Is There Reason To Worry About The Current Legacy Being Left To America's Children?

Why Is The Smart Money Suddenly Getting Out Of Stocks And Real Estate?

by Michael

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 theStockTradersDaily 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?
Feel free to post a comment with your thoughts below…

Near Zero Percent Interest Savings Rates Are Forcing Seniors to Ration for Survival, While Wall Street Investors Are Making Record Profits

MARK KARLIN, EDITOR OF BUZZFLASH AT TRUTHOUT
How much interest do you get on a regular savings account from a "bank to big to fail", such as Citibank?
In general, you'll get 0.01 % as listed at Money-rates.com.(See "Popular Banks" section and also Citibank standard savings account rate disclosure.)
 You read that right, 0.01%. So if you have a $1000 in your savings account, you will receive basically 10 cents in interest over the course of a year.  Meanwhile, a bank like Citibank is lending your money out in many ways, including its credit card division at rates up into the double digits (up to 29.99 % if you make a late payment).
But the real injustice here is that while Congress and the White House are talking about cutting back Social Security, seniors who are lucky enough to have savings are earning, in essence, no interest if they have some savings tucked in a bank account.
I was digging through some old papers recently and found a June 23, 1995, advertisement from then StPaul Federal Bank in Chicago.  It offered 5.65% on a four-month CD. Right now Citibank is offering 0.20% on a one-year CD (minimum deposits apply to most CD offers).
 In short, while the stock market is flying and those who are rich are seeing their portfolios swell with money, working stiff seniors are facing decreased payments on their earned benefits and are basically losing money in savings because inflation is outpacing virtually no interest being paid to them.
Here is a little bit of history about federal interest rates, which are the basis for bank interest to depositors:

The benchmark interest rate in the United States was last recorded at 0.25 percent. Interest Rate in the United States is reported by the Federal Reserve. Historically, from 1971 until 2013, the United States Interest Rate averaged 6.17 Percent reaching an all time high of 20 Percent in March of 1980 and a record low of 0.25 Percent in December of 2008. In the United States, the authority for interest rate decisions is divided between the Board of Governors of the Federal Reserve (Board) and the Federal Open Market Committee (FOMC). The Board decides on changes in discount rates after recommendations submitted by one or more of the regional Federal Reserve Banks. The FOMC decides on open market operations, including the desired levels of central bank money or the desired federal funds market rate.

Meanwhile, the stock market is crossing back and forth into record territory with bulging increases in portfolio value for the wealthy and record dividends.
In September of last year we penned a commentary entitled, "A Tale of Two Economies: Skyrocketing Stock Market for the Rich, Devaluation of Work for the Rest" in which we wrote:

The rich are making out like bandits in the booming Wall Street economy that is based on profits squeezed out of firing workers, lowering net wages (adjusted for inflation), and outsourcing jobs to exploited labor overseas.  There is no crisis in the top 1%; there is only increasing wealth.  

In that second economy, the financial returns are rising like a high tide.  The rich are not living in a recession; they are living in a gilded-age-bubble of increased profits and assets.If it is true that the richest 400 people in the US own more wealth than the bottom 185 million, that imbalance is increasing, not decreasing.That is the story of the tale of two economies, the story that you don't read about in the mass corporate media – but it is the financial reality of our times.

The continual cries of "austerity" by the wealthy integrally relate to this tale of two economies, because there is no austerity being imposed on the wealthy: it's like the 1920's all over again for them.
However, seniors and the working class are being squeezed by cuts in benefits, pay, and the inability to earn interest of any meaningful size on money that they saved for retirement.For most Americans, they have been living in austerity for years now.
It's time to see some austerity imposed upon the 1 percent.
Far too many of the rest of us are already "austeritied" to rationing for survival.

Bill aims to safeguard DIA artwork in the event of Detroit bankruptcy

Purchase Image

The DIA, with its millions of dollars of artwork, was mentioned by Detroit emergency financial manager Kevin Orr as a potential target to help offset the cost of the budget crisis the City of Detroit is in. Legislation introduced in the state Senate intends to protect DIA artwork from possible sale. / Eric Seals/Detroit Free Press

