Posted on 05/31/2013 12:17:57 PM PDT by SeekAndFind
If 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?
one of the oldest Wall street sayings- Sell in May and go away.
Really could be that simple.
ping
Sounds like a good idea. The markets are destined to fall hard.
with the US producing almost 1 million barrels of oil more annually for the last 3 years and this year being the same AND future years through 2017 projected to be the same—its unlikely that any correction will be much more than short lived and technical.
there could be some great macro events of course that are currently unaccounted for. but currently the move out financials for soros is likely just rotational.
stocks are bid up by the Federal Reserve printing press. Some experts believe the Fed either can’t, or won’t, keep undermining the dollar this way.... (we will see, I happen to think they can’t stop now....)
real estate depends on location, different markets have different factors at work. California’s leading markets are approximately 75% driven now by foreign/immigrant (mostly Communist Chinese) money (often these folks arrive and offer all-cash). Another 10% or so of purchases are by a few “vulture investment firms” trying to make single family housing into profitable rental properties (a couple of the larger firms have recently pulled out, saying the maintenance and operating costs are far higher then they envisioned...)
But some other realty markets have some more “regular American working people” type buyers. (But still (in most areas) at a low volume and price level.)
The realty markets that are showing the big results are few and the statistics appear heavily influenced or skewed by the above special factors (which are inherently risky sources of demand). Where price levels are so much higher than what “normal American workers” can afford, the realty markets are all that much riskier, and more capable of suffering major price drops. Some of the smart investors have been evaluating these risks and deciding to put their money into other things instead.
Having said all that, I am one that still believes America can recover. But it will take an almost total reversal of all the destructive policies and unneeded or harmful interferences in the markets... being inflicted on us from WashDC these days. NO sane investor will risk major capital sums in markets subject to almost-insane interferences or attempted manipulations by misguided (or deliberately destructive) politicians.
I liquidated (thru my wealth mgr) all my IRA mutual funds and stock, and am in a 100% cash position now, as of 3 weeks ago. He and I both feel the market bubble is going to “correct” again; just “when” is the question. We did the same thing in ‘07, just ~6mos before the ‘08 crash. Gut feeling and a hunch.
The productive capability of the US is being hollowed up and replaced with printed money. It’s like a heroin high, great when the junk is floating through your brain, but when it stops ...
I don’t know if oil will do enough to replace it.
Interesting proposition in a post last week.
The dollar will both deflate and inflate.
The “cyberdollars” will inflate infinitely, as in, disappear,
whilst the actual currency that you hold in your hand will deflate and become 100 times face value due to its relative scarcity.
Actual physical money is about 3% of the total money supply.
The trouble is that “the glass” is full of fractures, but which fracture will be the one that causes the glass to collapse?
Personally, I don’t think it will be the stock market, because it has been both invisibly and blatantly tampered with to prevent a crash for years now. “Invisibly” implies the hand of the FED or Treasury. “Blatantly” means that if you have a few billion dollars that you can use invisibly, without worrying about making a profit, you control the market.
Likely the bond market has also been deeply manipulated. So where else do you look?
Likely overseas. The FED and the Treasury cannot stop other countries from the big slip and fall.
I wonder how we know Soros’ stock portfolio?
Hacked into Baraq's email?
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"Sell in May" is probably a big factor but there's also likely concerns about the quality of earnings. Corporate earnings have, in recent years, been levitated mainly by cost cutting measures (e.g., layoffs and fat cutting). But diminishing returns have set in and companies are running out of further cost reduction options. So real earnings are what's needed now but the economy is still incredibly weak. Earnings simply won't rise much until that the economy gets on stronger footing.
And who believes this is going to happen anytime soon with this administration's anti-business policies and the looming impact of Obamacare?
Smart money is very aware of all this and is taking money off the table.
But some other realty markets have some more “regular American working people” type buyers.
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This type of buyer is a disappearing breed. “American worker” is almost an oxymoron. Who wants to work anymore when there are an abundance of financial entitlements and welfare programs available? My next door neighbor decided to go on the dole about a year ago and appears to be enjoying the ride.
The productive capability of the US is being hollowed up and replaced with printed money.
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Printed Prosperity. Money for nothin. LOL
You just know this won’t have a happy ending. Just another financial bubble in the making.
taking welfare and freebies and sitting on your ass watching Oprah and socializing on your Obammyphone (when he’s not sending you messages how to vote, or how many times to vote, or how to think, or how to “organize your community”).... this is all ... the wave of the future....
(albeit that wave will crash up against the rocks of reality soon enough....)
“Blatantly” means that if you have a few billion dollars that you can use invisibly, without worrying about making a profit, you control the market.
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IMHO there is, unquestionably, a Fed controlled Plunge Protection Team (i.e., Working Group on Financial Markets) that manages the markets. It’s an invisibile hand all right. And you’re absolutely right: if you have billions of dollars at your disposal you can move the market in any direction, and will never sustain a loss. You control it. Totally.
The market should really be called the Federal Reserve Stock Exchange.
Here’s a ten year chart of the dollar. Notice how its been going mostly sideways since 2008.
http://bit.ly/K1ENOe
My wag is that because of rising US oil production —the break out will be to the upside. (Why? even incompetently run countries like brazil have strong currencies because they are oil independent.)
but we’ll see.
you too have to submit to the same discipline of the data.
if the dollar breaks out to the downside then your thesis is right. fiat money kills the value of the dollar
if the dollar breaks out to the upside —then oil, the improved balance of payments and 50-100 trillion dollars worth of new oil deposits in the USA backing the dollar...trumps fiat money.
So you’re saying watch the obamaites (didn’t GE recently pick up some oil production?) to see if they throw in the towel and finally go into oil (because of their basic greed) to know the outcome of the dollar? XL Pipeline, etc?
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