Why Is The Smart Money Suddenly Getting Out Of Stocks And Real Estate?

Exit Sign - Photo by SheDreamsInRedIf wonderful times are ahead for U.S. financial markets, then why is so much of the smart money heading for the exits?  Does it make sense for insiders to be getting out of stocks and real estate if prices are just going to continue to go up?  The Dow is up about 17 percent so far this year, and it just keeps setting new record high after new record high.  U.S. home prices have risen about 11 percent from a year ago, and some analysts are projecting that we are on the verge of a brand new housing boom.  Why would the smart money want to leave the party when it is just getting started?  Well, of course the truth is that the “smart money” is regarded as being smart because they usually make better decisions than other people do.  And right now the smart money is screaming that it is time to get out of the markets.  For example, the SentimenTrader Smart/Dumb Money Index is now the lowest that it has been in more than two years.  The smart money is busy selling even as the dumb money is busy buying.  So precisely what does the smart money expect to happen?  Are they anticipating a market “correction” or something bigger than that?

Those are very good questions.  Unfortunately, the smart money rarely divulges their secrets, so we can only watch what they do.  And right now a lot of insiders are making some very interesting moves.

For example, George Soros has been dumping almost all of his financial stocks.  The following is from a recent article by Becket Adams

Everyone’s favorite billionaire investor is back in the spotlight, and this time he has a few people wondering what he’s up to.

George Soros has dumped his position with several major banks including JPMorgan Chase, Capitol One, SunTrust, and Morgan Stanley. He has reduced his exposure to Citigroup and decreased his stake in AIG by two-thirds.

In fact, Soros’ financial stock holdings are down by roughly 80 percent, a massive drop from his position just three months ago, according to SNL Financial.

So exactly what is going on?

Why is Soros doing this?

Well, there is certainly a lot to criticize when it comes to Soros, but you can’t really blame him if he is just taking his profits and running.  Financial stocks have been on a tremendous run and that run is going to end at some point.  Smart investors lock in their profits while they still can.

And without a doubt, stocks have become completely divorced from economic reality in recent months.  For example, there is usually a very close relationship between corporate earnings and stock prices.  But as CNBC recently reported, that relationship has totally broken down lately…

That trend disrupted a formerly symbiotic relationship between earnings and stock prices and is indicating that the bluechip average is in for a substantial pullback, according to Tom Kee, who runs the StockTradersDaily investor web site.

“They’ve been moving in tandem since 2009, until recently. Earnings per share for the Dow Jones industrial average have flatlined and the price has taken off,” Kee said. “There is something happening here that defines a bubble.”

At some point there will be a correction.  If the relationship between earnings and stock prices was where it should be, the Dow would be  around 13,500 right now.  That would be a fall of nearly 2,000 points from where it is at the moment.

And we appear to be entering a time when revenues at many corporate giants are actually declining.  As I noted in a previous article, corporate revenues are falling at Wal-Mart, Proctor and Gamble, Starbucks, AT&T, Safeway, American Express and IBM.

Of course a stock market “correction” can turn into a crash very easily.  Financial markets in Japan are already crashing, and many fear that the escalating problems in the third largest economy on the planet will soon spill over into Europe and North America.

And things in Europe just continue to get steadily worse.  In fact, the New York Times is reporting that the European Central Bank is warning that the risk of a “renewed banking crisis” in Europe is rising…

The European Central Bank warned on Wednesday that the euro zone’s slumping economy and a surge in problem loans were raising the risk of a renewed banking crisis, even as overall stress in the region’s financial markets had receded.

In a sober assessment of the state of the zone’s financial system, the E.C.B. said that a prolonged recession had made it harder for many borrowers to repay their loans, burdening banks that had still not finished repairing the damage caused by the 2008 financial crisis.

And there are many financial analysts out there that are warning that their cyclical indicators have peaked and that we are on the verge of a fresh global downturn

“We see building evidence of a cyclical downturn,” said Fredrik Nerbrand, HSBC’s global asset guru. “We find it highly troubling that the eurozone is still marred in a recession at the same time as our cyclical indicators appear to have peaked.”

In the United States, a lot of the smart money has also decided that it is time to bail out of the housing market before this latest housing bubble bursts.  The following is one example of this phenomenon that was discussed in a recent Businessweek article

Hedge fund manager Bruce Rose was among the first investors to coax institutional money into the mom and pop business of single-family home rentals, raising $450 million last year from Oaktree Capital Group LLC.

