. In his Q4 filing a few weeks ago, we found out that he had sold down his GLD position by about 55% as of the end of 2012 and had just 600,000 shares remaining. That was the “smartest guy in the room” locking in a profit after a 12 year bull market.

4. Soros also hired away one of the most talented technical analysts out there, John Roque, upon the collapse of Roque’s previous employer, broker-dealer WJB Capital. No one has heard from the formerly media-available Roque since but we can only assume that – as a technician – the very obvious breakdown of gold’s long-term trend was at least discussed. And how else does one trade gold if not by using technicals (supply/demand) – what else is there? Cash flow? Book value?

5. Lastly, the last public interview given by George Soros was to the South China Morning Post on April 4th. He does not mention any trading he’s doing in gold but he does reveal his thoughts on it having been “destroyed as a safe haven”

It is also important to keep in mind that this “crash” in the price of “paper gold” had absolutely nothing to do with the demand for physical gold and silver in the real world. In fact, precious metals retailers have been reporting that they have been selling an “astounding volume” of gold and silver this week.

But that isn’t keeping many in the mainstream media from “dancing on the grave” of gold and silver.

For example, New York Times journalist Paul Krugman seems absolutely ecstatic that gold has crashed. He seems to think that this “crash” is vindication for everything that he has been saying the past couple of years.

In an article entitled “EVERYONE Should Be Thrilled By The Gold Crash“, Business Insider declared that all of us should be really glad that gold has crashed because according to them it is a sign that the economy is getting better and that faith in the financial system has been restored.

Dan Fitzpatrick, the president of StockMarketMentor.com, recently told CNBC that people are “flying out of gold” and “getting into equities”…

“There have been so many reasons, and there remain so many reasons to be in gold,” Fitzpatrick said, noting currency debasement and the fear of inflation. “But the chart is telling you that none of that is happening. Because of that, you’re going to see people just flying out of gold. There’s just no reason to be in it.Traders are scaling out of gold and getting into equities.”

Personally, I feel so sorry for those that are putting their money in the stock market right now. They are getting in just in time for the crash.

As CNBC recently noted, a very ominous “head and shoulders pattern” for the S&P 500 is emerging right now…

A scary head-and-shoulders pattern could be building in the S&P 500, and this negative chart formation would be created if the market stalls just above current levels.

“It’s developing and it’s developing fast,” said Scott Redler of T3Live.com on Wednesday morning.

Even worse, volatility has returned to Wall Street in a huge way. This is usually a sign that a significant downturn is on the way…

Call options buying recently hit a three-year high for the CBOE’s Volatility Index, a popular measure of market fear that usually moves in the opposite direction of the Standard & Poor’s 500 stock index.

A call buy, which gives the owner the option to purchase the security at a certain price, implies a belief that the VIX is likely to go higher, which usually is an ominous sign for stocks.

“We saw a huge spike in call buying on the VIX, the most in a while,” said Ryan Detrick, senior analyst at Schaeffer’s Investment Research. “That’s not what you want to hear (because it usually happens) right before a big pullback.”

The last time call options activity hit this level, on Jan. 13, 2010, it preceded a 9 percent stock market drop that happened over just four weeks, triggered in large part by worries over the ongoing European debt crisis.

And according to Richard Russell, the “smart money” has already been very busy dumping consumer stocks…

What do billionaires Warren Buffet, John Paulson, and George Soros know that you and I don’t know? I don’t have the answer, but I do know what these billionaires are doing. They, all three, are selling consumer-oriented stocks. Buffett has been a cheerleader for US stocks all along.

But in the latest filing, Buffett has been drastically cutting back on his exposure to consumer stocks. Berkshire sold roughly 19 million shares of Johnson and Johnson. Berkshire has reduced his overall stake in consumer product stocks by 21%, including Kraft and Procter and Gamble. He has also cleared out his entire position in Intel. He has sold 10,000 shares of GM and 597,000 shares of IBM.

