The U.S.

The Velocity Of Money In The U.S. Falls To An All-Time Record Low

June 1, 2014 by Michael

When an economy is healthy, there is lots of buying and selling and money tends to move around quite rapidly. Unfortunately, the U.S. economy is the exact opposite of that right now. In fact, as I will document below, the velocity of M2 has fallen to an all-time record low. This is a very powerful indicator that we have entered a deflationary era, and the Federal Reserve has been attempting to combat this by absolutely flooding the financial system with more money. This has created some absolutely massive financial bubbles, but it has not fixed what is fundamentally wrong with our economy. On a very basic level, the amount of economic activity that we are witnessing is not anywhere near where it should be and the flow of money through our economy is very stagnant. They can try to mask our problems with happy talk for as long as they want, but in the end it will be clearly evident that none of the long-term trends that are destroying our economy have been addressed.

Discussions about the money supply can get very complicated, and that can cause people to tune out, but it doesn’t have to be that way.

To put it very basically, when there is lots of economic activity, there is lots of money changing hands.

When there is not very much economic activity, the pace at which money circulates through our system slows down.

That is why what is happening in the U.S. right now is so troubling.

First, let’s look at M1, which is a fairly narrow definition of the money supply. The following is how Investopedia defines M1…

A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency. It does not contain “near money” or “near, near money” as M2 and M3 do.

As you can see from the chart posted below, the velocity of M1 normally declines during a recession. Just look at the shaded areas in the chart. But a funny thing has happened since the end of the last recession. The velocity of M1 has just kept falling and it is now at a nearly 20 year low…

Next, let’s take a look at M2. It includes more things in the money supply. The following is how Investopedia defines M2…

A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.

In the chart posted below, we can once again see that the velocity of M2 normally slows down during a recession. And we can also see that the velocity of M2 has continued to slow down in the “post-recession era” and has now dropped to the lowest level ever recorded…

This is a highly deflationary chart.

It clearly indicates that economic activity in the U.S. has been steadily slowing down.

And if we are honest, we have to admit that we are seeing signs of this all around us. Major retailers are closing down stores at the fastest pace since the collapse of Lehman Brothers, consumer confidence is down, trading revenues at the big Wall Street banks are way down, and the steady decline in home sales is more than just a little bit alarming.

In addition, the employment situation in this country is much less promising than we have been led to believe. According to a report put out by the Republicans on the Senate Budget Committee, an all-time record one out of every eight men in their prime working years are not in the labor force…

“There are currently 61.1 million American men in their prime working years, age 25–54. A staggering 1 in 8 such men are not in the labor force at all, meaning they are neither working nor looking for work. This is an all-time high dating back to when records were first kept in 1955. An additional 2.9 million men are in the labor force but not employed (i.e., they would work if they could find a job). A total of 10.2 million individuals in this cohort, therefore, are not holding jobs in the U.S. economy today. There are also nearly 3 million more men in this age group not working today than there were before the recession began.”

Never before has such a high percentage of men in their prime years been so idle.

But since they are not counted as part of “the labor force”, the government bureaucrats can keep the “unemployment rate” looking nice and pretty.

Of course if we were actually using honest numbers, the unemployment rate would be in the double digits, our economy would be considered to have been in a recession since about 2005, and everyone would be crying out for an end to “the depression”.

And now we are rapidly approaching another downturn. In my recent articles entitled “Has The Next Recession Already Begun For America’s Middle Class?” and “27 Huge Red Flags For The U.S. Economy“, I detailed much of the evidence for why this is true.

And those that run the Federal Reserve know all of this.

That is one of the reasons for all of the “quantitative easing” that they have been doing. The folks at the Fed know that the U.S. economy would probably drift into a deflationary depression if they just sat back and did nothing. So they flooded the system with money in a desperate attempt to revive economic activity. But instead, most of the new money just ended up in the pockets of the very wealthy and further increased the divide between those at the top and those at the bottom in this country.

And now Fed officials are slowly scaling back quantitative easing because they apparently believe that the economy is getting “back to normal”.

We shall see.

Many are not quite so optimistic.

For example, the chief market analyst at the Lindsey Group, Peter Boockvar, believes that the S&P 500 could plummet 15 to 20 percent when quantitative easing finally ends.

Others believe that it will be much worse than that.

