Thursday, February 21, 2013

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

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Michael Snyder
Activist Post

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 bequite 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.

This article first appeared here at the Economic Collapse.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.


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Anonymous said...

We are all damned if we sell or damned if we don't. If we all sell off which is what they want us all to do than the vampires clean up buying up whats left only doing what they do best sell high buy low. Its all imaginary.

Hold on/ sell out because the game is almost over, people should be learning how to do something constructive and relevant, if money means that much to anybody they can jump out a window from a tall building when the rug gets pulled.
Maybe this time a meteor can hit wall street...wouldn't that be a hoot and a half! 9/11 part deux!

Anonymous said...

With ensuing and probable mass layoffs, aka: *furlough* of roughly 800,000 Federal employees, i think they know some big shite is about to hit the fan ~

Anonymous said...

We have heard and read these warnings several times in the last 8 to 9 years with a focus on the "fast crash" scenario, yet, so far, we have been enduring years, if not decades, of the "slow burn" as described by the always wise Catherine Austin Fitts.

Yes, there is more economic pain ahead and if the past is any clue it will continue to be in fits and starts. We know the screws are tightening because the gun control issue has become a big priority for TPTB.

If they quickly pull the rug out from under us, there will be too much resistance and a wider awakening, better for them to continue with the boiling frog routine.

Anonymous said...

It's pretty simple. They're selling useless paper and trading it for physical gold and silver. The fed has devalued our currency to the point where it buys effectively nothing outside the continental US. The banks of other nations don't even want to deal with US citizens due to onerous IRS regs, the transparency laws which only apply to those who can't afford the top tier of tax attorneys and of course, the inane threat of con\fiscation by our self proclaimed leaders.

david said...

buy gold, silver and a gun and start watching The Walking Dead for survival tips - the only difference is they won't be walkers, they'll be your next door neighbors that you thought were ... oh so nice.

Anonymous said...

The stock and housing market rides on the coat tails of the bond market. The interest rates which is based on the bench mark of 10 year bonds is starting to go up. In 2014 the Federal Reserve is going to start raising the discount rate that it charges the banks that are members of the Federal Reserve. That translates into a couple percentage points above the dicount rate which is the prime rate that the banks charge their borrowers. The Fed is going to stop quantitative easing which is the buying of U.S. government bonds. The reason why the Fed was buying these bonds in the 1st place is that they were getting more difficult to sell to domestic and foreign investors because of the low interest rates payed on them and low returns. The interest rates will have to start going up in 2014. When that happens investors will be selling off their margin positions in stocks, gold and silver and buying put options and putting their money that is on the side lines into safer investments such as higher interest yielding bonds. When interest rates go up, the stock,bond, gold and silver market goes down. There is very little physical gold and silver being traded. It is mostly on paper. The investors can buy for example a $10,000 contract in commodities futures for 10% down. The commodities futures markets, hedge funds and derivitives have been driven up by inside traders and speculators. Gold and silver does not generate any cash flow. You have to know the market trends and when to sell and get out if you don't want to take it in the shorts. The financial markets have been turned into 1 big gambling casino. You have to know how to play the game. There has to be so many losers and winners. There are mostly losers because the house always wins.

abinico said...

Oh no! You mean the markets don't keep going up forever.

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