Fellow billionaire John Paulson dumped 14 million shares of JP Morgan and dumped his entire position in Family Dollar and consumer goods maker Sara Lee. To wrap up the trio of billionaires, George Soros sold nearly all his bank stocks including JP Morgan, Citigroup and Goldman Sachs. So I don’t know exactly what the billionaires are thinking, but I do see what they’re doing — they are avoiding consumer stocks and building up cash.

… the billionaires are thinking that consumption is heading down and that America’s consumers are close to going on strike.

So what are all of those billionaires preparing for?

What do they know that we don’t know?

I don’t know about you, but when I start putting all of the pieces that I have just discussed together, it paints a rather ominous picture for the months ahead.

At some point, there will be another major stock market crash. When it happens, we will likely see even worse chaos than we saw back in 2008. Major financial institutions will fail, the credit markets will freeze up, economic activity will grind to a standstill and millions of Americans will lose their jobs.

I sincerely hope that we still have at least a few more months before that happens. But right now things are moving very rapidly and it is becoming increasingly clear that time is running out.

11 Economic Crashes That Are Happening RIGHT NOW

April 12, 2013 by Michael

The stock market is not crashing yet, but there are lots of other market crashes happening in the financial world right now. Just like we saw back in 2008, it is taking stocks a little bit of extra time to catch up with economic reality. But almost everywhere else you look, there are signs that a financial avalanche has begun. Bitcoins are crashing, gold and silver are plunging, the price of oil and the overall demand for energy continue to decline, markets all over Europe are collapsing and consumer confidence in the United States just had the biggest miss relative to expectations that has ever been recorded. In many ways, all of this is extremely reminiscent of 2008. Other than the Bitcoin collapse, almost everything else that is happening now also happened back then. So does that mean that a horrible stock market crash is coming as well? Without a doubt, one is coming at some point. The only question is whether it will be sooner or later. Meanwhile, there are a whole lot of other economic crashes that deserve out attention at the moment.

The following are 11 economic crashes that are happening RIGHT NOW…

#1 Bitcoins

As I write this, the price of Bitcoins has fallen more than 70 percent from where it was on Wednesday. This is one of the reasons why I have never recommended Bitcoins to anyone. Yes, alternative currencies are a good thing, but there are a lot of big problems with Bitcoins. Why would anyone want to invest in a currency that could lose 70 percent of its purchasing power in just two days? Why would anyone want to invest in a currency where a single person can arbitrarily decide to suspend trading in that currency at any time?

An article by Mike Adams of Natural News described some of the things that we have learned about Bitcoins this week…

#1) The bitcoin infrastructure cannot handle a selloff. Once the rush for the exits gains momentum, you will not be able to get out. Only those who sell early will be able to exit the market.

#2) The bitcoin infrastructure is subject to the whims of just one person running MTGox who can arbitrarily decide to shut it down whenever he thinks the market needs a “cooling period.” This is nearly equivalent to a financial dictatorship where one person calls the shots.

#3) Every piece of bad news will be “spun” by exchanges like MTGox into good-sounding news. As bitcoin was crashing yesterday by 60% in value in mere hours, MTGox announced it was a “victim of our own success!” So while bitcoin holders watched $1 billion in market valuation evaporate, MTGox called it a success. Gee, then what would you call it when bitcoin loses 99%? A “raging” success?

#2 Gold

The price of gold was down by about 4 percent on Friday. Gold has now fallen below $1500 an ounce for the first time since July 2011. Overall, the price of gold has fallen by about 10 percent since the beginning of the year, and it is about 22 percent below the record high set back in September 2011.

Yes, the price of gold is likely being pushed down by the banksters. And yes, gold is a fantastic investment for the long-term. But there will be times when the price of gold does fall dramatically just like we saw back in 2008.