Since 2008, the size of the Fed balance sheet has grown from less than a trillion dollars to more than four trillion dollars. This unprecedented intervention was able to successfully delay the coming deflationary depression, but it has also made our long-term problems far worse.

So when the inevitable crash does arrive, it will be much, much worse than it could have been.

Sadly, most Americans do not understand these things. Most Americans simply trust that our “leaders” know what they are doing. And so in the end, most Americans will be completely blindsided by what is coming.

Deal Or No Deal: John Kerry’s Historic Diplomatic “Mistake” Proves That Obama Does Not Want Peace

September 9, 2013September 9, 2013 by Michael

When it comes to diplomacy, Russia is playing chess, Syria is playing checkers and U.S. Secretary of State John Kerry is playing tiddlywinks. On Monday, Kerry said that Syrian President Bashar al-Assad could avoid having his country bombed into oblivion by turning over “every single bit of his chemical weapons to the international community in the next week.” Of course Kerry just assumed that Assad would never do such a thing, but the Russians immediately pounced on his statement. Russian Foreign Minister Sergey Lavrov quickly announced that Russia would encourage Syria to turn over their chemical weapons to international control in exchange for a guarantee that the U.S. will not attack, and subsequently Syrian Foreign Minister Walid al-Muallem stated that his government was prepared for “full cooperation with Russia to remove any pretext for aggression.” Later on Monday, UN Secretary-General Ban Ki-moon indicated that he is thinking about asking the UN Security Council to support such a deal.

Do you know what they call such a move in chess?

Checkmate.

We were originally told that the primary goal of a U.S. military strike on Syria would be to prevent them from using chemical weapons in the future, and then John Kerry said that Assad could avoid a conflict by giving up all of his chemical weapons.

Well, the Russians and the Syrians have called the bluff.

So does this mean that we will have peace?

Unfortunately, the Obama administration does not seem to want that. The State Department has already come out and announced that what John Kerry said was a mistake. They insist that it was a “rhetorical argument” instead of an actual peace proposal.

But why wouldn’t the Obama administration grab such a deal? The American public does not want this war and neither does Congress at this point, so this could be a way out for Obama.

Wouldn’t getting Assad to give up all of his chemical weapons be a major coup?

And it certainly sounds like Syria wants peace…

Syrian Foreign Minister Walid Moallem told reporters in Moscow that his nation “welcomes” a proposal by Russian Foreign Minister Sergey Lavrov during talks on Monday: put Syria’s chemical weapons under international control to avert a U.S. military response over an alleged poison gas attack last month.

“I declare that the Syrian Arab Republic welcomes Russia’s initiative, on the basis that the Syrian leadership cares about the lives of our citizens and the security in our country,” Moallem said. “We are also confident in the wisdom of the Russian government, which is trying to prevent an American aggression against our people.”

We already know that a military strike would not get rid of Assad’s chemical weapons.

So wouldn’t a diplomatic solution that got rid of those weapons be far more preferable?

You would think that would be the case, but the sad truth of the matter is that this was never about Syria’s chemical weapons. This conflict is about money, religion, a natural gas pipeline, and looking out for the interests of Saudi Arabia, Qatar and Turkey. The Obama administration is not going to be able to achieve what they really want in Syria without military conflict.

And Obama seems to have developed a real appetite for military action. In fact, Business Insider has pointed out that the attack on Syria will be the eighth military conflict during Obama’s presidency…

In 2011, America was more or less kicked out of Iraq. By then, Obama had surged troops in Afghanistan and increased cross-border strikes in Pakistan.

He took what was a one-off cruise missile strike in Somalia in early 2008, and expanded it into a concerted military operation against Boko Haram. That’s four.

He also cut a deal with Yemeni President Abd-Rabbu Mansour al-Hadi to conduct counter-terrorism operations and a bombing campaign in Yemen. That’s five.

He initiated a bombing and air campaign in Libya that ended in a boots-on-the-ground situation that was likely much bigger than anyone without a clearance knows. That’s six.

He then aided in French direct operations in Mali by providing surveillance drones and transport. That’s seven.

Now he’s pitching the idea of a cruise missile attack and possibly even a aerial bombing campaign in Syria, one that could conceivably lead to further escalation.

That’s eight.

But of course the Obama administration is promising that the assault on Syria will be very “limited”. On Monday, John Kerry even went so far as to claim that the attack would be “unbelievably small“.

