If Anyone Doubts That We Are In A Stock Market Bubble, Show Them This Article

Michael Snyder

The higher financial markets rise, the harder they fall.  By any objective measurement, the stock market is currently well into bubble territory.  Anyone should be able to see this – all you have to do is look at the charts.  Sadly, most of us never seem to learn from history.  Most of us want to believe that somehow “things are different this time”.  Well, about the only thing that is different this time is that our economy is in far worse shape than it was just prior to the last major financial crisis.  That means that we are more vulnerable and will almost certainly endure even more damage this time around.

It would be one thing if stocks were soaring because the U.S. economy as a whole was doing extremely well.  But we all know that isn’t true.  Instead, what we have been experiencing is clearly artificial market behavior that has nothing to do with economic reality.  In other words, we are dealing with an irrational financial bubble, and all irrational financial bubbles eventually burst.  And as I wrote about yesterday, the way that stocks have moved so far this year is eerily reminiscent of the way that stocks moved in early 2008.  The warning signs are there – if you are willing to look at them.

5 Charts Which Show That The Next Economic Crash Is Dead Ahead

Michael Snyder

When an economic crisis is coming, there are usually certain indicators that appear in advance.  For example, commodity prices usually start to plunge before a recession begins.  And as you can see from the Bloomberg Commodity Index which you can find right here, this has already been happening.  In addition, I have previously written about how the U.S. dollar went on a great run just before the financial collapse of 2008.  This is something that has also been happening over the past few months.

Some people would have you believe that nobody can anticipate the next great economic downturn and that to try to do so is just an exercise in “guesswork”.  But that is not the case at all.  We can look back over history and see patterns that keep repeating.  And a lot of the exact same patterns that happened just before previous stock market crashes are happening again right now.

Former SEC Director Warns Against Automated and Secretive Market “Rigged Against Retail Investors”

Mac Slavo

The former director of the SEC, John Ramsay, has stepped out to warn that market is rigged, and that the system is headed for a major correction “one way or another.”

Today’s financial ‘ecosystem’ is a set up for unfair advantage to those playing a game controlled by high frequency trading (run by automated computer algorithms) and secret ‘dark pool’ investors, as Ramsay sees it.Bloomberg reports:

Guess What Happened The Last Two Times The S&P 500 Was Up More Than 200% In Six Years?qw

Michael Snyder

Just a few days ago, the bull market for the S&P 500 turned six years old.  This six-year period of time has been great for investors, but what comes next?

On March 9th, 2009 the S&P 500 hit a low of 676.53.  Since that day, it has risen more than 200 percent.  As you will see below, there are only two other times within the last 100 years when the S&P 500 performed this well over a six-year time frame.

In both instances, the end result was utter disaster.

Stock Market Bubble: Wall Street Is Ecstatic As The NASDAQ Closes Above 5000

Michael Snyder

Are we at the tail end of the stock market bubble to end all stock market bubbles?  Wall Street was full of glee Monday when the Nasdaq closed above 5000 for the first time since the peak of the dotcom bubble in March 2000.  And almost everyone in the financial world seems convinced that things are somehow “different” this time around.

Even though by almost every objective measure stocks are wildly overpriced right now, and even though there are a whole host of signs that economic trouble is on the horizon, the overwhelming consensus is that this bull market is just going to keep charging ahead.

But of course that is what they thought just before the last two stock market crashes in 2001 and 2008 as well.  No matter how many times history repeats, we never seem to learn from it.

The Dow And S&P 500 Soar To Irrational Heights – Meanwhile Ultra-Wealthy Rush To Buy Gold

Michael Snyder

Did you know that the number of gold bars being purchased by ultra-wealthy individuals has increased by 243 percent so far this year? If stocks are just going to keep soaring, why are they doing this?

On Thursday, the Dow Jones industrial average and the S&P 500 both closed at record highs once again. It is a party that never seems to end, and there are a lot of really happy people on Wall Street these days. But those who are discerning realize that we witnessed the exact same kind of bubble behavior during the dotcom boom and during the run up to the last financial crash in 2007.

The irrational exuberance that we are witnessing right now cannot go on forever. And the bigger that this bubble gets, the more painful that it is going to be when it finally bursts. Those who get out at the peaks of the market are the ones that usually end up making lots of money. Those that ride stocks all the way up and all the way down are the ones that usually end up getting totally wiped out.

To get an idea of how irrational the markets have become, all one has to do is to look at Twitter.

Get Ready For The Next Great Stock Market Exodus

Brandon Smith

In the years 2006 and 2007, the underlying stability of the global economy and the U.S. credit base in particular was experiencing intense scrutiny by alternative economic analysts. The mortgage-driven Xanadu that was the late 1990s and early 2000s seemed just too good to be true.