Now, with house prices climbing at the fastest pace in seven years and investors swamping the rental market, Rose says it no longer makes sense to be a buyer.

“We just don’t see the returns there that are adequate to incentivize us to continue to invest,” Rose, 55, chief executive officer of Carrington Holding Co. LLC, said in an interview at his Aliso Viejo, California office. “There’s a lot of — bluntly — stupid money that jumped into the trade without any infrastructure, without any real capabilities and a kind of build-it-as-you-go mentality that we think is somewhat irresponsible.”

So what does all of this mean?

Is there a reason why the smart money is suddenly getting out of stocks and real estate?

It could just be that the insiders are simply responding to market dynamics and that many of them are just seeking to lock in their profits.

Or it could be something much more than that.

What do you think?

Why are so many insiders heading for the exits right now?

Feel free to post a comment with your thoughts below…

 

America’s Bubble Economy Is Going To Become An Economic Black Hole

Black HoleWhat is going to happen when the greatest economic bubble in the history of the world pops?  The mainstream media never talks about that.  They are much too busy covering the latest dogfights in Washington and what Justin Bieber has been up to.  And most Americans seem to think that if the Dow keeps setting new all-time highs that everything must be okay.  Sadly, that is not the case at all.  Right now, the U.S. economy is exhibiting all of the classic symptoms of a bubble economy.  You can see this when you step back and take a longer-term view of things.  Over the past decade, we have added more than 10 trillion dollars to the national debt.  But most Americans have shown very little concern as the balance on our national credit card has soared from 6 trillion dollars to nearly 17 trillion dollars.  Meanwhile, Wall Street has been transformed into the biggest casino on the planet, and much of the new money that the Federal Reserve has been recklessly printing up has gone into stocks.  But the Dow does not keep setting new records because the underlying economic fundamentals are good.  Rather, the reckless euphoria that we are seeing in the financial markets right now reminds me very much of 1929.  Margin debt is absolutely soaring, and every time that happens a crash rapidly follows.  But this time when a crash happens it could very well be unlike anything that we have ever seen before.  The top 25 U.S. banks have more than 212 trillion dollars of exposure to derivatives combined, and when that house of cards comes crashing down there is no way that anyone will be able to prop it back up.  After all, U.S. GDP for an entire year is only a bit more than 15 trillion dollars.

But most Americans are only focused on the short-term because the mainstream media is only focused on the short-term.  Things are good this week and things were good last week, so there is nothing to worry about, right?

Unfortunately, economic reality is not going to change even if all of us try to ignore it.  Those that are willing to take an honest look at what is coming down the road are very troubled.  For example, Bill Gross of PIMCO says that his firm sees “bubbles everywhere”…

We see bubbles everywhere, and that is not to be dramatic and not to suggest they will pop immediately. I just suggested in the bond market with a bubble in treasuries and bubble in narrow credit spreads and high-yield prices, that perhaps there is a significant distortion there. Having said that, it suggests that as long as the FED and Bank of Japan and other Central Banks keep writing checks and do not withdraw, then the bubble can be supported as in blowing bubbles. They are blowing bubbles. When that stops there will be repercussions.

And unfortunately, it is not just the United States that has a bubble economy.  In fact, the gigantic financial bubble over in Japan may burst before our own financial bubble does.  The following is from a recent article by Graham Summers

First and foremost, Japan is the second largest bond market in the world. If Japan’s sovereign bonds continue to fall, pushing rates higher, then there has been a tectonic shift in the global financial system. Remember the impact that Greece had on asset prices? Greece’s bond market is less than 3% of Japan’s in size.

For multiple decades, Japanese bonds have been considered “risk free.” As a result of this, investors have been willing to lend money to Japan at extremely low rates. This has allowed Japan’s economy, the second largest in the world, to putter along marginally.

So if Japanese bonds begin to implode, this means that:

1)   The second largest bond market in the world is entering a bear market (along with commensurate liquidations and redemptions by institutional investors around the globe).

2)   The second largest economy in the world will collapse (along with the impact on global exports).

Both of these are truly epic problems for the financial system.