So precisely how does the launching of hundreds of cruise missiles constitute an “unbelievably small” strike?

I think that John Kerry will end up deeply, deeply regretting that statement. He is an incompetent bumbler that is making the United States look like a total fool. Instead of being our top diplomat, he should be mopping the floors in a Dairy Queen somewhere.

When the U.S. attacks Syria, there is a very good chance that we could be starting World War III.

You see, it won’t just be a matter of Syria retaliating against the United States. Assad put it this way during an interview with Charlie Rose…

“You should expect everything. Not necessarily from the government”

So what does Assad mean by that? Debka gives us a clue…

The Syrian and Hizballah armies Sunday, Sept. 8, finished supplying rockets to dozens of Palestinian groups, some invented ad hoc, and deploying them on the Syrian and Lebanese borders facing Israel, debkafile’s military sources disclose. An array of Katyushas, Grads and Fajr-5s, with ranges of up to 70 kilometers, is now in place. This development prompted the first deployment in the Jerusalem region Sunday night of an Israeli anti-missile Iron Dome battery.

The information reaching Israeli intelligence is that the newly-armed Palestinian groups fully intend targeting the Israeli capital, following the example of Hamas, which aimed missiles from the Gaza Strip at Jerusalem and Tel Aviv in November 2012.
In his interview to PBS’s Charlie Rose Show airing Monday, Bashar Assad spoke of “people aligned to Syria” carrying out “some kind of retaliation” for an American attack.

It now turns out that he intends using pro-Syrian and amorphous Palestinian groups as his instruments of retaliation, while at the same time disavowing responsibility for their actions.

In the south, likeminded Hamas and Jihad Islami groups in the Gaza Strip may try and join the rocket offensive against Israel. It will be hard for them to stand aside and watch, although Egypt’s counterterrorism offensive in Sinai is cutting into their resources.

In addition to what the Palestinians have, the Syrians have approximately 100,000 rockets that they can fire at Israel and Hezbollah has approximately 70,000 rockets that they can fire at Israel.

If thousands of rockets start falling in Israeli cities, and if especially if any of those rockets have unconventional warheads, Israel will respond with absolutely overwhelming force and the number one target will be the city of Damascus.

Then we will have World War III, and the rest of the world will blame the United States and Israel.

Anyone that claims that this upcoming conflict will be good for the U.S. or for Israel is not being very smart.

There is so little that could be gained from a war with Syria and so much that could be lost.

And at this point, the American people are overwhelmingly against attacking Syria.

A brand new CNN poll has found that the American people are opposed to a military strike by a 71 percent to 27 percent margin if Congress does not approve it.

And if the vote was taken right this moment, it would almost certainly fail in the U.S. House of Representatives. If you doubt this, just check out the chart in this BBC article.

And a different survey has found that the American people are against military action in Syria by a 63 percent to 28 percent margin…

Opposition to U.S. airstrikes against Syria is surging, a USA TODAY/Pew Research Center Poll finds, despite a White House campaign to convince Americans it is the right course ahead.

By more than 2-1, 63%-28%, those surveyed Wednesday through Sunday say they are against U.S. military action against the Syrian regime for its reported use of chemical weapons against civilians. In the past week, support has declined by a percentage point and opposition has swelled by 15 points, compared with a previous Pew Research poll.

Hopefully Obama is listening.

If the American people were told the actual truth, those numbers would probably be even more lopsided. At least that is what U.S. Representative Justin Amash thinks…

If Americans could read classified docs, they’d be even more against #Syria action. Obama admn’s public statements are misleading at best.

So will the American people get to see the “evidence” that the Obama administration has been touting?

Of course not.

In fact, a request by the Associated Press to see the evidence has been denied…

The Associated Press ran a skeptical piece Sunday about the Obama administration’s public case for military intervention in Syria in response to a reported Aug. 21 chemical attack.

The AP’s Zeina Karam and Kimberly Dozier wrote that “the U.S. government insists it has the intelligence to prove it, but the public has yet to see a single piece of concrete evidence produced by U.S. intelligence — no satellite imagery, no transcripts of Syrian military communications — connecting the government of President Bashar Assad to the alleged chemical weapons attack last month that killed hundreds of people.”

The Obama administration has released videos to make its case, but the AP noted that its requests for additional evidence the government claims to possess have been denied

Instead, we are being told to “trust” Barack Obama and John Kerry as they lead us toward World War III.

