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I mean that in all seriousness.  Sometimes something meant to be funny….really isn’t.

Straight Talk – Stock Market by senatork

Something ominous is happening on Wall Street, but nobody has noticed.

The insiders have vanished.

Chief executives. Board members.

The head honchos. The people who know.

Just a few weeks ago, they were out in force, buying up shares in their own companies with both hands.

No longer. They’ve disappeared. Almost overnight.

“They’ve stopped buying,” says Charles Biderman, the chief executive of stock market research firm TrimTabs, which tracks the data. “Insiders aren’t buying this rally.”

Insider stock purchases, which surged above $100 million a day in the market slump last month, have now collapsed to just $13 million a day.

Meanwhile the ratio of insider sales to purchases has skyrocketed. Today insiders are dumping $7 in stock for each $1 that (other) insiders are buying. That’s a worrying ratio. Six weeks ago the amounts of purchases and sales were about equal.

It’s the kind of news that should give investors pause.

What insiders do with their own money is one of the stock market’s best barometers.

After all, who better than company executives know their own order books? Who knows the conditions in their industry better?

You find insiders typically buying heavily at the market lows — they did in 1987, in 1998, and they did during the financial crisis in 2008-9.

(You also typically find them cashing out big-time at the peak).

Read the rest at Market Watch

Middle class retirement now largely a postcard fantasy – How Wall Street fabricated a buy and hold fairytale and jumped ship with taxpayer golden parachutes.  Did baby boomers think about who they would be selling those 401k and pension stocks to?

The days of dreaming about long days playing golf on a green course and taking luxurious cruises around the world are appearing more and more like a foggy memory for those in the middle class planning for retirement.  As Wall Street bankers and hedge fund managers rob the public blind, the mission statement sold to baby boomers is starting to become a large bait and switch catchy enough to make it on a Hallmark card.  For decades Wall Street begged and lured the public in either directly or through pension funds into their web of easy money.  Save $100 a month and you’ll retire a millionaire!  As it turns out, the golden parachute was only available to a tiny fraction of the population while the oligarchy in the financial sector offloads their toxic bets onto the taxpayers struggling balance sheet.  The end game?  No retirement.  At least no retirement like those plastered on glossy mutual fund brochures.  What the Wall Street banking charlatans failed to tell you is that you eventually need to sell those stocks to use the money for real world spending.  What they also failed to mention is that the baby boomer generation is now going to sell into unrelenting headwinds of demographics bringing on a younger and poorer generation to purchase their stocks.  Of course Social Security is in the crosshairs of the financial elite since they already secured their financial piece of the pie.  You know things are bad when the Federal Reserve is stating that stocks are not exactly a winners bet in the years going forward.

Retirement becoming more of a postcard fantasy

The middle class has been pillaged and ransacked by financial thievery for decades.  The debt bubble and mass delusion is now imploding.  The graft and con games taking place in the financial sector would be comical if they weren’t so real and economically tragic.  The Federal Reserve has given covert loans to big banks while big banks publicly stating all was well.  The Federal Reserve has grown their balance sheet to a stunning $2.8+ trillion of questionable assets and other junk with little redeemable market value.  It would have a hard time selling these items on eBay let alone the natural marketplace.  There is no easier way to make a profit than stealing from the taxpayer.  Of course the problems in the system are coming at the expense of the working and middle class.  For those who bought into the Wall Street mantra of buy and hold, making a profit has gotten much harder:

This is fascinating data to look at.  This decade has been horrible for stocks.  The S&P 500 stands today where it did in 1998.  The massive stock volatility is simply a reflection of the problems deep in our financial system.  The above chart examines P/E ratios over time.  Really fascinating information but the Fed study finds that P/E ratios are likely to go lower because of demographic shifts and also the reality that we have a lower wage employment force dominating our economy.  The latest decade is a reflection of the bubble era machinery that has hoisted up the financial sector into an untouchable corner yet middle class Americans have taken it squarely in their stock portfolios.  Why?  Because Wall Street has been preaching buy and hold as if it were some patriotic mission but many of these hedge funds and banking managers have placed bets that openly aim against American middle class success.  In fact, some have made bets on flat out American failure and have made billions of dollars with lower tax rates that are given to hedge funds.