And of course the entire global financial system is a giant bundle of debt, risk and leverage at this point.  We have never seen anything like this in world history.  When you step back and take a good, hard look at the numbers, they truly are staggering.  The following statistics are from one of my previous articles entitled “Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers“…

$70,000,000,000,000 – The approximate size of total world GDP.

$190,000,000,000,000 – The approximate size of the total amount of debt in the entire world.  It has nearly doubled in size over the past decade.

$212,525,587,000,000 – According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States.  But those banks only have total assets of about 8.9 trillion dollars combined.  In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.

$600,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives generally fall within this range.  At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.

The financial meltdown that happened back in 2008 should have been a wake up call for the nations of the world.  They should have corrected the mistakes that happened so that nothing like that would ever happen again.  Unfortunately, nothing was fixed.  Instead, our politicians and the central bankers became obsessed with reinflating the system.  They piled up even more debt, recklessly printed tons of money and kicked the can down the road for a few years.  In the process, they made our long-term problems even worse.  The following is a recent quote from John Williams of shadowstats.com

The economic and systemic solvency crises of the last eight years continue. There never was an actual recovery following the economic downturn that began in 2006 and collapsed into 2008 and 2009. What followed was a protracted period of business stagnation that began to turn down anew in second- and third-quarter 2012. The official recovery seen in GDP has been a statistical illusion generated by the use of understated inflation in calculating key economic series (see Public Comment on Inflation). Nonetheless, given the nature of official reporting, the renewed downturn likely will gain recognition as the second-dip in a double- or multiple-dip recession.

What continues to unfold in the systemic and economic crises is just an ongoing part of the 2008 turmoil. All the extraordinary actions and interventions bought a little time, but they did not resolve the various crises. That the crises continue can be seen in deteriorating economic activity and in the panicked actions by the Federal Reserve, where it proactively is monetizing U.S. Treasury debt at a pace suggestive of a Treasury that is unable to borrow otherwise.

And there are already lots of signs that the next economic downturn is rapidly approaching.

For example, corporate revenues are falling at Wal-Mart, Proctor and Gamble, Starbucks, AT&T, Safeway, American Express and IBM.

Would revenues at Wal-Mart be falling if the economy was getting better?

U.S. jobless claims hit a six week high last week.  We aren’t in the danger zone yet, but once they hit 400,000 that will be a major red flag.

And even though we are still in the “good times” relatively speaking, the federal government is already talking about tightening welfare programs.  In fact, there are proposals in Congress right now to make significant cuts to the food stamp program.

If food stamps and other welfare programs get cut, that is going to make a lot of people very, very angry.  And that anger and frustration will get even worse when the next economic downturn strikes and millions of people start losing their jobs and their homes.

What we are witnessing right now is the calm before the storm.  Let us hope that it lasts for as long as possible so that we can have more time to prepare.

Unfortunately, this bubble of false hope will not last forever.  At some point it will end, and then the pain will begin.

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

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

The Price Of Gold

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…

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:

  1. Amass a huge short position early in the game
  2. 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
  3. 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)
  4. 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
  5. Close their positions for massive gains and then act as if they had made a really prescient market call
  6. 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.

Time Is Running Out

11 Economic Crashes That Are Happening RIGHT NOW

11 Economic Crashes That Are Happening RIGHT NOWThe 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…

A Market Crash Is Coming

Will Italy Be The Spark That Sets Off Financial Armageddon In Europe?

Will Italy Be The Spark That Sets Off Financial Armageddon In EuropeIs the financial collapse of Italy going to be the final blow that breaks the back of Europe financially?  Most people don’t realize this, but Italy is actually the third largest debtor in the entire world after the United States and Japan.  Italy currently has a debt to GDP ratio of more than 120 percent, and Italy has a bigger national debt than anyone else in Europe does.  That is why it is such a big deal that Italian voters have just overwhelmingly rejected austerity.  The political parties led by anti-austerity candidates Silvio Berlusconi and Beppe Grillo did far better than anticipated.  When you combine their totals, they got more than 50 percent of the vote.  Italian voters have seen what austerity has done to Greece and Spain and they want no part of it.  Unfortunately for Italian voters, it has been the promise of austerity that has kept the Italian financial system stable in recent months.  Now that Italian voters have clearly rejected austerity, investors are fearing that austerity programs all over Europe may start falling apart.  This is creating quite a bit of panic in European financial markets right now.  On Tuesday, Italian stocks had their worst day in 10 months, Italian bond yields rose by the most that we have seen in 19 months, and the stocks of the two largest banks in Italy both fell by more than 8 percent.  Italy is already experiencing its fourth recession since 2001, and unemployment has been steadily rising.  If Italy is now “ungovernable”, as many are saying, then what does that mean for the future of Italy?  Will Italy be the spark that sets off financial armageddon in Europe?

