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The Big Dogs On Wall Street Are Starting To Get Very Nervous

February 21, 2013 by Michael

Why are some of the biggest names in the corporate world unloading stock like there is no tomorrow, and why are some of the most prominent investors on Wall Street loudly warning about the possibility of a market crash? Should we be alarmed that the big dogs on Wall Street are starting to get very nervous? In a previous article, I got very excited about a report that indicated that corporate insiders were selling nine times more of their own shares than they were buying. Well, according to a brand new Bloomberg article, insider sales of stock have outnumbered insider purchases of stock by a ratio of twelve to one over the past three months. That is highly unusual. And right now some of the most respected investors in the financial world are ringing the alarm bells. Dennis Gartman says that it is time to “rush to the sidelines”, Seth Klarman is warning about “the un-abating risks of collapse”, and Doug Kass is proclaiming that “we’re headed for a sharp fall”. So does all of this mean that a market crash is definitely on the way? No, but when you combine all of this with the weak economic data constantly coming out of the U.S. and Europe, it certainly does not paint a pretty picture.

According to Bloomberg, it has been two years since we have seen insider sales of stock at this level. And when insider sales of stock are this high, that usually means that the market is about to decline…

Corporate executives are taking advantage of near-record U.S. stock prices by selling shares in their companies at the fastest pace in two years.

There were about 12 stock-sale announcements over the past three months for every purchase by insiders at Standard & Poor’s 500 Index (SPX) companies, the highest ratio since January 2011, according to data compiled by Bloomberg and Pavilion Global Markets. Whenever the ratio exceeded 11 in the past, the benchmark index declined 5.9 percent on average in the next six months, according to Pavilion, a Montreal-based trading firm.

But it isn’t just the number of stock sales that is alarming. Some of these insider transactions are absolutely huge. Just check out these numbers…

Among the biggest transactions last week were a $65.2 million sale by Google Inc.’s 39-year-old Chief Executive Officer Larry Page, a $40.1 million disposal by News Corp.’s 81- year-old Chairman and CEO Rupert Murdoch and a $34.2 million sale from American Express Co. chief Kenneth Chenault, who is 61. Nolan Archibald, the 69-year-old chairman of Stanley Black & Decker Inc. who plans to leave his post next month, unloaded $29.7 million in shares last week and Amphenol Corp. Chairman Martin Hans Loeffler, 68, sold $27.5 million, according to data compiled by Bloomberg.

Google Chairman Eric Schmidt, 57, announced plans to sell as many as 3.2 million shares in the operator of the world’s most-popular search engine. The planned share sales, worth about $2.5 billion, represent about 42 percent of Schmidt’s holdings.

So why are all of these very prominent executives cashing out all of a sudden?

That is a very good question.

Meanwhile, some of the most respected names on Wall Street are warning that it is time to get out of the market.

For example, investor Dennis Gartman recently wrote that the game is “changing” and that it is time to “rush to the sidelines”…

“When tectonic plates in the earth’s crust shift earthquakes happen and when the tectonic plants shift beneath our feet in the capital markets margin calls take place. The tectonic plates have shifted and attention… very careful and very substantive attention… must be paid.

“Simply put, the game has changed and where we were playing a ‘game’ fueled by the monetary authorities and fueled by the urge on the part of participants to see and believe in rising ‘animal spirits’ as Lord Keynes referred to them we played bullishly of equities and of the EUR and of ‘risk assets’. Now, with the game changing, our tools have to change and so too our perspective.

“Where we were buyers of equities previously we must disdain them henceforth. Where we were sellers of Yen and US dollars we must buy them now. Where we had been long of gold in Yen terms, we must shift that and turn bullish of gold in EUR terms. Where we might have been ‘technically’ bullish of the EUR we must now be technically and fundamentally bearish of it. The game board has been flipped over; the game has changed… change with it or perish. We cannot be more blunt than that.”

That is a very ominous warning, but he is far from alone. Just the other day, I wrote about how legendary investor Seth Klarman is warning that the collapse of the financial markets could happen at literally any time…

“Investing today may well be harder than it has been at any time in our three decades of existence,” writes Seth Klarman in his year-end letter. The Fed’s “relentless interventions and manipulations” have left few purchase targets for Baupost, he laments. “(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors.”

Other big hitters on Wall Street are ringing the alarm bells as well. For example, Seabreeze Partners portfolio manager Doug Kass recently told CNBC that what he is seeing right now reminds him of the period just before the 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.”

And of course the “perma-bears” continue to warn that the months ahead are going to be very difficult. For instance, “Dr. Doom” Marc Faber recently said that he “loves the high odds of a ‘big-time’ market crash“.

Another “perma-bear”, Nomura’s Bob Janjuah, is convinced that the stock market 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”.

So are they right?

We will see.

At the same time that many of the big dogs are pulling their money out of the market, many smaller investors are rushing to put their money back in to the market. The mainstream media continues to assure them that everything is wonderful and that this rally can last forever.

But it is important to keep in mind that the last time that Wall Street was this “euphoric” was right before the market crash in 2008.

So what should we be watching for?

As I have mentioned before, it is very important to watch the financial markets in Europe right now.

If they crash, the financial markets in the U.S. will probably crash too.

And the financial markets in Europe definitely have had a rough week. Just check out what happened on Thursday. The following is from a report by CNBC’s Bob Pisani…

Italy, Germany, France, Spain, U.K., Greece, and Portugal all on track to log worst day since Feb. 4. European PMI numbers were disappointing, with all major countries except Germany reporting numbers below 50, indicating contraction.

What does this mean? It means Europe remains mired in recession: “The euro zone is on course to contract for a fourth consecutive quarter,” Markit, who provides the PMI data, said. A new insight is that France is now joining the weakness shown in periphery countries.