#3 Silver

The price of silver fell by about 5 percent on Friday. If it falls much more it is going to be at a level that presents a historically good buying opportunity.

Just like gold, there will be times when the price of silver swings dramatically. But the truth is that silver is probably an even better long-term investment than gold is.

#4 Oil

The price of oil declined by about 3 percent on Friday. Many will consider this a positive thing, but just remember what happened back in 2008. Back then, the price of oil dropped like a rock. If the price of oil gets below $80, that could very well be a clear signal that a major economic crisis is about to happen.

#5 Consumer Confidence

As I mentioned above, consumer confidence in the U.S. just had its biggest miss relative to expectations that has ever been recorded. The following is from an article posted on Zero Hedge on Friday…

Well if this doesn’t send the market into all-time record high territory, nothing ever will: seconds ago the UMich Consumer Confidence plummeted from 78.6 to 72.3, on expectations of an unchanged 78.6 print. This was not only a 9 month low in the index, but more importantly the biggest miss to expectations in recorded history!

#6 Retirement Accounts

According to Wells Fargo, the number of Americans taking loans from their 401(k) accounts has risen by 28 percent over the past year…

Through an analysis of participants enrolled in Wells Fargo-administered defined contribution plans, the bank announced today that in the fourth quarter of 2012, there was a 28 percent increase in the number of people taking loans out from their 401(k) and that the average new loan balances increased to $7,126 from those taken out in the fourth quarter of 2011 – a 7% increase from $6,662.

Of the participants who took out loans, the greatest percentage were to people in their 50s (34.2%), followed by those in their 60s (28.9%) and then by those in their 40s (27.3%). The increase among participants in their 50s was nearly double the increase among those under 30. This is based on an analysis of a subset of 1.9 million eligible participants in retirement plans that Wells Fargo administers.

“The increased loan activity particularly among older participants is concerning because those are the years when workers can start to make ‘catch-up’ contributions and really need to focus on preparing for retirement,” said Laurie Nordquist, director of Wells Fargo Retirement.

#7 Casino Spending

Casino spending is declining again. Many people (including myself) would consider this to be a good thing, but casino spending is also one of the most reliable indicators about the overall health of the economy. Remember, casino spending crashed during the last financial crisis as well. That is why it is so alarming that casino spending is now back to levels that we have not seen since the last recession.

#8 Employment In Greece

Over in Europe, things just continue to get worse. According to numbers that were just released, the unemployment rate in Greece has soared to 27.2 percent, which was up from 25.7 percent the previous month. That means that the unemployment rate in Greece rose by 1.5 percent in just a single month. That is not just a crash – that is an avalanche of unemployment.

#9 European Financial Stocks

European financial stocks have been hit particularly hard lately. And for good reason actually – most of the major banks in Europe are essentially insolvent at this point. This week, European financial stocks fell to seven month lows, and this is probably only just the beginning.

#10 Spanish Bankruptcies

According to Reuters, the number of Spanish companies going bankrupt has risen by 45 percent over the past year…

A record number of Spanish companies went bust in the first quarter of 2013 as companies remained under intense pressure from tight credit conditions and meager demand, a study showed on Monday.

The 2,564 firms filing for insolvency proceedings in first three months of the year was a 10 percent rise from the previous quarter and a 45 percent increase on the same period in 2012, the survey by credit rating agency Axesor said.

#11 Demand For Energy

Just like we saw back in 2008, the overall demand for energy in the United States is falling rapidly. There are some shocking charts that prove this that were recently posted on Zero Hedge that you can find right here.

Yes, it is good for people to use a bit less energy, but it is also a clear indication that economic activity is really starting to slow down.

But despite everything that you have just read, the Dow and the S&P 500 have been setting new record highs.

And if you listen to the mainstream media, you would think that this stock market bubble can continue indefinitely.