And Obama seems absolutely obsessed with making this conflict happen. According to Politico, an unprecedented media blitz is planned to drum up support for this war…

Obama will tape interviews Monday afternoon with anchors from ABC, CBS and NBC, as well as with PBS, CNN and Fox News, the White House said.

The interviews will be conducted by ABC’s Diane Sawyer, CBS’s Scott Pelley, CNN’s Wolf Blitzer, Fox’s Chris Wallace, NBC’s Brian Williams and PBS’s Gwen Ifill.

The interviews will air that night, ahead of Obama’s Tuesday speech on Syria.

So what do you think?

Should we attack Syria and potentially start World War III?

Please feel free to share what you think by posting a comment below…

20 Signs That The Next Great Economic Depression Has Already Started In Europe

April 29, 2013 by Michael

The next Great Depression is already happening – it just hasn’t reached the United States yet. Things in Europe just continue to get worse and worse, and yet most people in the United States still don’t get it. All the time I have people ask me when the “economic collapse” is going to happen. Well, for ages I have been warning that the next major wave of the ongoing economic collapse would begin in Europe, and that is exactly what is happening. In fact, both Greece and Spain already have levels of unemployment that are greater than anything the U.S. experienced during the Great Depression of the 1930s. Pay close attention to what is happening over there, because it is coming here too. You see, the truth is that Europe is a lot like the United States. We are both drowning in unprecedented levels of debt, and we both have overleveraged banking systems that resemble a house of cards. The reason why the U.S. does not look like Europe yet is because we have thrown all caution to the wind. The Federal Reserve is printing money as if there is no tomorrow and the U.S. government is savagely destroying the future that our children and our grandchildren were supposed to have by stealing more than 100 million dollars from them every single hour of every single day. We have gone “all in” on kicking the can down the road even though it means destroying the future of America. But the alternative scares the living daylights out of our politicians. When nations such as Greece, Spain, Portugal and Italy tried to slow down the rate at which their debts were rising, the results were absolutely devastating. A full-blown economic depression is raging across southern Europe and it is rapidly spreading into northern Europe. Eventually it will spread to the rest of the globe as well.

The following are 20 signs that the next Great Depression has already started in Europe…

#1 The unemployment rate in France has surged to 10.6 percent, and the number of jobless claims in that country recently set a new all-time record.

#2 Unemployment in the eurozone as a whole is sitting at an all-time record of 12 percent.

#3 Two years ago, Portugal’s unemployment rate was about 12 percent. Today, it is about 17 percent.

#4 The unemployment rate in Spain has set a new all-time record of 27 percent. Even during the Great Depression of the 1930s the United States never had unemployment that high.

#5 The unemployment rate among those under the age of 25 in Spain is an astounding 57.2 percent.

#6 The unemployment rate in Greece has set a new all-time record of 27.2 percent. Even during the Great Depression of the 1930s the United States never had unemployment that high.

#7 The unemployment rate among those under the age of 25 in Greece is a whopping 59.3 percent.

#8 French car sales in March were 16 percent lower than they were one year earlier.

#9 German car sales in March were 17 percent lower than they were one year earlier.

#10 In the Netherlands, consumer debt is now up to about 250 percent of available income.

#11 Industrial production in Italy has fallen by an astounding 25 percent over the past five years.

#12 The number of Spanish firms filing for bankruptcy is 45 percent higher than it was a year ago.

#13 Since 2007, the value of non-performing loans in Europe has increased by 150 percent.

#14 Bank withdrawals in Cyprus during the month of March were double what they were in February even though the banks were closed for half the month.

#15 Due to an absolutely crippling housing crash, there are approximately 3 million vacant homes in Spain today.

#16 Things have gotten so bad in Spain that entire apartment buildings are being overwhelmed by squatters…

A 285-unit apartment complex in Parla, less than half an hour’s drive from Madrid, should be an ideal target for investors seeking cheap property in Spain. Unfortunately, two thirds of the building generates zero revenue because it’s overrun by squatters.

“This is happening all over the country,” said Jose Maria Fraile, the town’s mayor, who estimates only 100 apartments in the block built for the council have rental contracts, and not all of those tenants are paying either. “People lost their jobs, they can’t pay mortgages or rent so they lost their homes and this has produced a tide of squatters.”

#17 As I wrote about the other day, child hunger has become so rampant in Greece that teachers are reporting that hungry children are begging their classmates for food.

