Stock Market Exit Up Ahead

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Is it time to exit the stock market now? Soros has dumped 80% of his stock holdings. Well smart money seems to think so. The relationship between earnings and the stock prices suggest that the DOW should be over 200 points lower so maybe it time for and adjustment.

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?

What Life Outside The Euro Would Look Like

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Germany Planning Euro Exit Since 2009

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Excellent investigation from “The Slog” as usual revealed an unbelievable story if true, that Germany has been planning an exit from the euro since 2009. Some very interesting facts were uncovered and that is

Germany stop printing euro notes from 2010(plans to use up what it has)

Ordered a very large volume of plain bank note paper in 2010 and hasn’t yet used it.

Bought a printing company

A Slog investigation during the last twenty-four hours suggests that not only is the EU’s system of banknote printing open to easy abuse, Germany ordered a large consignment of plain banknote paper from its main supplier in 2010 – and printed considerably fewer euros than normal…in a eurozone where printing of euros generally was on the increase.

Following last week’s Slogpost about unauthorised printing of euros by the Bank of Greece, I received a tip-off from a Slogger in relation to companies in Europe printing euros officially – that is, on behalf of the ECB. Having followed this up, other equally disturbing things came to light: but the main finding is that it looks very likely Berlin took euro-exit seriously enough during 2010 to have the paper in readiness to convert to another currency….or revert to the Mark.

Germany’s main banknote printer Giesecke & Devrient’s annual report appears anodyne enough at first sight. But its euro-printing division saw a dip in sales during 2010…when the number of euronotes in circulation went up by seven billion. As the Annual Report notes (my italics):

‘Following exceptional growth in recent years, the Banknote business unit suffered a drop in sales of EUR 143.9 million (16.0%) to EUR 752.6 million in 2010. This largely stemmed from the Printing division. The Paper division benefited from healthy business volumes on a par with the previous year….’

So the plain paper sales remained buoyant, but euronote volume fell 16% in a  sector that grew by around 4%. I have since ascertained that a substantial proportion of the plain banknote paper was ordered by the BundesRepublik. The great majority of  Germany’s euro stock is printed by G&D.

This suggests that Berlin is sitting on a huge stock of unprinted banknote quality paper….and has reduced the amount of its existing euros in circulation.

Germany has secured its own nationalized bank note printing company

Further, the Berlin government has another supplier, the Bundesdruckerei. It expanded into multiple security-related fields after being privatised in 2000; but then, during late 2008/ early 2009 – following Lehman’s demise and shortly after ClubMed’s problems became apparent – it was quietly renationalised. The official line was that this was done ‘to protect security policy interests’, but highly notable is the fact that the German government gazumped Giesicke & Devrient to secure control of the Bundesdruckerei. G&D complained to the media that it ‘had made a bid for Bundesdruckerei, and offered a very fair price’. But clearly, Angela Merkel did not want all her note-printing facilities to be in private hands. She is, after all, very keen on secrecy and control…having started life in the DDR.

If the ECB knew of Germany’s plans, it might explain the goings on at board level.

Last November the Max Keiser site focused on ECB reform as the thing most likely to evoke a German departure from the ezone. Since then, ECB boss Mario Draghi has manoeuvred Board membership at the bank skilfully to reduce German influence still further.

In the same month, Chancellor  Merkel’s Christian Democratic Union party voted to allow euro states to quit the currency area, endorsing the prospect of a move not permitted under euro rules. That was a statement of intent, not the passing of a law – but it does show pretty clearly that the option is there should Berlin feel the need.

Which brings us to now and the circumstantial evidence looks damning.

Now we learn that Berlin has a banknote paper stockpile, full control over a printer based in Berlin, is running down its euro supplies, and is ken to make euro-exit easier.


Last year there was a story of Germany printing Deutschmarks from a former economic advisor to George W. Bush.

Recently I wrote a post of Germany being potentially on the hook for a half a trillion if things go badly wrong in the euro zone so now is a good time to pull out since then already have a ring fenced fund for their banks.