All of Europe was totally shocked by the election results in Italy.  As you can see from the following excerpt from a Bloomberg article, the vote was very divided and the anti-austerity parties did much better than had been projected…

The results showed pre-election favorite Pier Luigi Bersani won the lower house with 29.5 percent, less than a half a percentage point ahead of Silvio Berlusconi, the ex-premier fighting a tax-fraud conviction. Beppe Grillo, a former comedian, got 25.6 percent, while Monti scored 10.6 percent. Bersani and his allies got 31.6 percent of votes in the Senate, compared with 30.7 percent for Berlusconi and 23.79 percent for Grillo, according to final figures from the Interior Ministry.

So what do those election results mean for Italy and for the rest of Europe?

Right now, there is a lot of panic about those results.  There is fear that what just happened in Italy could result in a rejection of austerity all over Europe

“I think the election results (or lack thereof) are a negative for the euro, which will likely keep the currency pressured for some time,” Omer Esiner, chief market analyst for Commonwealth Foreign Exchange, told me. But it’s not just the political uncertainty in Italy, he adds. “The shocking gains made by anti-establishment parties in Italy signal a broad-based frustration with austerity among voters and a decisive rejection of the policies pushed by Germany in nations across the euro zone’s periphery. That theme revives unresolved debt crisis issues and could threaten the continuity of reforms across other countries in the euro zone.”

And the financial markets have clearly interpreted the election results in Europe as a very bad sign.  Zero Hedge summarized some of the bad news out of Europe that we saw on Tuesday…

Swiss 2Y rates turned negative once again for the first time in a month; EURUSD relatively flatlined around 1.3050 (250 pips lower than pre-Italy); Europe’s VIX exploded to almost 26% (from under 19% yesterday); and 3-month EUR-USD basis swaps plunged to their most liquidity-demanding level since 12/28. Spain and Italy (and Portugal) were the most hurt in bonds today as 2Y Italian spreads broke back above 200bps (surging over 50bps casting doubt on OMT support) and 3Y Spain yields broke above 3% once again. The Italian equity market suffered its equal biggest drop in 6 months falling back to 10 week lows (and down 14% from its end-Jan highs). Italian bond yields (and spreads) smashed higher – the biggest jump in 19 months as BTP futures volume exploded in the last two days.

Not that things in Europe were going well before all this.

In fact, the UK was just stripped of its prized AAA credit rating.  That was huge news.

And check out some of the other things that have been going on in the rest of Europe

In Spain, a major real estate company, Reyal Urbis, collapsed last week, leaving already battered banks on the hook for millions of euros in losses. Meanwhile, the government faces a corruption scandal and a steady stream of anti-austerity demonstrations. Thousands of people took to the streets again on Saturday, protesting deep cuts to health and other services, as well as hefty bank bailouts.

Life is no better in a large swath of the broader EU. In Britain, Moody’s cited the continuing economic weakness and the resulting risks to the government’s tight fiscal policy for its rating cut. In Bulgaria, where the government fell last week and the economy is in a shambles, rightists who joined mass demonstrations across the country burned a European Union flag and waved anti-EU banners. Other austerity-minded governments in the EU face similar murky political futures.

At this point, Europe is a complete and total economic mess and things are rapidly getting worse.

And that is really bad news because Europe is already in the midst of a recession.  In fact, according to the BBC, the recession in the eurozone got even deeper during the fourth quarter of 2012…

The eurozone recession deepened in the final three months of 2012, official figures show.

The economy of the 17 nations in the euro shrank by 0.6% in the fourth quarter, which was worse than forecast.

It is the sharpest contraction since the beginning of 2009 and marks the first time the region failed to grow in any quarter during a calendar year.

But this is just the beginning.

The truth is that government debt is not even the greatest danger that Europe is facing.  In reality, a collapse of the European banking system is of much greater concern.

Why is that?