The stock market casino

The stock market has been on a wild ride for well over a decade:

Source:  Mish Global Economic Analysis Blog

Read the rest at My Budget 360

Here’s the case for dumping stocks and not touching them for at least two years.

The case for “buying and holding” stocks boils down to four words:  don’t fight the Fed. Forget moral hazard and all the fancy stuff; the reason to load the truck with stocks is that the Fed is invincible, and its mighty machinery of manipulation can drive stocks higher no matter what else is happening.

Put another way: when the Fed succeeds in driving the dollar to near-zero, the value of stocks will be near-infinite.

The case to dump stocks now and not even look at the market for two years is based not on worship of the Federal Reserve’s infinite wisdom and power but on the charts.The abject, pathetic, remarkably complete failure of QE2 has driven a stake  through the heart of the Fed’s political power and its reputation for wisdom; it has been revealed as a clueless cabal, basing policy on textbook models of what “should happen when we do this.” Alas, real life doesn’t follow moldy old PhD theses, and it doesn’t worship the Fed or listen to the cargo-cult incantations of the Keynesians.

Financialization anf globalization have run their course, along with cheap abundant energy. As the giant 17-year bubble in stocks deflates, those entrusting their money with Wall Street face stupendous risk and potentially massive losses.  (Shameless pitch alert.) My new book An Unconventional Guide to Investing in Troubled Times is all about withdrawing your trust from Wall Street and investing your capital in alternatives such as localized, productive assets which do not depend on financialization or globalization for their value or income streams. (It’s currently #5 in the Kindle Store’s investing category, and #9 in Amazon’s Investing Bestsellers category, so there’s some interest in the topic.) You can read the first chapter and other stuff here.

Let’s let the charts speak for themselves, shall we?

Here is the S&P 500 from 1965 to 2011: note the giant double top, and the gigantic bubble which began inflating circa 1994 as financialization and globalization began their long domination of the economy.

Only massive government intervention reinflated the bubble in 2009-11, and now gravity is reasserting itself.  The trendline projects to the next low around 600, while  the bubble-retrace projects to around 450.

Since volume is the weapon of the Bull, let’s check in on volume: oops, it’s been dropping since 2009. Looks like those in the know have been selling into strength bigtime.

Courtesy of the always insightful Doug Short, here is Doug’s overlay of the current market and two previous stock market bubbles, the Dow 1929 and the Nikkei 1989.Note that the market was rolling over last August, but the Fed launched QE2 and added a year to the “recovery.”  Can they extend it another year? based on their dwindling political capital, the answer is “unlikely.”

Interestingly, the low hit by previous bubbles corresponds rather closely with cycle-seer Martin Armstrong’s turn date of July, 2013. (He also pegs August 2014 and September 2015 as turn dates as well.)

This overlay of the 2002 decline and the current market also offers food for thought.As in, “this sucker’s going down.”

Again courtesy of Doug Short, the Q Ratio, which is at highs not seen since the last market top.

Since the U.S. dollar and the SPX have been on a see-saw for years, it’s interesting to compare the DXY’s recent decline with its action back in the summer of 2008, just before the global financial Ponzi scheme imploded.

And to state the Bullish case, here’s the Fed’s pet parrot:

Looks like they’ll need to teach it another line.

Charles Hugh Smith – Of Two Minds

Systemic causes of global financial instability include the “normalcy bias,” super-low interest rates, central-bank induced inflation and loss of faith in institutions.

Some causal factors of global financial instability are mental constructs, others are pernicious policies. Money is the ultimate mental construct, of course; it is our faith in the promises issued by central banks and governments that gives paper money its value.

The same can be said of markets: it is our faith in their transparency which makes them “free markets.” Once we discern that a market is manipulated, then we lose trust in it and exit that market for good.

