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Housing - “Partying Like Its 2005-06”

We have previously mentioned the importance of main stream media magazine covers and how the psychology of a cover is a manifestation of “extremes” in mood by the general public.   In other words, when a magazine proclaims extreme optimism or pessimism, its a sure bet that a top or bottom is close at hand.  

Exhibit A - this Time Magazine cover from 2005.  Housing declined 45% over the next 3 years.

Exhibit B - this week’s Bloomberg cover.   Must we say more?

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Can You Handle the Truth?


Lots of good news - who are we to report on things that actually might dampen the party?   Without further ado - we leave the truth telling to a 50 year veteran of Wall Street - Art Cashin - Director of Floor Ops for UBS.

Warning - Art speaks the truth and its not pretty.  Some of the highlights:

1.  This past week has seen a resurgence in European problems (we thought everyone in Davos said things were fixed?)

a.  Rajoy in Spain about to be ousted

b.  Berlusconi in Italy about to win election ( he is threatening to repeal tax increases and austerity)

2.  An options trader put an $11 million bet that volatility will increase (and stocks will collapse) by April 20th.

3.  Inflation is beginning to show based on a spike in the M2 money velocity indicator

4.  Law of diminishing returns with QE

5.  Egypt, biggest Arab nation at risk of coming apart.  Biggest importer of wheat to make subsidized bread to keep the population quiet.

6.  Iran growing more desperate.  Syrian problem not gone away.

7.  China and Japan about to go to war.

Full audio interview here - 15 minutes well spent:

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From Ridiculous to Absurd…


For the last 2 weeks we have been looking for “signs” of impending reversal in world markets.   While we have written endlessly about the frothy NO MONEY DOWN real estate market, CEO insiders selling, and extreme optimism - we believe this one takes the cake.

In something eerily reminscent of the year 2000 - when your local shoeshine boy was making stock recommendations to buy the latest bust, we present 16 year old Desperate Housewives actress cum day trader - Rachel Fox.

While she seems to take credit for her trading prowess, she should really be thanking Uncle Ben for her proven formula:

"BTFD - "Buy the Fuckin’ Dip".

If this isn’t the ULTIMATE sell signal - we COMPLETELY give up and will buy real estate, go back to college by taking $200,000 in student loans and live like P Diddy on massive credit card leveraged debt.

Editors note:  Embed not working - click on link to see video:

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Insider Selling - Suckers Alert


As the Dow continues to hover near 14,000 - the public is downright getting orgasmic about their stock portfolio.   We have written in the past week here, here, here and here about this unprecedented euphoria or stupidity (depending on how you view it).

Well, as the market climbs, none other than corporate insiders are selling their stock to Joe Blow - in a total suckers exchange.  One line stands out from the article below:  ”There have been more than nine insider sales for every one buy over the past week among NYSE stocks”

From CNBC:

Insiders have been pulling out of stocks just as small investors are getting in.

Selling by corporate executives has surged recently as the Dow Jones Industrial Average hit 14,000 and retail investors flooded into stocks. The amount of insider selling has usually preceded market selloffs.

"In almost perfect coordination with an equity market that was rushing toward new all-time highs, insider sentiment has weakened sharply — falling to its lowest level since late March 2012," wrote David Coleman of the Vickers Weekly Insider report, one of the longest researchers of executive buying and selling on Wall Street. "Insiders are waving the cautionary flag in an increasingly aggressive manner."

There have been more than nine insider sales for every one buy over the past week among NYSE stocks, according to Vickers. The last time executives sold their company’s stock this aggressively was in early 2012, just before the S&P 500 went on to correct by 10 percent to its low for the year.

"Insiders know more than the vast majority of market participants," said Enis Taner, global macro editor for "And they’re usually right over a long period of time."

"Insiders (are) showing a remarkable ability of late to identify both market peaks and troughs," states the Vickers report.

Will this time be different - will the “insiders” be wrong and the market go to 15,000?   

We think not.   Next Stop is Dow 11,000 by April 1st.

February 8, 2013 UPDATE:

Late Friday, after the market close, Eric Schmidt, Chairman of Google quietly announced he is selling HALF his shares in Google.