By Matt Helms and Kathleen Gray

Detroit Free Press Staff Writers

Pledging a fight to prevent a sale of treasured works at the Detroit Institute of Arts in a potential city bankruptcy, a top state lawmaker introduced a bill to do just that — although it’s not clear a state law would suffice in a federal bankruptcy court.
The bill, sponsored by state Senate Majority Leader Randy Richardville, R-Monroe, would turn into state law an argument that the museum’s leaders have made amid the uproar that resulted after the Free Press revealed last week that DIA art is at risk if Detroit files a Chapter 9 municipal bankruptcy.
Richardville said Thursday that the details of how the bill would work are “somewhat technical.”
“This is such an important asset to the city of Detroit and to the people of Michigan, it was important that we introduce something that got everyone’s attention and said, ‘Hey, look, if it’s a problem in Detroit and Michigan, the Legislature has a responsibility to look at it,’ ” Richardville said.
He said the bill would be put into committee next week for discussions. Among those discussions is likely to be how the bill, if made into law, would square with federal bankruptcy law.
Laura Beth Bartell, a professor of bankruptcy law at Wayne State University Law School, cast doubt on whether a state law passed now could protect the DIA collection from a possible Orr-mandated sell-off. Federal law in general trumps state laws, and a state law that limits the powers that Orr could exercise under the federal bankruptcy code probably would not stand judicial review.
“I’m not sure what this would do” to protect the collection, Bartell said of the proposed legislation.
Richardville said he was unsure about the conflict between state and federal law, but said “we’re going to be in there like David and Goliath. David won, by the way. We’re going to articulate our position. I don’t know if there are other things that can be done. This is to get everyone to concentrate on the problem.
“We’re going to be in there fighting. It’s important to the state. Next week we’ll know a lot better.”
State officials, emergency manager Kevyn Orr and others insist there is no proposal on the table to use paintings or other DIA jewels to pay down Detroit’s $15 billion-$17 billion in bond debts and retiree pension and health care costs. But Orr has spoken with DIA leadership to alert them about the possibility of creditors seeking repayment of debts through sales of city-owned assets such as the museum and its artwork.
The issue also has raised questions about the propriety of placing so much emphasis on artworks when pressing quality-of-life issues like public safety and emergency response, vacant and abandoned homes, and streetlighting remain a daily struggle in the city.
Senate Bill 401 would amend a state law passed in 2010 to allow for a regional millage that voters approved to support DIA operations. It would add a key provision: “An art institute shall adhere to the code of ethics for museums published by the American Alliance of Museums or a successor organization.”
Kirk Profit, a former state representative and a lobbyist for the DIA, said that the bill would add the heft of state law to the DIA’s argument that professional ethics for museums preclude sales of art to satisfy debts, a move many fear would diminish the DIA’s stature as one of the nation’s leading museums and unleash a backlash among its biggest supporters and donors.
“We’re working very closely with everyone in state government to make sure we do the best we can to protect these assets,” Profit said Thursday at the Mackinac Policy Conference on Mackinac Island. “I think collectively we will succeed.”
News of the bill’s introduction came as state Treasurer Andy Dillon said discussion of potential DIA asset sales was premature. Dillon noted during a panel discussion Thursday that the city and Orr are still working to avoid a bankruptcy filing over the next 60-90 days and trying to arrange negotiated settlements with creditors, retirees and city unions.
“It’s putting the cart before the horse,” Dillon said. “What’s being discussed here is a legal possibility, not a hypothetical. We’re not there yet.”
Dillon noted that the DIA has hired legal counsel to advise it on protecting its public trust as a holder of the region’s art.
“I think it’s going to be a very complex legal issue,” Dillon said. “I just think it was way too soon for it to hit the press.”

Join the #mpc13 conversation

Follow the 2013 Mackinac Policy Conference with us. Find full coverage on Freep.com/aBetterMichigan; on your phone, download the Free Press app and tap on “Better Michigan.” On Facebook, follow Facebook.com/aBetterMichigan. On Twitter, follow @aBetterMI and the hashtag #mpc13, or subscribe to our Twitter list via Freep.com/mpc13Twitter.

Contact Matt Helms: 313-222-1450 or mhelms@freepress.com. Staff writer John Gallagher contributed to this report.

Westpac caught up in world’s biggest money laundering sting

The Sydney Morning Herald – by Peter Mitchell, Tom Hays and Raphael Satter
US prosecutors have announced what they say is the biggest international money laundering prosecution in history – a $US6 billion ($A6.2 billion) trail that allegedly includes $US36.9 million ($A38.4 million) deposited in Westpac Bank accounts.  
The trail was allegedly left by Costa Rica-based Liberty Reserve, a currency-transfer and payment-processing company that allowed customers to move money anonymously from one account to another via the internet with almost no questions asked, and has travelled through 17 countries, including the Westpac accounts in Australia.

One person was registered under the name of “Joe Bogus” and the address “123 Fake Main Street” in “Completely Made Up City, New York.”

Prosecutors described Liberty Reserve as a “financial hub of the cyber crime world … one of the principal means by which cyber criminals around the world distribute, store and launder proceeds of their illegal activity … including credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking.”
“The scope of the defendants’ unlawful conduct is staggering,” officials said. Over roughly seven years, Liberty Reserve processed 55 million illicit transactions worldwide for 1 million users.
Prosecutors said 45 bank accounts have been restrained or seized.
According to the indictment, three Westpac accounts held in the name of Technocash Ltd contained $US36.9 million ($A38.4 million).