Fortunately, there are a few voices of reason out there. For example, just check out what Marc Faber recently told CNBC…

In the near-term, the U.S. stock market is overbought and adding that any more near-term gains portend big trouble for the market, “The Gloom, Boom & Doom Report” publisher Marc Faber told CNBC on Monday.

“If we continue to move up, the probability of a crash becomes higher,” Faber predicted in a “Squawk Box” interview, saying it could happen “sometime in the second half of this year.”

As I have written about previously, a bubble is always the biggest right before it bursts. I hope that we still have at least a little bit more time before it happens, but I wouldn’t count on it.

The economic fundamentals tell us that the stock market should be plunging, not rising. At some point the boys over on Wall Street will get the message and the market will catch up to reality very, very rapidly.

But for the moment, the American people are feeling really good. According to CNN, Americans are now more optimistic than they have been in six years…

As the stock market continues to show record highs, the number of Americans who say things are going well in the country has reached 50% for the first time in more than six years, according to a new national survey.

So what do you think will happen for the rest of the year?

Do you think that the good times will continue to roll, or do you believe that the bubble is about to burst?

Please feel free to share your opinion by posting a comment below…

Watch The Financial Markets In Europe

February 7, 2013 by Michael

Is the financial system of Europe on the verge of a meltdown? I have always maintained that the next wave of the economic crisis would begin in Europe, and right now the situation in Europe is unraveling at a frightening pace. On Monday, European stocks had their worst day in over six months, and over the past four days we have seen the EUR/USD decline by the most that it has in nearly seven months. Meanwhile, scandals are erupting all over the continent. A political scandal in Spain, a derivatives scandal in Italy and banking scandals all over the eurozone are seriously shaking confidence in the system. If things move much farther in a negative direction, we could be facing a full-blown financial crisis in Europe very rapidly. So watch the financial markets in Europe very carefully. Yes, most Americans tend to ignore Europe because they are convinced that the U.S. is “the center of the universe”, but the truth is that Europe actually has a bigger population than we do, they have a bigger economy then we do, and they have a much larger banking system than we do. The global financial system is more integrated today than it ever has been before, and if there is a major stock market crash in Europe it is going to deeply affect the United States and the rest of the globe as well. So pay close attention to what is going on in Europe, because events over there could spark a chain reaction that would have very serious implications for every man, woman and child on the planet.

As I noted above, European markets started off the week very badly and things have certainly not improved since then. The following is how Zero Hedge summarized what happened on Thursday…

EuroStoxx (Europe’s Dow) closed today -1% for 2013. France, Germany, and Spain are all lower on the year now. Italy, following ENI’s CEO fraud, collapsed almost 3% from the US day-session open, leaving it up less than 1% for the year. Just as we argued, credit markets have been warning that all is not well and today’s afternoon free-fall begins the catch-down.

In addition, the euro has been dropping like a rock all of a sudden. Just check out this chart which shows what happened to the euro on Thursday. It is very rare to see the euro move that dramatically.

So what is causing all of this?

Well, we already know that the economic fundamentals in Europe are absolutely horrible. Unemployment in the eurozone is at a record high, and the unemployment rates in both Greece and Spain are over 26 percent. Those are depression-level numbers.

But up until now there had still been a tremendous amount of confidence in the European financial system. But now that confidence is being shaken by a whole host of scandals.

In recent days, a number of major banking scandals have begun to emerge all over Europe. Just check out this article which summarizes many of them.

One of the worst banking scandals is in Italy. A horrible derivatives scandal has pushed the third largest bank in Italy to the verge of collapse…

Monte dei Paschi di Siena (BMPS.MI), Italy’s third biggest lender, said on Wednesday losses linked to three problematic derivative trades totaled 730 million euros ($988.3 million) as it sought to draw a line under a scandal over risky financial transactions.

There is that word “derivative” that I keep telling people to watch for. Of course this is not the big “derivatives panic” that I have been talking about, but it is an example of how these toxic financial instruments can bring down even the biggest banks. Monte dei Paschi is the oldest bank in the world, and now the only way it is able to survive is with government bailouts.