Many of us pointed out that such a system, based on dubious debt instruments animated by the central banking voodoo of arbitrary fractional reserve lending and fiat cash creation, could not possibly survive for very long. A crash was coming, it was coming soon, and most of our society was either too stupid to recognize the problem or too frightened to accept the reality they knew was just over the horizon.

The Rational Market Myth

armageddon without nukes

Paul Craig Roberts

One of the myths of economics is that markets are rational. Theories are based on this assumption, and the belief that markets are rational fuels the argument against regulation. The market response to the Federal Reserve’s June 19 statement that it will taper off its bond purchases if its forecast comes true is unequivocal proof that markets are irrational.

The Federal Reserve’s statement that it “currently anticipates that it would be appropriate to moderate the monthly pace of purchases [of bonds] later this year” depends on a very big if. The if is the correctness of the Fed’s forecast of moderate economic growth and employment gains.

The Fed has not stopped purchasing $85 billion of bonds each month. So nothing real has changed. Indeed, there was no new information in the Fed’s statement. It has been known for some time that, according to the Fed, its bond purchases will gradually cease.

In response to this repeat of old information, the stock and bond markets sold off in a major way on June 19-20. This market response to the Fed’s statement indicates that the Fed’s forecast is unlikely to come true. Low interest rates and a high stock market are totally dependent on the liquidity that the Fed is injecting by printing $1,000 billion per year. If this liquidity is not injected, what will sustain the markets? If the markets crash and interest rates rise, how can the Fed expect recovery?

They Know: Billionaires Are Quietly And Rapidly Dumping Millions of Shares of Stock

Mac Slavo

After the massive crash that rocked global markets in 2008, as Congress, central bankers and major financial institutions met in secret to mitigate the crisis, billionaires like Warren Buffet were buying up shares of some of the hardest hit companies.

At the time, the world was literally on the brink of an unprecedented economic collapse. It was so serious, in fact, that members of Congress were told that should they fail to come to an agreement the fallout would leave the United States in such a state of disarray that martial law would be declared and tanks would be deployed to major American cities.

In the midst of it all, as if they had a private pipeline into the bailout meetings, the big boys were positioning themselves to profit. And profit they did, as the stock market rose from 6500 points in late 2008 to record highs as recently as last month. They made billions of dollars on the backs of bailouts funded by taxpayers who were themselves struggling to pay their mortgages and put food on the table.

They knew then what their friends at the Federal Reserve, Treasury and investment banks were planning to do. And they took the opportunity to make a killing.

Members of Congress Get Abnormally High Returns From Their Stocks

EN:  Congressional Corruption abounds.

Wikimedia Commons photo

Dan Froomkin
Huffington Post

Members of the House of Representatives considerably outperform the stock market in their personal investments, according to a new academic study.

Four university researchers examined 16,000 common stock transactions made by approximately 300 House representatives from 1985 to 2001, and found what they call "significant positive abnormal returns," with portfolios based on congressional trades beating the market by about 6 percent annually.

What's their secret? The report speculates, but does not conclude, it could have something to do with the ability members of Congress have to trade on non-public information or to vote their own pocketbooks -- or both. 

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Equity Valuations Forming Second Biggest Bubble in US History

Jason Kaspar, Contributing Writer
Activist Post

Despite the terrible economic performance of the past ten years (both in terms of the markets and the general economy), equity valuations are now approaching the second largest bubble in United States history, surpassed only by the technology bubble. Both the cause and the potential ramifications of this development are astounding.

Exhibit 1: The cyclically-adjusted price-to-earnings ratio, or CAPE.

This is not a “fad” valuation metric.  CAPE dates back to 1871, offering 140 years worth of data, during which time the mean price-to-earnings ratio is 16. According to Yale University’s Dr. Robert Shiller, the market is now 41% overvalued according to this valuation metric. The only time the markets have been more overvalued was a few brief months in 1929 and the tech bubble.

US man arrested in hacker stock fraud scheme

© AFP/POOL/File

AFP

WASHINGTON (AFP) - US authorities Monday arrested and charged a Texas man accused of masterminding a scheme using a Russian hacker and an email spam campaign to pump up the value of fledgling companies, the Justice Department said.

Christopher Rad, 42, of Cedar Park, Texas, was arrested by FBI agents on a federal indictment charging him with one count of conspiracy to commit securities fraud and transmit commercial email messages with fraudulent information.

The scheme employed hackers, including at least one in Russia, to distribute computer viruses to infect computers around the world and create so-called "botnet" computers that were used to manipulate stocks, a Justice Department statement said.