Not looking good for the euro is it?

Dutch Freedom Party Wish To Leave Euro


Geert Wilders of the Dutch Freedom Party is always a controversial character but he has called for, what would once have been unheard of, leaving the euro. It was a report from Lombard Street Research that prompted Wilders to call for a return to the guilder after it claimed it would cost €2.4 trillion to hold monetary union together.

 The euro is not in the interests of the Dutch people,” said Geert Wilders, the leader of the right-wing populist party with a sixth of the seats in the Dutch parliament. “We want to be the master of our own house and our own country, so we say yes to the guilder. Bring it on.”

Mr Wilders made his decision after receiving a report by London-based Lombard Street Research concluding that the Netherlands is badly handicapped by euro membership, and that it could cost EMU’s creditor core more than €2.4 trillion to hold monetary union together over the next four years. “If the politicians in The Hague disagree with our report, let them show the guts to hold a referendum. Let the Dutch people decide,” he said.


The study said the eurozone cannot survive in its current form. The longer Europe’s politicians dither, the more costly it will become. “The euro can only survive if it becomes a fiscal transfer union with national sovereign debt subsumed in eurozone bonds,” said co-author Charles Dumas.

Greece will opt for a “negotiated exit” later this year, once the pain becomes excruciating. This will be after the French elections in May, but before the German electoral season begins in 2013.

Portugal will follow in “short order” as markets focus on its struggling banks and nasty logic of recession for debt dynamics. “At that point, if not before, attention will turn to Spain and Italy, both likely by then to be much weakened by savage austerity programmes now being implemented,” said Mr Dumas.

That is the moment when the creditor core will face the decision they have “ducked” for the past two years: either accept an EMU reflation strategy, along with debt pooling, fiscal union, and transfers; or accept a break-up.

The report further outlined the disadvantages to Holland from being in the euro.

The report said Holland had fallen behind non-euro Sweden and Switzerland since the launch of EMU. Its growth rate dropped from 3pc over the preceding 20 years to 1.25pc under the euro, compared with 2.25pc in Sweden and 1.75pc in Switzerland. The Swedes have stolen a march worth €3,500 per head over the past decade.

The report said Sweden and Switzerland have performed better on every front, relying on currency swings to check imbalances. “They created more jobs than the Dutch and especially the Germans. They enjoyed lower inflation. They were more successful in balancing their budgets. And they have run larger current account surpluses. Only wishful thinking could absolve the euro from blame.”

Holland had enjoyed a “one-off” gain of 2pc to 2.25pc of GDP from the launch of the euro, and transaction costs have fallen. However, the trade benefits have been scant. The value-added share of exports has not risen.

Political ramifications.

Mr Wilders said the study “goes against everything we are told in the media and by the left-wing elite on a daily basis”.

The Dutch government is unlikely to pay any attention to the findings, but the Freedom Party’s populist campaign may force Mr Rutte to take an even harder line in loan talks with Greece, Portugal and Ireland, or over the expansion of the EFSF rescue fund.

The Dutch are major net contributors to the EU budget and have long resented serving as a cash cow. They rejected the European Constitution by a wide margin in 2005. A bitter edge has crept into Dutch political discourse.

Mr Wilders is known for his astute political instincts. His demarche tells us all too clearly that Dutch patience is wearing very thin.

Source: The Telegraph

German Interior Minister Calls For Greece To Leave Euro

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Bloomberg reported that German Interior Minister Hans-Peter Friedrich has said that Greece would have a better chance of recovering its economy if it was to leave the euro. He is the first cabinet minister to call for Greece to leave the euro. More interesting was the point made by which basically said if Friedrich hasn’t resigned his position by Monday, then it looks to be the german position.

Whatever else happens, rest assured: if Hans-Peter Friedrich still has his job by Tuesday morning, Germany has a new -albeit unofficial – policy towards Greece in place. 

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