Another big scandal that is shaking up Europe right now is happening over in Spain. It is being alleged that Spanish Prime Minister Mariano Rajoy and other members of his party have been receiving illegal cash payments. The following summary of the scandal comes from a recent Bloomberg article…

On Jan. 31, the Spanish newspaper El Pais published copies of what it said were ledgers from secret accounts held by Luis Barcenas, the former treasurer of the ruling People’s Party, which revealed the existence of a party slush fund. The newspaper said 7.5 million euros in corporate donations were channeled into the fund and allegedly doled out from 1997 to 2009 to senior party members, including Rajoy.

That doesn’t sound good at all.

So what is the truth?

Could Rajoy actually be innocent?

Well, at this point most of the population of Spain does not believe that is the case. Just check out the following poll numbers from the Bloomberg article quoted above…

According to the Metroscopia poll, 76 percent of Spaniards don’t believe the People’s Party’s denials of the slush-fund allegations. Even more damning, 58 percent of the party’s supporters think it’s lying. All of the Spanish businessmen with whom I discussed the latest scandal expect it to get worse before it gets better. Their assumption that there are more skeletons in the government’s closet indicates what little trust they have in their leaders.

Meanwhile, the underlying economic fundamentals in Europe just continue to get worse. One of the biggest concerns right now is France. Just check out this excerpt from a recent report by Phoenix Capital Research…

The house of cards that is Europe is close to collapsing as those widely held responsible for solving the Crisis (Prime Ministers, Treasurers and ECB head Mario Draghi) have all been recently implicated in corruption scandals.

Those EU leaders who have yet to be implicated in scandals are not faring much better than their more corrupt counterparts. In France, socialist Prime Minister Francois Hollande, has proven yet again that socialism doesn’t work by chasing after the wealthy and trying to grow France’s public sector… when the public sector already accounts for 56% of French employment.

France was already suffering from a lack of competitiveness. Now that wealthy businesspeople are fleeing the country (meaning investment will dry up), the economy has begun to positively implode.

As the report goes on to mention, over the past few months the economic numbers coming out of France have been absolutely frightful…

Auto sales for 2012 fell 13% from those of 2011. Sales of existing homes outside of Paris fell 20% year over year for the third quarter of 2012. New home sales fell 25%. Even the high-end real estate markets are collapsing with sales for apartments in Paris that cost over €2 million collapsing an incredible 42% in 2012.

Today, the jobless rate in France is at a 15-year high, and industrial production is headed into the toilet. The wealthy are fleeing France in droves because of the recent tax increases, and the nation is absolutely drowning in debt. Even the French jobs minister recently admitted that France is essentially “bankrupt” at this point…

France’s government was plunged into an embarrassing row yesterday after a minister said the country was ‘totally bankrupt’.

Employment secretary Michel Sapin said cuts were needed to put the damaged economy back on track.

‘There is a state but it is a totally bankrupt state,’ he said.

So what does all of this mean?

It means that the crisis in Europe is just beginning. Things are going to be getting a lot worse.

Perhaps that is one reason why corporate insiders are dumping so much stock right now as I noted in my article yesterday entitled “Do Wall Street Insiders Expect Something Really BIG To Happen Very Soon?” There are a whole host of signs that both the United States and Europe are heading for recession, and a lot of financial experts are warning that stocks are way overdue for a “correction”.

For example, Blackstone’s Byron Wien told CNBC the other day that he expects the S&P 500 to drop by 200 points during the first half of 2013.

Seabreeze Partners portfolio manager Doug Kass recently told CNBC that what is happening right now in the financial markets very much reminds him of the stock market crash of 1987…

“I’m getting the ‘summer of 1987 feeling’ in the U.S. equity market,” Kass told CNBC, “which means we’re headed for a sharp fall.”