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Today’s Daily Dose of “Optimism”

In what is fast becoming a daily “bubble-icious”occurrence - today we share with our readers more signs of Summer 2007 - a time when “all was good” on the outside, but the entire financial system and global economy was crumbling from the inside.

Today, we learn that Dell Computer was taken over in a leveraged buyout by SilverLake Management in a deal worth $22 Billion.  Why is this important you ask?   Why the only deal larger was by Blackstone LBO’ing Hilton Hotels on July 3, 2007 for $26 Billion.

From a psychological standpoint, these type of events occur at moments of extreme optimism.   A better time to do a deal like this would have been at DOW 6500 four years ago, as the buyer would have gotten a MUCH better deal at a significantly lower valuation.   But, that’s thinking rationally - and that’s not allowed nowadays.   The mantra is buy high, and find a sucker who will buy from you higher - until it doesn’t work like 2008.

Today’s Dell Announcement:

"The leveraged buyout by Silver Lake Management LLC and founder Michael Dell would be the biggest since at least 2007, with an enterprise value of about $22 billion, according to data compiled by Bloomberg. The size of the deal probably will amplify potential buyers’ confidence, spurring them to tackle more targets, said Sandler O’Neill & Partners LP’s Devin Ryan.

“LBO activity historically has led the M&A markets more broadly,” said Ryan, an analyst with the New York-based boutique investment bank. “More LBOs generally spark more strategic activity as well — it all kind of ties into together.”

Blackstone Hilton Announcement on July 3, 2007 (3 months before the economy began to IMPLODE):

"U.S. private equity firm Blackstone Group said on Tuesday it would buy Hilton Hotels Corp. for about $26 billion cash, the richest deal in a series of recent private equity offers for hotel companies.

The hotel industry is enjoying a multiyear boom as robust demand has allowed hoteliers to steadily raise rates. The upbeat market environment, supported by limited construction of new hotels, has made lodging assets hot commodities.”

Wash-Rinse-Repeat.  Wash-Rinse-Repeat……

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Why Home Prices MUST Stay Up…

Housing has been on a tear.   There are many reasons why.  Low interest rates, supposed high demand, etc.    Prices cannot and must not fall.  Why?  Because 47% of Americans aged 50-70 are relying on the “home equity” in their home to supplement their retirement. 

"Home equity" is nothing more than a perceived value in excess of what is owed.   We say perceived because it represents what one person is willing to offer above what is owed.   But, if one day, the person in question "offers" something lower than what’s owed, their is NO MORE "home equity."  Gone - just like that.

Hope home prices stay elevated - because if they don’t, there is an entire legion of baby boomers who are in BIG TROUBLE.  Don’t think Uncle Ben isn’t aware of this….

From the WSJ:

Even though the housing market has not recovered, nearly half of older working Americans expect to use equity in their homes to help finance their retirement, a new survey finds.

Roughly 47 percent of employed Americans ages 50 to 70 said they were relying on equity in their homes, the Retirement Check-In survey from Ameriprise Financial found. The finding is surprising, an accompanying report notes, because housing values in many parts of the country remain below the level they were before the recession. Also, 37 percent of homeowners say they’re not on track to pay off their mortgage before they retire.”

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Frothiness Continues..

We wake up this morning to more EXTREME sentiment.   We continue to document this as we are sure to look back 6 months from now and ask ourselves “So what was everyone so excited about again???”

Because at the end of the day, any passionate consensus among the mass population is a terrific signal, because it means that there is no one left to convince and therefore the market in question should have extreme difficulty continuing in the predicted direction.

Simple right? 

From the WSJ - Get Aboard the Choo Choo Train:

From the Washington Post:

"Across the country, Americans are embracing riskier investments that they shunned in the aftermath of the financial crisis. The Federal Reserve has pledged to keep interest rates near zero for at least the near term, and that is keeping bond yields low and leading investors to look for better returns.

Many local brokers and money managers say they are seeing renewed interest in stocks, which is pushing markets higher. Others say their clients never fully left the market, but are trading more frequently now and investing larger amounts of money.

TD Ameritrade, the Omaha-based online broker, registered an average 370,000 trades per day in January, up from 30,000 trades a day in December, said Steve Quirk, senior vice president of trade for the company.”


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