Well, how would you feel if you woke up someday and every penny that you had in the bank was gone?

In the U.S. we don’t have to worry about that so much because all deposits are insured by the FDIC, but in many European countries things work much differently.

For example, just check out what Graham Summers recently had to say about the banking system in Spain…

It’s a little known fact about the Spanish crisis is that when the Spanish Government merges troubled banks, it typically swaps out depositors’ savings for shares in the new bank.

So… when the newly formed bank goes bust, “poof” your savings are GONE. Not gone as in some Spanish version of the FDIC will eventually get you your money, but gone as in gone forever (see the above article for proof).

This is why Bankia’s collapse is so significant: in one move, former depositors at seven banks just lost virtually everything.

And this in a nutshell is Europe’s financial system today: a totally insolvent sewer of garbage debt, run by corrupt career politicians who have no clue how to fix it or their economies… and which results in a big fat ZERO for those who are nuts enough to invest in it.

Be warned. There are many many more Bankias coming to light in the coming months. So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We’re literally at most a few months, and very likely just a few weeks from Europe’s banks imploding, potentially taking down the financial system with them. Think I’m joking? The Fed is pumping hundreds of BILLIONS of dollars into EU banks right now trying to stop this from happening.

Like Graham Summers, I am extremely concerned about the European banking system.  Europe actually has a much larger banking system than the U.S. does, and if the European banking system implodes that is going to send huge shockwaves to the farthest corners of the globe.

But if you want to believe that the “experts” in Europe and in the United States have “everything under control”, then you might as well stop reading now.

After all, they are very highly educated and they know what they are doing, right?

But if you want to listen to some common sense, you might want to check out this very ominous warning from Karl Denninger

I hope you’re ready.

Congress has wasted the time it was given by the Europeans getting things “temporarily” under control.  But they didn’t actually get anything under control, as the Italian elections just showed.

Now, with the budget over there at risk of being abandoned, and fiscal restraint being abandoned (note: exactly what the US has been doing) the markets are recognizing exactly the risk that never in fact went away over the last couple of years.

It was hidden by lies, just as it has been hidden by lies here.

Bernanke’s machinations and other games “gave” the Congress four years to do the right thing.  They didn’t, because that same “gift” also destroyed all market signals of urgency.

As such you have people like Krugman and others claiming that it’s all ok and that we can spend with wild abandon, taking our fiscal medicine never.

They were wrong.  Congress was wrong.  The Republicans were wrong, the Democrats were wrong, and the Administration was wrong.

Congress is out of time; as I noted the deficit spending must stop now, irrespective of the fact that it will cause significant economic damage.

For the past couple of years, authorities in the U.S. and in Europe have been trying to delay the coming crisis by kicking the can down the road.

By doing so, they have been making the eventual collapse even worse.

And now time is running out.

I hope that you are ready.

Armageddon

Federal Reserve Money Printing Is The Real Reason Why The Stock Market Is Soaring

Federal Reserve Money Printing Is The Real Reason Why The Stock Market Is SoaringYou can thank the reckless money printing that the Federal Reserve has been doing for the incredible bull market that we have seen in recent months.  When the Federal Reserve does more “quantitative easing”, it is the financial markets that benefit the most.  The Dow and the S&P 500 have both hit levels not seen since 2007 this month, and many analysts are projecting that 2013 will be a banner year for stocks.  But is a rising stock market really a sign that the overall economy is rapidly improving as many are suggesting?  Of course not.  Just because the Federal Reserve has inflated another false stock market bubble with a bunch of funny money does not mean that the U.S. economy is in great shape.  In fact, the truth is that things just keep getting worse for average Americans.  The percentage of working age Americans with a job has fallen from 60.6% to 58.6% while Barack Obama has been president, 40 percent of all American workers are making $20,000 a year or less, median household income has declined for four years in a row, and poverty in the United States is absolutely exploding.  So quantitative easing has definitely not made things better for the middle class.  But all of the money printing that the Fed has been doing has worked out wonderfully for Wall Street.  Profits are soaring at Goldman Sachs and luxury estates in the Hamptons are selling briskly.  Unfortunately, this is how things work in America these days.  Our “leaders” seem far more concerned with the welfare of Wall Street than they do about the welfare of the American people.  When things get rocky, their first priority always seems to be to do whatever it takes to pump up the financial markets.