Toward the end of 2012 and at the very beginning of 2013 we saw markets both in the U.S. and in Europe move up steadily even though the underlying economic fundamentals did not justify such a move.

In many ways, that move up reminded me of the “head fakes” that we have seen prior to many of the largest “market corrections” of the past. Often financial markets are at their most “euphoric” just before a crash hits.

So get ready.

Even if you don’t have a penny in the financial markets, now is the time to prepare for what is ahead.

We all need to learn from what Europe is going through right now. In Greece, formerly middle class citizens are now trampling one another for food. We all need to prepare financially, mentally, emotionally, spiritually and physically so that we can weather the economic storm that is coming.

Most Americans are accustomed to living paycheck to paycheck and being constantly up to their eyeballs in debt, but that is incredibly foolish. Even in the animal kingdom, animals work hard during the warm months to prepare for the winter months. Even so, we should all be working very hard to prepare during prosperous times so that we will have something stored up for the lean years that are coming.

Unfortunately, if events in Europe are any indication, we may be rapidly running out of time.

Do Wall Street Insiders Expect Something Really BIG To Happen Very Soon?

February 6, 2013 by Michael

Why 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.

Goldman Sachs And The Big Hedge Funds Are Pushing Leverage To Ridiculous Extremes

January 14, 2013January 14, 2013 by Michael

As stocks have risen in recent years, the big hedge funds and the “too big to fail” banks have used borrowed money to make absolutely enormous profits. But when you use debt to potentially multiply your profits, you also create the possibility that your losses will be multiplied if the markets turn against you. When the next stock market crash happens, and the gigantic pyramid of risk, debt and leverage on Wall Street comes tumbling down, will highly leveraged banks such as Goldman Sachs ask the federal government to bail them out? The use of leverage is one of the greatest threats to our financial system, and yet most Americans do not even really understand what it is. The following is a basic definition of leverage from Investopedia: “The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.” Leverage allows firms to make much larger bets in the financial markets than they otherwise would be able to, and at this point Goldman Sachs and the big hedge funds are pushing leverage to ridiculous extremes. When the financial markets go up and they win on those bets, they can win very big. For example, revenues at Goldman Sachs increased by about 30 percent in 2012 and Goldman stock has soared by more than 40 percent over the past 12 months. Those are eye-popping numbers. But leverage is a double-edged sword. When the markets turn, Goldman Sachs and many of these large hedge funds could be facing astronomical losses.

Sadly, it appears that Wall Street did not learn any lessons from the financial crisis of 2008. Hedge funds have ramped up leverage to levels not seen since before the last stock market crash. The following comes from a recent Bloomberg article entitled “Hedge-Fund Leverage Rises to Most Since 2004 in New Year“…

Hedge funds are borrowing more to buy equities just as loans by New York Stock Exchange brokers reach the highest in four years, signs of increasing confidence after professional investors trailed the market since 2008.

Leverage among managers who speculate on rising and falling shares climbed to the highest level to start any year since at least 2004, according to data compiled by Morgan Stanley. Margin debt at NYSE firms rose in November to the most since February 2008, data from NYSE Euronext show.

So why is this so important?

Well, as a recent Zero Hedge article explained, even a relatively small drop in stock prices could potentially absolutely devastate many hedge funds…

What near record leverage means is that hedge funds have absolutely zero tolerance for even the smallest drop in prices, which are priced to absolute and endless central bank-intervention perfection – sorry, fundamentals in a time when global GDP growth is declining, when Europe and Japan are in a double dip recession, when the US is expected to report its first sub 1% GDP quarter in years, when corporate revenues and EPS are declining just don’t lead to soaring stock prices.