#18 The debt to GDP ratio in Italy is now up to 136 percent.

#19 25 percent of all banking assets in the UK are in banks that are leveraged at least 40 to 1.

#20 German banking giant Deutsche Bank has more than 55 trillion euros (which is more than 72 trillion dollars) of exposure to derivatives. But the GDP of Germany for an entire year is only about 2.7 trillion euros.

Yes, U.S. stocks have been doing great so far this year, but the truth is that the stock market has become completely and totally divorced from economic reality. When it does catch up with the economic fundamentals, it will probably happen very rapidly like we saw back in 2008.

Our politicians can try to kick the can down the road for as long as they can, but at some point the consequences of our foolish decisions will hunt us down and overtake us. The following is what Peter Schiff had to say about this coming crisis the other day…

“The crisis is imminent,” Schiff said. “I don’t think Obama is going to finish his second term without the bottom dropping out. And stock market investors are oblivious to the problems.”

“We’re broke, Schiff added. “We owe trillions. Look at our budget deficit; look at the debt to GDP ratio, the unfunded liabilities. If we were in the Eurozone, they would kick us out.”

Schiff points out that the market gains experienced recently, with the Dow first topping 14,000 on its way to setting record highs, are giving investors a false sense of security.

“It’s not that the stock market is gaining value… it’s that our money is losing value. And so if you have a debased currency… a devalued currency, the price of everything goes up. Stocks are no exception,” he said.

“The Fed knows that the U.S. economy is not recovering,” he noted. “It simply is being kept from collapse by artificially low interest rates and quantitative easing. As that support goes, the economy will implode.”

So please don’t think that we are any different from Europe.

If the United States government started only spending the money that it brings in, we would descend into an economic depression tomorrow.

The only way that we can continue to live out the economic fantasy that we see all around us is by financially abusing our children and our grandchildren.

The U.S. economy has become a miserable junkie that is completely and totally addicted to reckless money printing and gigantic mountains of debt.

If we stop printing money and going into unprecedented amounts of debt we are finished.

If we continue printing money and going into unprecedented amounts of debt we are finished.

Either way, this is all going to end very, very badly.

17 Signs That A Full-Blown Economic Depression Is Raging In Southern Europe – Is The U.S. Next?

March 14, 2013March 14, 2013 by Michael

When you get into too much debt, eventually really bad things start to happen. This is a very painful lesson that southern Europe is learning right now, and it is a lesson that the United States will soon learn as well. It simply is not possible to live way beyond your means forever. You can do it for a while though, and politicians in the U.S. and in Europe keep trying to kick the can down the road and extend the party, but the truth is that debt is a very cruel master and at some point it inevitably catches up with you. And when it catches up with you, the results can be absolutely devastating. Greece, Italy, Spain and Portugal all tried to just slow down the rate at which their government debts were increasing, and look at what happened to their economies. In each case, GDP is shrinking, unemployment is skyrocketing, credit is freezing up and manufacturing is declining. And you know what? None of those countries has even gotten close to a balanced budget yet. They are all still going into even more debt. Just imagine what would happen if they actually tried to only spend the money that they brought in?

I have always said that the next wave of the economic collapse would start in Europe and that is exactly what is happening. So keep watching Europe. What is happening to them will eventually happen to us.

The following are 17 signs that a full-blown economic depression is raging in southern Europe…

#1 The Italian economy is in the midst of a horrifying “credit crunch” that is causing thousands of companies to go bankrupt…

Confindustria, the business federation, said 29pc of Italian firms cannot meet “operational expenses” and are starved of liquidity. A “third phase of the credit crunch” is underway that matches the shocks in 2008-2009 and again in 2011.

In a research report the group said the economy was caught in a “vicious circle” where banks are too frightened to lend, driving more companies over the edge. A thousand are going bankrupt every day.

#2 During the 4th quarter of 2012, the unemployment rate in Greece was 26.4 percent. That was 2.6 percent higher than the third quarter of 2012, and it was 5.7 percent higher than the fourth quarter of 2011.

#3 During the 4th quarter of 2012, the youth unemployment rate in Greece was 57.8 percent.

#4 The unemployment rate in Spain has reached 26 percent.

#5 In Spain there are 107 unemployed workers for every available job.

#6 The unemployment rate in Italy is now 11.7 percent. That is the highest that it has been since Italy joined the euro.