“The bank of choice for the criminal underworld”: US Attorney Preet Bharara. Photo: AP

“We have rigorous processes in place to combat money laundering and have been working closely with regulators and law enforcement agencies,” said a Westpac spokeswoman.
In Australia, the agency responsible for detecting money laundering is AUSTRAC, which passes on intelligence to the Australian Federal Police and Australian Crime Commission.
‘Bank of choice’
The Liberty Reserve network “became the bank of choice for the criminal underworld,” US Attorney Preet Bharara said in announcing the unsealing of an indictment against the defendants, including founder Arthur Budovsky, an American who renounced his US citizenship after deciding to set up in Costa Rica.
Unlike traditional banks or legitimate online processors, Liberty Reserve did not require users to validate their identities, it is alleged.
It allowed users to open accounts using fictitious names, including “Russian Hacker” and “Hacker Account.” One person was registered under the name of “Joe Bogus” and the address “123 Fake Main Street” in “Completely Made Up City, New York.”
“The only liberty that Liberty Reserve gave many of its users was the freedom to commit crimes – the coin of its realm was anonymity, and it became a popular hub for fraudsters, hackers and traffickers,” said Bharara. ”It was the opposite of a know-your-customer policy.”
Cyber-age laundering
“We’re now entering the cyber age of money-laundering,” said Richard Weber, chief of the Internal Revenue Service’s Criminal Investigation division, who also alluded to Chicago Crime boss Al Capone. “If Al Capone were alive today, this is how he would be hiding his money.”
The company operated one of the world’s most widely used digital currencies, allowing users to send and receive “instant, real-time currency,” according to the indictment in US federal court in Manhattan.
Digital currency, such as Bitcoin, was developed as a way to make anonymous transfers over the internet without paying fees to a bank. The US Justice Department warned as early as 2008 that criminals would increasingly rely on the digital currency industry to launder and move funds because it facilitates financial transactions outside the rules of the traditional banking system.
The alleged crimes involved only Liberty Reserve and its operators, and not any other digital currency, Bharara said.
“The actions brought today relate only to Liberty Reserve and no other system,” Bharara said. “We’re not taking any position on virtual currency generally and we’re not taking any position with respect to any particular other company that engages in something that may look on the surface that something that Liberty Reserve was doing.”
Arrests
Five of the seven defendants were arrested last week in a global swoop.
Budovsky, 39, was arrested in Spain, co-founder Vladimir Kats, 41, was arrested in Brooklyn, New York, while two other defendants, Ahmed Abdelghani, 42, and Allan Jimenez, 28, remain at large in Costa Rica, prosecutors said.
The names of the defendants’ attorneys were not immediately available.
“The global enforcement action we announce today is an important step towards reining in the Wild West of illicit internet banking,” said Bharara. ”As crime goes increasingly global, the long arm of the law has to get even longer, and in this case, it encircled the earth.”
A notice pasted across Liberty Reserve’s website on Tuesday morning said the domain “has been seized by the United States Global Illicit Financial Team.” As of Wednesday morning, the website is no longer accessible. Attempts to reach Liberty Reserve by phone and email were not immediately successful.
Liberty Reserve was incorporated in Costa Rica in 2006 and billed itself as the internet’s largest payment processor and money transfer system serving millions of people around the world.
Prosecutors alleged Liberty Reserve was used extensively for illegal purposes, providing an infrastructure that enabled cyber criminals around the globe to conduct untraceable financial transactions.
The network charged a 1 per cent fee on transactions through “exchangers” – middlemen who converted actual currency into virtual funds and then back into cash.
It is alleged when US authorities began to investigate the company, the defendants pretended to shut it down.
But it is alleged that they continued operating “and moved tens of millions of dollars through shell company accounts maintained in Cyprus, Russia, China, Hong Kong, Morocco, Spain, Australia and elsewhere”.
Budovsky and Kats have previous convictions on charges related to an unlicensed money-transmitting business, according to court papers. After that case, the pair decided to move their operation to Costa Rica, the papers said.
In an online chat captured by law enforcement, Kats admitted Liberty Reserve was illegal and noted that authorities in the US knew it was “a money-laundering operation that hackers use”.
Legitimate users
While authorities described Liberty Reserve as being rife with criminals, the site’s ease of use, low fees and irreversible transactions that deterred fraud also attracted legitimate users.
Mitchell Rossetti, whose Houston-based ePayCards.com was one of several mainstream merchants that accepted Liberty Reserve’s online-only currency, said his business still had about $US28,000 tied up in Liberty Reserve accounts.
“The irony of this is I went to them because of the security,” Rossetti said. “All sales were final.”
He acknowledged that the currency was being used by scammers but said Liberty Reserve funds were just like any other currency: “The US dollar can be donated to a church or it can pay a prostitute.”
Liberty Reserve appears to have played an important role in laundering proceeds from the recent theft of some $US45 million from two Middle Eastern banks, according to documents made public by authorities earlier this month. In that scheme, thieves stole debit card information and then used it to drain cash from thousands of ATMs around the world in a matter of hours.
As part of the Liberty Reserve investigation, authorities raided 14 places in Panama, Switzerland, the US, Sweden and Costa Rica. In Costa Rica, investigators recovered five luxury cars, including three Rolls-Royces. Bharara said authorities also seized Liberty’s computer servers in Costa Rica and Switzerland.
The seven defendants are each charged with one count of conspiracy to commit money laundering, which carries a maximum term of 20 years jail.
They’re also charged with one count of conspiracy to operate an unlicensed money transmitting business and of operation of an unlicensed money transmitting business. Both of those charges carry a maximum jail term of five years.