When QE3 was announced, it was heralded as the grand solution to all of our economic problems.  But the truth is that those running things knew exactly what it would do.  Quantitative easing always pumps up the financial markets, and that overwhelmingly benefits those that are wealthy.  In fact, a while back a CNBC article discussed a very interesting study from the Bank of England which showed a clear correlation between quantitative easing and rising stock prices…

It said that the Bank of England’s policies of quantitative easing – similar to the Fed’s – had benefited mainly the wealthy.

Specifically, it said that its QE program had boosted the value of stocks and bonds by 26 percent, or about $970 billion. It said that about 40 percent of those gains went to the richest 5 percent of British households.

Many said the BOE’s easing added to social anger and unrest. Dhaval Joshi, of BCA Research wrote that  “QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it.”

So should we be surprised that stocks are now the highest that they have been in more than 5 years?

Of course not.

And who benefits from this?

The wealthy do.  In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans.

Unfortunately, all of this reckless money printing has a very negative impact on all the rest of us.  When the Fed floods the financial system with money, that causes inflation.  That means that the cost of living has gone up even though your paycheck may not have.

If you go to the supermarket frequently, you know exactly what I am talking about.  The new “sale prices” are what the old “regular prices” used to be.  They keep shrinking many of the package sizes in order to try to hide the inflation, but I don’t think many people are fooled.  Our food dollars are not stretching nearly as far as they used to, and we can blame the Federal Reserve for that.

For much more on rising prices in America, please see this article: “Somebody Should Start The ‘Stuff Costs Too Much’ Party“.

Sadly, this is what the Federal Reserve does.  The system was designed to create inflation.  Before the Federal Reserve came into existence, the United States never had an ongoing problem with inflation.  But since the Fed was created, the United States has endured constant inflation.  In fact, we have come to accept it as “normal”.  Just check out the amazing chart in the video posted below

The chart in that video kind of reminds me of a chart that I shared in a previous article

Hyperinflation Weimar Republic

Not that I expect the United States to enter a period of hyperinflation in the near future.

Actually, despite all of the reckless money printing that the Fed has been doing, I expect that at some point we are going to see another wave of panic hit the financial markets like we saw back in 2008.  The false stock market bubble will burst, major banks will fail and the financial system will implode.  It could unfold something like this…

1 – A derivatives panic hits the “too big to fail” banks.

2 – Financial markets all over the globe crash.

3 – The credit markets freeze up.

4 – Economic activity in the United States starts to grind to a halt.

5 – Unemployment rises above 20 percent and mortgage defaults soar to unprecedented levels.

6 – Tax revenues fall dramatically and austerity measures are implemented by the federal government, state governments and local governments.

7 – The rest of the globe rapidly loses confidence in the U.S. financial system and begins to dump U.S. debt and U.S. dollars.

I write about derivatives a lot, because they are one of the greatest threats that the global financial system is facing.  In fact, right now a derivatives scandal is threatening to take down the oldest bank in the world

Banca Monte dei Paschi di Siena, the world’s oldest bank, was making loans when Michelangelo and Leonardo da Vinci were young men and before Columbus sailed to the New World. The bank survived the Italian War, which saw Siena’s surrender to Spain in 1555, the Napoleonic campaign, the Second World War and assorted bouts of plague and poverty.

But MPS may not survive the twin threats of a gruesomely expensive takeover gone bad and a derivatives scandal that may result in legal action against the bank’s former executives. After five centuries of independence, MPS may have to be nationalized as its losses soar and its value sinks.

So when you hear the word “derivatives” in the news, pay close attention.  The bankers have turned our financial system into a giant casino, and at some point the entire house of cards is going to come crashing down.

In response to the coming financial crisis, I believe that our “leaders” will eventually resort to money printing unlike anything we have ever seen before in a desperate attempt to resuscitate the system.  When that happens, I believe that we will see the kind of rampant inflation that so many people have been warning about.

So what do you think about all of this?

Do you believe that Federal Reserve money printing is the real reason why the stock market is soaring?

Please feel free to post a comment with your thoughts below…

How Much Money Will They Print?

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

Goldman Sachs And The Big Hedge Funds Are Pushing Leverage To Ridiculous Extremes - Photo by bfishadow on FlickrAs 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.

Goldman Sachs New World Headquarters

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