The most pernicious policy is central-bank engineered inflation, which rewards debtors and punishes capital accumulation, a.k.a. savings. Push these incentives to debt hard and long enough, and you get a crippled, top-heavy economy like the U.S. economy, crushed by debts so staggering that the only way to service the debt is to borrow more money at insanely low rates of interest.

This is an excerpt from my new book An Unconventional Guide to Investing in Troubled Times which has just been issued in Kindle ebook format; a print edition will follow in September. (You can read the ebook now on any computer, smart phone, iPad, etc.–see below.The 30% discount expires tonight.)

Here are six systemic causes of global financial instability. (Here is yesterday’s list: The Coming Global Instability, Part I.)

1) The human mind has a number of default settings which have proven advantageous as “short cuts” in most circumstances, one of which is called “the normalcy bias.”  As events spiral out of control and dangers rise exponentially, our tendency is to underestimate the risks and potential losses. As long as a few shreds of normalcy remain intact, we view these as evidence that “it’s really not so bad.”

Most of the time, this trait pays off as most systems are self-correcting and catastrophe is avoided. But when self-reinforcing negative trends take hold, this complacency is ultimately self-destructive.

2) The financial Status Quo, already discredited in the eyes of most well-informed observers, will eventually lose all credibility, and global stock markets will languish as participants abandon them.

If this sounds farfetched, recall that 70% of all shares traded in the U.S. stock market are exchanged in opaque “dark pools” operated by Wall Street and “too big to fail” banks, and high-frequency trading executed by “black box” algorithms account for the majority of the remaining 30% of publicly traded shares.  This means that some 90% of stock market activity is hidden from non-insider investors.

The idea that we can rely on opaque markets for our financial security will increasingly be discredited.  As  heavy-handed interventions fail to restore stability, public faith in these institutions will decline. This delegitimization will further destabilize global markets, and those who accepted the implicit guarantees of stability, transparency and liquidity may find instead that their financial security has vanished in a cloud of “impossible” disruptions and dislocations.

This loss of faith is already evident.  As the U.S. stock market doubled from its March 2009 lows, U.S. households withdrew hundreds of billions of dollars from domestic equity mutual funds, and quadrupled their holdings of “safe” U.S. Treasury bonds.  If you look at a 10-year chart of volume in U.S. stocks, you will see a steady erosion of participation in the stock market.  These are the actions of people who have lost faith in the stock market, the nation’s financial and political institutions and the official “story” of permanently rising prosperity.

Once trust is lost, it cannot be won back easily or quickly.

As the financial authorities attempt to keep the system from crumbling beneath their feet, they will take increasingly drastic actions as markets destabilize: investment rules that were presumed to be eternal will be changed overnight, without warning, and then changed again. Decades of low volatility that encouraged people to buy long-term bonds, annuities and dividend-paying stocks will be upended by unprecedented financial and political volatility.  Seemingly permanent low interest rates that lured investors to pile into high-risk gambles will suddenly leap up, wiping out gamblers who weren’t even aware they were playing a game rigged in favor of the “house.”

Such expectations are well-grounded in history. Most investors have forgotten that the U.S. stock market was summarily closed for months during World War I, and that in 1933, the Federal government seized “hoarded” privately held gold.  These actions were, at the time, considered necessary and prudent by the authorities. More recently, in 2008 speculating that banking stocks would decline (that is, shorting banking stocks) was summarily banned. The rules governing the market were changed to defend the Status Quo, and speculation was only allowed if it flowed in one direction—the one favored by the financial authorities.

3) Stripped of mumbo-jumbo, central banks and States have only two buttons to push: Keynesian fiscal stimulus, i.e. governments borrowing and spending vast sums in an effort to stimulate demand and the “animal spirits” that drive private borrowing, and monetary easing, i.e. lowering interest rates to near-zero, and printing or creating credit electronically to flood the economy with “liquid,” easy-to-borrow money.