It also means that with virtually all hedge funds in such hedge fund hotel names as AAPL (the stock held by more hedge funds – over 230 – than any other), any major drop in the price would likely lead to a wipe out of the equity tranche at the bulk of AAPL “investors”, sending them scrambling to beg for either more LP generosity, or to have their prime broker repo desk offer them even more debt. And while the former is a non-starter, the latter has so far worked, which means that most hedge funds have been masking losses with more debt, which then suffers even more losses, and so on.

By the way, Apple (AAPL) just fell to an 11-month low. Apple stock has now declined by 26 percent since it hit a record high back in September. That is a very bad sign for hedge funds.

But hedge funds are not the only ones flirting with disaster. In a previous article about the derivatives bubble, I pointed out the ridiculous amount of derivatives exposure that some of these “too big to fail” banks have relative to their total assets…

According to the Comptroller of the Currency, four of the largest U.S. banks are walking a tightrope of risk, leverage and debt when it comes to derivatives. Just check out how exposed they are…

JPMorgan Chase

Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)

Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)

Citibank

Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)

Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)

Bank Of America

Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)

Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)

Goldman Sachs

Total Assets: $114,693,000,000 (a bit more than 114 billion dollars – yes, you read that correctly)

Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)

Take another look at those figures for Goldman Sachs. If you do the math, Goldman Sachs has total exposure to derivatives contracts that is more than 362 times greater than their total assets.

That is utter insanity, but we haven’t had a derivatives crash yet so everyone just keeps pretending that the emperor actually has clothes on.

When the derivatives crisis happens, things in the financial markets are going to fall apart at lightning speed. A recent article posted on goldsilverworlds.com explained what a derivatives crash may look like…

When one big bank faces some kind of trouble and fails, the banks with the largest exposure to derivates (think JP Morgan, Citygroup, Goldman Sachs) will realize that the bank on the other side of the derivatives trade (the counterparty) is no longer good for their obligation. All of a sudden the hedged position becomes a naked position. The net position becomes a gross position. The risk explodes instantaneously. Markets realize that their hedged positions are in reality not hedged anymore, and all market participants start bailing almost simultaneously. The whole banking and financial system freezes up. It might start in Asia or Europe, in which case Americans will wake up in the morning to find out that their markets are not functioning anymore; stock markets remain closed, money at the banks become inaccessible, etc.

But for now, the party continues. Goldman Sachs and many of the big hedge funds are making enormous piles of money.

In fact, according to the Wall Street Journal, Goldman Sachs recently gave some of their top executives 65 million dollars worth of restricted stock…

Goldman Sachs Group Inc. GS -0.76% handed insiders including Chief Executive Lloyd Blankfein and his top lieutenants a total of $65 million in restricted stock just hours before this year’s higher tax rates took effect.

The New York securities firm gave 10 of its directors and executives early vesting on 508,104 shares previously awarded as part of prior years’ compensation, according to a series of filings with the Securities and Exchange Commission late Monday.

And the bonuses that employees at Goldman receive are absolutely obscene. A recent Daily Mail article explained that Goldman employees in the UK are expected to receive record-setting bonuses this year…

Britain’s army of bankers will re-ignite public fury over lavish pay rewards as staff at Goldman Sachs are expected to reward themselves £8.3 billion in bonuses on Wednesday.

The American investment bank, which employs 5,500 staff in the UK, will be the first to unveil its telephone number-sized rewards – an average of £250,000 a person – as part of the latest round of bonus updates.

The increase, up from £230,000 last year, comes as British families are still struggling to make ends meet five years after banks brought the economy to the brink of meltdown.

Wouldn’t you like to get a “bonus” like that?

Life is good at these firms while the markets are going up.

But what happens when the party ends?

What happens if the markets crash in 2013?

When you bet big, you either win big or you lose big.

For now, the gigantic bets that Wall Street firms are making with borrowed money are paying off very nicely.

But a day of reckoning is coming. The next stock market crash is going to rip through Wall Street like a chainsaw and the carnage is going to be unprecedented.

Are you sure that the people holding your money will be able to make it through what is ahead? You might want to look into it while you still can.

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