Stock Market Crash Ahead?
CNN and the mainstream media are hyping the stock market. Analysts and shills prophetically saying the economy is recovering.
I don't see it. I've been 100% in cash... and am still pessimistic.
Insiders are Selling
In the last several weeks, corporate insiders (corporate executives and directors) have been heavily selling their company's stock, so much that it is attracting attention:
The last time insider selling was as high as it is now was in the period from late 2006 to late 2007. It was right after that insider-selling surge that the stock market began its long painful decline, says Charles Biderman, CEO of TrimTabs, an independent institutional research firm. (Source: Time Magazine)
Credit Contraction Continues
Today, Karl Denniger pointed out that consumer credit has posted a record contraction, beating the Fed's estimates:
*U.S. JULY CONSUMER CREDIT WAS FORECAST TO DROP BY $4 BILLION
*U.S. JULY CREDIT CARD, OTHER REVOLVING DEBT FALLS $6.1 BLN
*U.S. JULY NON-REVOLVING BORROWING FALLS RECORD $15.4 BILLION
*U.S. JUNE CREDIT FALLS $15.5 BLN, REVISED FROM $10.3 BLN DROP
*U.S. JULY CONSUMER CREDIT FALLS RECORD $21.6 BILLION, FED SAYS
Banking Crisis Will Worsen
Dan at The Fundamental View sums why the crisis will worsen:
Floyd Norris of the New York Times reported on Friday that 1 in 6 of all construction loans were in trouble. He cited reports filed by banks with the FDIC at the end of June. The figure is pegged at half a trillion dollars. His piece titled Construction Loans Falter, a Bad Omen for Banks provides some further insight into this looming problem for the banks. He states:
Foresight estimates the biggest problems are in loans for condominium construction, with 38 percent of all construction loans troubled. Mr. Anderson says even that might be an understatement. He pointed to Corus Bank, a Chicago institution that specialized in condo loans. Its latest report shows that its capital is gone and that it expects losses on two-thirds of its construction loans. [emphasis mine]
Let's re-cap [last] week’s news.
- Unemployment rises beyond the worst-case scenarios of the bank stress tests;
FDIC Chairperson Bair stated a couple days ago that commercial real estate will be the leader of the next wave of bank closures;- 1 in 6 construction loans pegged at half a trillion dollars are in jeopardy of defaulting
- Prime mortgages are now defaulting at higher rates;
- China is making noise about derivatives;
- Record food stamps being issued;
- Many families falling below the poverty line
So does this mean I should short every stock, or buy puts? Not so fast. Computer trading is responsible for near 70% of the market volume. Without real buyers and sellers the stocks can be manipulated as the banks pump the stocks by selling between themselves until some sucker comes in...
It will be an interesting Winter.