Central banks and States are hitting these two buttons like frenzied laboratory rats, but the machine is out of cocaine-laced pellets.  In effect, central banks and Central States are both addicted to exponential expansion of credit, intervention and Central State borrowing and spending. Each is only exacerbating the system’s risks, and as the authorities ratchet up these interventions to ever-higher levels, they’re insuring an even greater collapse.

There is a pernicious agenda at work in setting interest rates near zero while  boosting money supply and deficit spending to create inflation. By robbing savers of any return on their savings and sparking “sustainable, orderly” inflation of around 4%, central banks are in effect transferring 4% from the owners of cash to reduce the debt of the central bank/State by this same amount every year.  In a decade of this monetary scheme, savers’ wealth will be reduced by roughly 50% while the debt created by the central bank/State will decline by 50%.

“Purchasing power” is a concept while helps us understand the results of low interest rates and “politically benign” inflation: the owner of cash will find their money buys only half of what it did ten years before, while the government debt has also fallen in half.  The net result of this slight-of-hand is that government debt that was crushing becomes manageable again as savers’ wealth was invisibly transferred via carefully engineered inflation.

The key phrase in this sub rosa agenda of transferring private wealth to reduce government/central bank debt is “politically benign:” since the loss of wealth and the rise in consumer prices is “only” 4% a year, the consequences are not severe enough to trigger political resistance.  Financial and political authorities know that people quickly habituate to an “orderly” reduction in wealth and an “orderly” inflation in prices; that is, this erosion of purchasing power soon becomes “the new normal” and people plan around it.

The purpose of this central bank/State agenda is to avoid the two endgames that would destabilize the Status Quo: outright default on the Status Quo’s staggering debts, and hyperinflation, or loss of faith in a paper (fiat) currency. Either of these events would destroy the credit markets that form the foundation of the global economy.

We can see how successful this strategy of engineering orderly, “normal” inflation has been: 30 years ago, a Federal debt of $15 trillion would have unimaginable. Today, it is accepted as “sustainable” because it will never be paid back in today’s dollars, and low interest rates insure that the carrying costs of that debt remains small enough that no other government spending need be sacrificed to pay the annual interest.

This agenda has worked like magic for the past 30 years, but beneath the apparent success, the foundations of the current system– cheap energy, globalization, financialization, monetary expansion, fiscal stimulus, opaque markets and constant State/central bank intervention–are all eroding. As they dissolve then so too will the Status Quo’s implicit promises of permanent stability, low interest rates and limitless growth.

The point here that the levels of intervention required to create inflation in a  deflationary, deleveraging-of-debt era are not just stupendous– they must ratchet up to ever higher levels to maintain superficial stability as the system becomes increasingly precarious.  Ironically, increasing the heavy-handed centralized interventions only  increases the system’s precariousness—the exact opposite of the Central Planners’ intentions. This is the result of trying to manage non-linear systems with linear-system tools: all that manipulation can achieve is to extend surface stability at the cost of a more severe system crash later on.

4) The investment world is keen on probabilities as reliable guides to the future. But low-probability events occur with remarkable regularity, so it’s prudent not to put too much faith in statistical or probabilistic reassurances. All such models are based on the idea that the recent past is a reliable guide to the future. But if the thesis that the next 20 years will necessarily be very different from the previous 60 years, then this faith that the recent past offers a roadmap of the future is dangerously misleading.

5) The uneven, unpredictable process of destabilization and devolution will play out over many years as periods of apparent stability are punctuated by the re-emergence of crises which were supposedly resolved in the previous cycle of central bank/government intervention. Every era of stability will be less enduring than the last, and come to rest at a lower level of security and prosperity than the last. Every intervention will be larger, more desperate and more intrusive than the last, and much less effective.

6) Periods of creative destruction are inherent to Capitalism, indeed, essential  to its long-term success. Just as we cannot fool Mother Nature for long–for example, by reckoning we can eliminate forest fires–we cannot manipulate the global economy to eliminate creative destruction.  All the unprecedented efforts of central financial authorities to eliminate risk and instability are simply piling up more deadwood in an already tinderbox forest.

