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

Tyler Durden's picture

Just three weeks ago we noted Apollo Group's Leon Black's comment that his firm was "selling everything not nailed down," and that he sees "the market is pricey... in our view, priced for perfection." It seems he is not alone in the 'buy-low-sell-high' crowd. 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?


Via Michael Snyder of The Economic Collapse blog,

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?

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A is A's picture

But, but, but.... Some guy on CNBC told me that the stock market is a leading indicator of the economy!?!?!

Pladizow's picture

I remember a year to two years ago, ZH running pieces on the sell to buy ratio of insiders being in the 1000's - yet where has the market gone?

Rubicon's picture

Great report. Next time we dont want something we will let you know.

King_of_simpletons's picture

Because it's not a bubble, silly

GoldForCash's picture

The light at the end of the stock market tunnel appears to be a train. Big crash coming....stock market down to 4500.

TheFourthStooge-ing's picture

Why is the smart money suddenly getting out of stocks and real estate?

They've managed to convince enough of the dumb money to jump on in because the water's fine.

fonzannoon's picture

maybe the smart money is dumb. the market seems to think so.

EnslavethechildrenforBen's picture

Can you imagine if there was a "truth" button on Google News?

MagicHandPuppet's picture

So, I guess now is not the time to sell my gold and silver american eagles and buy apple stock?

Never One Roach's picture
Rate Shock: In California, Obamacare To Increase Individual Health Insurance Premiums By 64-146%






Don't buy ANYTHING....better save for your health care where ever you are....more important....stay healthy becuase the cost of going to a hospital is may kill you even if the illness does not

BoNeSxxx's picture

A friend of mine was traveling overseas and he had a grabber (heart attack) which required immediate surgery.  His bill was $8,600 US which he put on his Visa happily.

What would that have cost in the United States?  

DosZap's picture

A friend of mine was traveling overseas and he had a grabber (heart attack) which required immediate surgery. His bill was $8,600 US which he put on his Visa happily.

What would that have cost in the United States?



Its_the_economy_stupid's picture

with no extra charge for MERSA.

Oh regional Indian's picture

They mistry is hidden in the history of words, also known as etymology.... case in point... CARE. understnad that the operatives knwo exactly what they are saying, they do CARE for you, and this is why...health 'CARE is killing everyone...

care (v.)
Old English carian, cearian "be anxious, grieve; to feel concern or interest," from Proto-Germanic *karojanan (cf. Old High German charon "to lament," Old Saxon karon "to care, to sorrow"), from the same source as care (n.). OED emphasizes that it is in "no way related to L. cura." Related: Cared; caring.
care (n.)
Old English caru, cearu "sorrow, anxiety, grief," also "burdens of mind; serious mental attention," from Proto-Germanic *karo (cf. Old Saxon kara "sorrow;" Old High German chara "wail, lament;" Gothic kara "sorrow, trouble, care;" German Karfreitag "Good Friday"), from PIE root *gar- "cry out, call, scream"
You see?


gmrpeabody's picture

LOLs..., while you're at it, look up:

understnad and knwo


Vegamma's picture

Just talked to George. He said the market is going much higher, but that's the problem. Marginal tax rates are going to 150%. Get out NOW before you have to pay the government if you make any $. You will learn to love ZIRP.

tickhound's picture

It's gonna take a cease-fire and a serious smoke clearing to really find out who was the smart and dumb money after all this.

After this many years in this en-virun-munt, even THAT analysis has been effectively skewed.


Its_the_economy_stupid's picture

waiting for the tide to go out

Handful of Dust's picture

Reminds me of the Groucho Marx scene in Cocoanuts where he struggles to find suckers to unload his Florida real estate lots.


It's a Classic!

therover's picture

Yup....didn't that happend the last time ?  These guys always take profits first, and leave the sheep fleeced. 

Fortunately I aint' fallin for it. Been getting out since March and will have 90% in cash/PM's by June.


BKbroiler's picture

yeah and I remember the gold buy calls at $1850 on here.  I'm a bear, not an idiot.

dick cheneys ghost's picture

one day in the future, Gold will be re-valued, overnite, while the idiots are sleeping.......

gmrpeabody's picture

Like Charlie Brown's "Great Pumpkin"..., "it'll come, just wait and see. And then you'll be sorry".

LOLs..., (timing is everything)

random shots's picture

Or ZH posting the weekly mutual funds flow and touting how retail investors were smarter than professional investors for bailing out.  I think that was 200-300 points ago on the S&P500.

Bay of Pigs's picture

Wheres da Beedermon mon?

Moar rice n peas mon!

Oracle of Kypseli's picture

Bernanke may be succeeding with certain groups of investors those who live on their SS and their savings and the gamblers.

Those still employed are staying out or they are not all in as they are not desparate for yield.

30% PM's 70% cash will give you balance on loss of purchasing power or if the dollar stays the king of currencies and all is well, not to worry about your PM insurance.