Gold at $7800/oz, Or S&P 500 at 220? Take Your Pick

Seeking Alpha

The chart below (to the right, Ed.) shows yet another way to look at the value of the stock market and gold in relation to each other.

The S&P 500 to gold ratio essentially prices the stock market in terms of gold. (Normally, it is priced in terms of dollars. Alternative reference points could include barrels of oil, acres of land or any other thing of value.) This helps provide a way to evaluate the market adjusting for a loss in purchasing power.

A few observations:

1. The ratio of S&P 500 to gold reached a bottom in 1981 - i.e. gold valuations reached a peak.
2. Between 1981 and 2000 the stock market rose in real terms.
3. Between 2000 and present the stock market lost value in real terms.
4. The S&P 500 to gold ratio has not yet fallen to historical lows. To reach historical lows set in 1981 the S&P 500 would either need to fall to 220, gold would need to rise to $7800/oz or some combination of the two.

Disclosure: I own some bullion

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Baby Boomers: Get Out of the Stock Market Now, the Rug is Being Pulled Out By Insiders

CNBC reports insider selling-to-buying ratio for top firms is a staggering 3177 to 1

Eric Blair

Activist Post

If you're a baby boomer who still believes in the stock market since the financial collapse of 2008, listen up. The floor of this Ponzi scheme is about to drop out, leaving you punching a clock for some time to come and holding an empty retirement bag for your effort.  The engineered crash is coming and the elite are jumping ship in droves -- you should join them and get out ASAP.

Stock market insider selling has now reached record highs.  The trend has been increasing for the last several years, but now the ratios are getting beyond ridiculous.  Earlier this month, Zero Hedge reported that the insider selling-to-buying ratio is 2341 to 1.  Tyler Durden wrote:

After last week saw an insider selling to buying ratio of 1,411 to 1, this week the ratio has nearly doubled, hitting a ridiculous 2,341 to 1. And while Wall Street's liars and CNBC's clowns will have you throw all your money into "leading" techs like Oracle and Google, insiders in these names sold a combined $200 million in stock in the last week alone.

Today, CNBC reported that the insider selling activity at some of the largest traded companies is at an all-time high.  This can't be a good sign of things to come.  The article points to the analysis of Alan Newman, a market strategist who tracks insider trading: "The overwhelming volume of sell transactions relative to buy transactions by company insiders over the last six months in key leading sectors of the market is the worst . . . ever."  CNBC reported that industry leaders have a staggering 3177 to 1 insider sell-to-buy ratio:

The largest companies in three of the most important leading sectors of the market have seen their executives classified as insiders sell more than 120 million shares of stock over the last six months. Top executives at these very same companies bought just 38,000 shares over that same time period, making for an eye-popping sell to buy ratio of 3,177 to one.

The grand total for the three sectors are “as awful as we have ever seen since we began doing this exercise years ago,” said Newman, who was ahead on such trends as the dangers of high-frequency trading and ETFs before the ‘Flash Crash’. “Clearly, insiders are seeing great value only in cash. Their actions speak volumes for the veracity for the current rally.”

Also quoted in the CNBC piece was Simon Baker, CEO of Baker Asset Management, who said the insider data “is good reason for considerable caution once the price action fades,” and “insiders normally buy early and sell early too. Longer term -- 12 months out -- it is more of a red flag.”

It's pretty difficult to excuse these levels of insider looting, but the experts are doing their best to claim that these poor executives (the titans of their industries) must take profits from stock sales because their salaries and bonuses have been cut.  Who do they think they are kidding?  Wall Street is still paying record salaries and bonuses, reportedly worth $144 billion (about a $1000 for every working American).  There also has been very little news of other industry executives taking pay cuts, as American companies are holding record levels of cash to the tune ofover a trillion dollars.  In fact, the flush-with-cash CEOs continue to blame the consumer class for joblessness.

Despite the mass exodus of executives from their own company's stock, the S&P continues to remain somewhat stable since gaining 16% from July lows.  Well, those gains seem somewhat pathetic since the value of the dollar -- measured against the human inflation indexes such as food and oil -- has plummeted.  Major food commodities are up over 50% since their July lows, while oil prices have climbed $10 to over $81/bbl, or around 14% for the same time period, with predictions to break the $100/bbl mark very shortly.  

Barely covering the cost of real inflationary measures is hardly success, especially with the current risks involved with being in the stock market.  These risks have only increased since the 2008 financial collapse that eventually caused the stock market to bottom out the mid-6000 range.  The market has been propped up with TARP funds and driven by scandalous front-running by Goldman Sachs and other large firms leading to 70% of stock purchases to be held for an average of 11 seconds. Consequently, these robo-trading programs have also been blamed for the freak "Flash Crash" in May where the stock market plummeted over 900 points in just minutes.