Financial risk is like water in a closed system: it cannot be compressed. As pressure mounts, the risk builds up and eventually escapes, often through whatever part of the system was considered “safe.”

Periods of great transition in which existing systems are consumed by creative destruction and a new paradigm emerges offer great opportunities as well as great risks.

If I had to summarize this book in a few sentences, I would say this: Money is a  tool; make it work for you. Don’t invest in Wall Street’s false promises, invest  with an unblinking eye on systemic risk. Invest in your own life and in the lives of others. This book explores how to do just that.

Of Two Minds

Charles Hugh Smith’s new book An Unconventional Guide to Investing in Troubled Times is available in Kindle ebook format.

Bank of America may be about to part with more money than it has earned since 2008 in what will soon be the biggest financial settlement in the industry to date According to the WSJ, the Charlotte, NC-based bank is preparing to pay $8.5 billion to settle mortgage (mis)representation claims (aka the Mortgage putback issue) brought on by such high profile figures as BlackRock, Pimco, MetLife and, of course, the Federal Reserve, previously discussed on Zero Hedge. “A deal would end a nine-month fight with a group of 22 investors that hold more than $56 billion in mortgage-backed securities at the center of the dispute, including giant money manager BlackRock Inc., insurer MetLife Inc. and the Federal Reserve Bank of New York.” Keep in mind that this is actually not good news for the bank, contrary to what the company’s stock is doing after hours, as this still keeps the company exposed to a multitude of other rep and warranty litigation (which will now be largely underreserved), not to mention fraudclosure issues, which are totally unrelated, and which will plague the bank for years and years. Lastly, BAC is largley underreserved (see below) for a settlement of this size which means its Tier 1 capital ratio will likely be impacted due to a major outflow of cash.

From the WSJ:

The deal could embolden mutual-fund managers, insurance companies and investment partnerships to go after similar settlements with other major U.S. banks, arguing that billions in loans scooped up before the U.S. housing collapse didn’t meet sellers’ promises or were improperly managed. Most vulnerable would be Wells Fargo & Co and J.P. Morgan Chase & Co., which along with Bank of America collect loan payments on about half of all outstanding U.S. mortgages.

The dispute between Bank of America and the mortgage investors began last fall when they alleged that securities they bought before the financial crisis from Countrywide Financial Corp. were composed of loans that didn’t meet sellers’ promises about the quality of the borrowers or the collateral.

While it is still very much unclear what the terms of the settlement are, one thing is certain: BofA acquisition of Countrywide for $4 billion is rapidly becoming the worst purchase in the history of M&A. Luckily, Angelo “Agent Orange” Mozillo, has a permanent get out of jail card. One wonders just what dirty secrets old Angelo know about the housing market (or regulators’ sexual lifestyles) that not one regulatory agency or DA office is willing to go after him?

And, as often happens, we were quite correct when we speculated back in January that Bank of America is woefully underreserved for this development:

Can You Spell U-N-D-E-R-R-E-S-E-R-V-E-D? If Not, Here Is A Visualization Aid

Following today’s news of an imminent lawsuit to be filed against Bank of America by such entities as the New York Fed (which, by the way, it had to do, and not voluntarily, but merely as a function of its fiduciary duty to taxpayers through its Maiden Lane holdings, managed, conveniently enough, by Bank of America minority holding BlackRock) everyone promptly has taken a quick look back at the bank’s earnings presentation, and especially one little piece of data: the putback reserve. Taking a quick look a page 23 on the pdf we read: “3Q10 reps and warranties provision of $872M is $376M lower than 2Q10, as the current quarter included an increase in expected repurchases from GSEs while 2Q10 included additional provision for monolines.” So how does this stack up relative to the $47 billion in putback demands by such legal “dilettantes” as Bill Gross, Bill Dudley and Larry Fink? We have created the chart below to assist in that particular question. We are also confident that with each passing day we will have to add to the red-shaded area as more and more putback lawsuits come out of the woodwork. And as to where the deficiency amount will have to be funded from? Think cold, hard cash. The same cash that until recently would have been on the “sidelines.”

ZeroHedge