David Stockman: “The Error Of Central Banking Has Become Universal”

In the old normal (“when we had an honest Fed,” under Volcker), David Stockman explains to CNBC’s Rick Santelli, “the market could judge what Congress and the White House was doing and decide where the risk/reward equation was and how to price the bond, the note, the bills,” but in the new normal, “today, the market is entirely rigged.” Stockman is no fan of deficits and as he notes “is no fan of money-printing,” pointing out that “it’s not honest,” for the Fed to fund these chronically growing deficits and “created an unsustainably dangerous financial system.” In thie brief interview, Stockman (of The Great Deformation fame) sums it up perfectly to a just-as-concerned Santelli, when he notes, “the error of central banking has become unversal.” We’re taxing the futures generations, he concludes, “they’re going to thank you for the massive disaster that was handed to them.” The honesty will never come…

“You have both parties in the military complex and we’re still spending billions for defense.
So the honesty will be in the raising of taxes.

The honesty will come when you tell the middle class you’re not going to get a tax cut – you’re going to pay more.
Then they will wake up.
Then they will march on Washington and demand that we do something about the giant programs that are drifting today because everybody thinks the Fed will take care of the debt.”

Well worth the price of admission:
 

Debt-laden eurozone countries get more time to cut deficits as OECD slashes region's growth forecast

Debt-riddled countries in Europe were given more time on Wednesday to hit their budget targets as the outlook in the region took a dramatic turn for the worse.
The European Commission granted six countries – France, Spain, Poland, Portugal, the Netherlands and Slovenia – an extra year, or two in some cases, to cut their deficits to below 3 per cent of GDP.
Commission President Jose Manuel Barroso urged governments to use the time to push through sweeping economic reforms to bolster growth and tackle sky-high unemployment.
‘There is no room for complacency,’ he said.

Fired up: Police in Barcelona clash with firefighters protesting against austerity cuts on Wednesday

It came as the Organisation for Economic Cooperation and Development slashed its forecasts for economic output in the region.
The Paris-based watchdog said it now expects the eurozone economy to shrink by 0.6 per cent this year – far worse than the 0.1 per cent it forecast last November.

 

It said ‘still-rising unemployment is the most pressing challenge’ for Europe.
The OECD accused eurozone leaders of being ‘behind the curve’ throughout the crisis and warned ‘unemployment and social tensions are rising’.
Pier Carlo Padoan, the group’s chief economist, called on the European Central Bank to unleash a major programme of quantitative easing to drag the single currency bloc out of recession. ‘Europe is in a dire situation,’ he said.
With countries struggling to balance the books, the EC granted France, Spain, Poland and Slovenia an extra two years to cut their deficits below 3 per cent. The Netherlands and Portugal won 12 month extensions.
Barroso said: ‘Now is the time to step up the fundamental economic reforms that will deliver growth and jobs, which our citizens, especially our young people, anxiously expect.’
Fears are mounting that Europe faces a lost decade of economic misery. Pimco, the world’s biggest bond trader, warned that the eurozone faces ‘zombification’ over the next few years with many economies staving off collapse but unable to grow.
‘Weak growth means that political and social tensions will continue to build,’ said Andrew Balls, who leads Pimco’s investment team and is brother of shadow chancellor Ed Balls.
He said the eurozone’s four largest economies – Germany, France, Italy and Spain – were likely to bind themselves into an ever closer union.
‘However, it is not clear that all smaller countries will be either welcome or willing to take part,’ he added. ‘There remains a significant risk that some of these countries may exit the eurozone.’