The charade is almost up, as the bad-but-getting-even-worse main street economy is not remotely factored in to Wall Street's casino calculations.  Truth is, most states are approaching bankruptcy, unemployment continues to worsen, and yet another major scandal is playing out with Fraudclosure Gate. Newman, the insider trading expert, says, “At the risk of sounding like a broken record, we expect a significant correction."

Unless you are an ultra-sophisticated trader with access to front-running software, it is time to follow these insiders out of the stock market and into real assets.  As the Fed announces plans for QE2, which the stock market actually views as a good thing, the elite seem to be flocking to precious metals, commodities, and large agricultural land purchases on the expectation of an even weaker dollar.  This appears to make gold, food, and oil pretty safe bets for the average bloke.

Recently by Eric Blair:
U.S. Debt Woes Expose Hidden Austerity and Looting of Public Assets
The After-the-Fed Solutions Debate Begins: Greenbackers vs. Goldbugs

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70% of All Stock Market Trades Are Held for an Average of 11 SECONDS

Washington’s Blog

The Fourteenth Banker writes today:

In the stock market, program trading dominates volume. I heard recently that 70% of trade positions are held for an average of 11 seconds.

He’s correct.

As the New York Times dealbook noted in May:

These are short-term bets. Very short. The founder of Tradebot, in Kansas City, Mo., told students in 2008 that his firm typically held stocks for 11 seconds. Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said

Similarly, FT’s Martin Wheatley pointed out last month:

I know of one HFT firm operated out of the west coast of the US that boasts its average holding period for US equities is 11 seconds.

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Mortgage Damage Spreads

Big Bank Stocks Hit Again as Modern Finance Collides With the Legal System

Nick Timiraos, Jessica Silver-Greenberg, Dan Fitzpatrick
Wall Street Journal

The unfolding foreclosure-processing debacle is causing bank stocks to slide and putting millions of delinquent borrowers in limbo.

But how disruptive the crisis ultimately becomes—for homeowners, the housing market and the broader economy—depends on how quickly a number of technical problems and legal challenges are resolved in the months ahead.

In essence, fast-paced modern finance is colliding with the much slower machinery of the U.S. legal system. While finance aims for efficiency and maximized profits, the courts demand due process. And that's becoming a growing issue as lenders come under attack for taking short cuts to oust homeowners who haven't mailed in a mortgage check for months.

Banks stocks were hammered on Friday for the second straight day as investors continued gauging the sector's exposure to higher operating and legal costs.

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STOP FORECLOSURE in Texas, California, and Florida

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Bank of America Downgraded by Bond Market on Foreclosures: Credit Markets

Mary Childs

Bloomberg 

Bondholders are penalizing Bank of America Corp. the most of any of the largest U.S. financial firms as the investigation into the foreclosure crisis expands.

Credit-default swaps on the country’s largest bank by assets areabove those of its peers by a record margin, according to data provider CMA. The contracts, which imply Bank of America has lost its investment-grade rating, exceed Citigroup Inc.’s by the most ever and surpassed Morgan Stanley’s this week for the first time in a year.

Attorneys general from all 50 states joined to open an investigation into whether lenders and mortgage companies falsified documents as they sought to repossess homes. Charlotte, North Carolina-based Bank of America said Oct. 8 it would curtail foreclosure sales nationwide, as speculation rose the lender would have to buy back home mortgages with faulty documentation. 

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10 Ways You're Being Fleeced by Banks

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Insider Selling To Buying: 2,341 To 1

Tyler Durden
Zero Hedge

Sorry kids, we just report the news... as ugly as they may be. After last week saw an insider selling to buying ratio of 1,411 to 1, this week the ratio has nearly doubled, hitting a ridiculous 2,341 to 1. And while Wall Street's liars and CNBC's clowns will have you throw all your money into "leading" techs like Oracle and Google, insiders in these names sold a combined $200 million in stock in the last week alone (following Oracle insider sales of $223 million in the prior week). Insiders can. not. wait. to. get. out. fast. enough. This Fed-induced rally is nothing short of a godsend for each and every corporate executive. But yes, there may be value: there was insider buying in 2 (two) companies last week: General Dynamics and Best Buy, for a whopping total of $177,064. At the same time sales were a total of $414 million: so is anyone wondering why JPMorgan is reopening its gold vault... Anyone left holding the bag on this market when the FRBNY props are taken away, will be left with the same return as all those investors who entrusted their money with Madoff. Guaranteed.

SEE Chart and Read Full Article

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