You’re giving me agita: Italy was the worst market, down 2.5 percent. The CEO of banking company, Intesa Sanpaolo, said Italy’s recession has been so bad it could cause a fifth of Italian companies to fail, noting that topline for those bottom fifth have been shrinking 35 to 45 percent. Italian elections are this weekend.

It wasn’t any better in Asia. The Shanghai Index had its worst day in over a year, closing down nearly three percent.

And the economic numbers coming out of the U.S. also continue to be quite depressing.

On Thursday, the Department of Labor announced that there were 362,000 initial claims for unemployment benefits during the week ending February 16th. That was a sharp rise from a week earlier.

But I am not really concerned about that number yet.

When it rises above 400,000 and it stays there, then it will be time to officially become alarmed.

So what is the bottom line?

There are trouble signs on the horizon for the financial markets. Nobody should panic right now, but things certainly do not look very promising for the remainder of the year.

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.

The Facebook IPO: The Last Great Wall Street Party

May 18, 2012May 18, 2012 by Michael

The Facebook IPO is kind of like a graduation party – everybody comes together for one huge blowout to celebrate the end of an era before going their separate ways. Unfortunately, most people on Wall Street do not understand how bittersweet this moment really is. A tremendous amount of pain is ahead for Wall Street in the next few years, and we will probably never see anything like the Facebook IPO ever again. But the Facebook IPO sure has been fun to watch. Facebook is one of the largest companies to ever go public in the United States. According to CNN, 247 million shares of Facebook exchanged hands in the first 45 minutes of trading. The Facebook IPO was nearly ten times larger than any other Internet IPO in history, and the amount of money being made by some people on this deal is absolutely amazing. For example, it is being reported that Bono will make more money on the Facebook IPO than he has from being part of the band U2 for the past 30 years. Sadly, this euphoria is not going to last for long. The next wave of the global financial collapse is rapidly approaching, and once it strikes there will not be much for anyone on Wall Street to be smiling about at all.

During the IPO process, Facebook sold more than 420 million shares and raised about 16 billion dollars.

Those are incredible numbers.

At 38 dollars per share, Facebook would have a market cap of about 81 billion dollars.

So is Facebook worth 81 billion dollars?

Of course not.

But most stocks are tremendously overvalued at this point.

Yes, Facebook has 900 million users and it made about a profit of about a billion dollars last year.

But that does not add up to an 81 billion dollar company.

Not even close.

A recent article by Jay Yarow explained this in more detail….

As good a business as that is, it’s not Google good. It’s not Apple good. And at the current IPO pricing, Facebook has to be a much better business in the near future.

In fact, Yarow says that Facebook is going to have to dramatically improve in order to justify the current valuation….

So, what’s the bull’s case for Facebook? Unfortunately, it comes down to faith. You have to have faith that Mark Zuckerberg, Sheryl Sandberg, and the rest of the executives at Facebook will discover a magical money making product that will justify its valuation.

Unfortunately, there are already signs that the growth of Facebook is slowing down.

Advertising revenue during the first quarter of 2012 was only $872 million. That was a decline of 7.5 percent from the previous quarter.

And eventually someone will come along and topple Facebook just like Facebook toppled MySpace.

Remember MySpace?

Facebook did not even exist a decade ago. Right now there are young kids tinkering around in their college dorm rooms trying to figure out how to create something that will be even better than Facebook.

The truth is that Facebook is operating on borrowed time. It is not going to remain “hot” and “trendy” forever.

But for the moment, there are a whole lot of people out there that want a piece of Facebook.

Hey, I am not in the stock market at all, but even I am half-tempted to buy a few shares so that I can introduce myself as a “part-owner of Facebook”.

After all, who doesn’t like Facebook?

Yes, government agencies and big corporations use Facebook to spy on all of us. If you don’t believe this, just check out this article, this article and this article.

But there is an incredible upside to social networking websites such as Facebook and Twitter as well.

They have given average people the ability to communicate directly with each other on a massive scale.

In the past, the big corporations pretty much had a monopoly on mass communication.

If you wanted to get your message out independently of the big corporations, you could hand out fliers, you could send out mass mailings (very expensive) or you could try to get a book printed.

But today something that you post on Facebook or Twitter could be seen by thousands (or even millions) of people within a few days.

The Internet is filled with a whole lot of garbage, but it can also be used as an incredible tool for good.

Sitting at home behind your desk, you have the potential to touch the lives of people on the other side of the globe through the Internet that you would probably never have a chance of influencing any other way.

So I am very thankful for Facebook.

We should use tools like Facebook to wake people up while there is still time. Our world is becoming increasingly unstable and we might not always have the opportunity to freely share our thoughts with the entire globe like this.

Just try to imagine a world without Facebook, Twitter, YouTube, blogs and Internet forums.

All of those things have only existed for a relatively short period of time, and there is no guarantee that we will always have them.

Instead of wasting our lives away in front of our televisions, we should be taking advantage of these tools to help change the world.

Every single day, hundreds of people are directed to my website from Facebook. I am hoping to eventually increase that to thousands of people per day.

A great economic collapse is coming to this world. People need to keep their eyes on the financial crisis in Europe and on the derivatives market. The coming financial tsunami will likely be even worse than the crash of 2008.

People are going to be looking for answers.

Now is the time to be a light shining in the darkness.

Not everyone has the time or the knowledge to be able to set up a website or make YouTube videos, but nearly everyone is capable of setting up a Facebook account or a Twitter account.

If you make even a small effort, you could end up touching the lives of thousands upon thousands of people.

Yes, there are a lot of negative things that can be said about Facebook, but at least for today let us celebrate it for what it has given us.

It has given us the opportunity to make a difference on a massive scale, and that is a wonderful thing.