#7 The youth unemployment rate in Italy has risen to a new all-time record high of 38.7 percent.

#8 Unemployment in the eurozone as a whole has reached a new all-time high of 11.9 percent.

#9 Italy’s economy is starting to shrink at a frightening pace…

Data from Italy’s national statistics institute ISTAT showed that the country’s economy shrank by 0.9pc in the fourth quarter of last year and gross domestic product was down a revised 2.8pc year-on-year.

#10 The Greek economy is contracting even faster than the Italian economy is…

Greece also sank further into recession during the fourth quarter of 2012, with figures on Monday showing the economy contracted by 5.7pc year-on-year.

#11 Overall, the Greek economy has contracted by more than 20 percent since 2008.

#12 Manufacturing activity is declining just about everywhere in Europe except for Germany…

Research group Markit said its index of activity in UK manufacturing – where 50 is the cut off between growth and decline – sank from 50.5 in January to 47.9 in February. It left Britain on the brink of a third recession in five years after the economy shrank by 0.3 per cent in the final quarter of 2012.

Chris Williamson, chief economist at Markit, said: ‘This represents a major setback to hopes that the UK economy can return to growth in the first quarter and avoid a triple-dip recession.’

The eurozone manufacturing index also read 47.9. Germany scored 50.3 but Spain hit 46.8, Italy 45.8 and France 43.9.

#13 The percentage of bad loans in Italian banks has risen to 12.2 percent. Back in 2007, that number was sitting at just 4.5 percent.

#14 Bank deposits experienced significant declines all over Europe during the month of January.

#15 Private bond default rates are soaring all over southern Europe…

S&P said the default rate for Italian non-investment grade bonds jumped to 9.5pc last year from 5.7pc in 2012 as local banks shut off funding. It was even worse in Spain, doubling to 14.3pc.

The default rate in France rocketed from 0.8pc to 8.7pc, the latest in a blizzard of bad news from the country as the delayed effects of tax rises, fiscal tightening, and the strong euro do their worst.

#16 Lars Feld, a key economic adviser to German Chancellor Angela Merkel, recently said the following…

“The sustainability of Italian public finances is in jeopardy. The euro crisis will therefore return shortly with a vengeance.”

#17 Things have gotten so bad in Greece that the Greek government plans to sell off 28 state-owned buildings – including the main police headquarters in Athens.

One of the few politicians in Europe that actually understands what is happening in Europe is Nigel Farage. A video of one of his recent rants is posted below. Farage believes that “the Eurozone has been a complete economic disaster” and that the worst is yet to come…

Most people believe that the eurozone has been “saved”, but that is not even close to the truth.

In fact, it becomes more likely that we will see the eurozone break up with each passing day.

So who would leave first?

Well, recently there have been rumblings among some German politicians that Greece should be the first to leave. The following is from a recent Reuters article…

Greece remains the biggest risk for the euro zone despite a calming of its economic and political crisis and may still have to leave the common currency, a senior conservative ally of German Chancellor Angela Merkel said.

But there is also a chance that Germany could eventually be the first nation that decides to leave the euro. In fact, a new political party is forming in Germany that is committed to getting Germany out of the euro. The following is a brief excerpt from a recent article by Ambrose Evans-Pritchard…

A new party led by economists, jurists, and Christian Democrat rebels will kick off this week, calling for the break-up of monetary union before it can do any more damage.

“An end to this euro,” is the first line on the webpage of Alternative für Deutschland (AfD). “The introduction of the euro has proved to be a fatal mistake, that threatens the welfare of us all. The old parties are used up. They stubbornly refuse to admit their mistakes.”

They propose German withdrawl from EMU and return to the D-Mark, or a breakaway currency with the Dutch, Austrians, Finns, and like-minded nations. The French are not among them. The borders run along the ancient line of cleavage dividing Latins from Germanic tribes.

However this all plays out, the reality is that things are about to get much more interesting in Europe.

No debt bubble lasts forever. The Europeans are finding that out right now, and the U.S. won’t be too far behind.

But for the moment, most Americans assume that everything is going to be okay because the Dow keeps setting new all-time record highs.

Well, enjoy this little bubble of debt-fueled false prosperity while you can, because it won’t last for long.

A massive wake up call is coming, and it will be exceedingly painful for those that are not ready for it.

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.

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.