Fuh Querada's picture

I also recollect a series of reports in ZH and elsewhere on "massive insider selling" ever since the S&P topped 1000.
A similar category of report is about Soros buying GDXJ options. Rancid, spit-out scraps thrown off the table to gullible idiots like us.

dow2000's picture

GDXJ is up about 10% since then sooo.....

Jena's picture

And with housing, this time is different!

Skateboarder's picture

Olkdskool - man own house.

Newskool - house own man.

Simple as dat.

Almost Solvent's picture

Wait, you mean a $650k house own me with my $50k annual salary? But I put 3% down with my FHA loan and even got the deed in my name. 



Handful of Dust's picture

You put up 3%? I think you were hoodwinked....in my area they advertize on the FM "zero down house" every half hour.....usually followed by the "Become Rich Quick" flipper seminars and the weight loss miracle commericals....

Oracle of Kypseli's picture

That's how we got there in the first  place. But now you are riding the wave again. if it shoots up you keep the upside, if it crashes, you walk away. and banks go bust again. Then your chidren will  be paying your mortgage for long time.

BTW: even so, the house still owns you (upkeep, renovations, taxes utilities and immobility.  

asteroids's picture

Bullshit. Burn this into your head and your kids brains. "The stock market is not the economy" The FED has shattered that myth. Riddle me this batman. If smart money has left town then why are we only down 1.5% since the early May top? POMO can levitate this pig a long long time.

viahj's picture

$4.25 - $5.25 billion injected today

jaffa's picture

In recent years, many economists have recognized that the lack of effective real estate laws can be a significant barrier to investment in many developing countries. In most societies, rich and poor, a significant fraction of the total wealth is in the form of land and buildings. Thank you.
Luxury Valley Homes

fonzannoon's picture

Meh. We have been hearing this for a while. Anyone remember this from Gary Kaminsky in Nov?


Dr. Engali's picture

Hey I haven't seen Red Pill or Danny Taggart post in a while. Have they disappeared too?

Rusty Shorts's picture

Can you even imaging the overhead it takes to print all those interest bearing debt intruments??? I mean jeeeeesh, the ink cost alone must take up the first five or ten minutes of each day of printing "cash" to cover...I guess times are hard for everybody :-/

Dagny Taggart's picture

Hello Dr. Engali - not disappeared - gardening :-)

Here's a post... you will now be arrested for handing out "End the Fed" pamphlets in a public place - Philadelphia "the city of Brotherly Love"  http://www.youtube.com/watch?v=x0vS8VTZ4Sw

Dr. Engali's picture

It's good to see you're still here. It seems people have been dropping off like flies.

Jena's picture

You're right.  I miss many of the regular voices.  Glad that the ones who are still present are.

dick cheneys ghost's picture

haven't seen PODS, FUU or MCMOLITIVE...............

YHC-FTSE's picture

Just wondering about mcmolotov as well. I miss his/her (you never know) posts that invariably make me smile in agreement.  Bloody rare in real life.

As for disappearing regulars, I suspect they are around unless they've found a new playground.  Like others, I'm finding something new to contribute is a chore, and others here do it better anyway. 

Let's not forget to thank them and each other for making ZH what it is: A very rare outlet in a world drowning in bullshit. 

Dagny Taggart's picture

Watching the threads when ZH oldtimers (Cog Diss, G. Gekko) post an article after an absence, there seems to be a flood of comments from those presumed to be long gone. Sometimes it is easier to lurk and read and just watch without engaging. I would suspect that many, like me, periodically suffer from a fatigue of watching the pirates continue the looting and the system plodding along corruptly. It's even harder doing simple banking chores knowing I am supporting the very system I detest. We all know it has to fall down at some point, because if nothing else, everyone knows it's unsustainable. Just amazing it keeps going like it does. It makes it that much more remarkable that Tyler, Banzai, George Washington and others can relentlessly continue the good fight on a daily basis.  

Cognitive Dissonance's picture

Nearly two and a half years ago I asked "Where Have All The Zero Hedge Veterans Gone, Long Time Passing?"

Maybe it's time to revisit the subject since a second generation of ZH'ers are now slowly disappearing.

fonzannoon's picture

I missed that piece CD. Thanks for reposting. I have been on here for about 3 years (was booted once and had to start over). I learned so much from so many that I really hate to see the names disappear the way they have. I believe that at a certain point when you have gone back and forth so many times on the same issues that there is just nothing left to say. I think the people that left, for the most part, have truly gone galt. There is no taking any pill from here that inserts you back in. It also saps you of your time, energy, and can take it's toll on your loved ones if you let it.

I see this going a few different ways from here. Maybe more and more people  just shrug and sign off, because there is nothing left to say. We have preached to each other long enough. I had hoped, that at some point this virtual community would graduate to a real community. As there are many of us, it is nice to know that I could probably wander anwhere in the world today, and know somene from here when I get there.

It would be a total shame to watch this place turn into a hollow shell of itself. The irony is it may be doing so at exactly the time everyone that originally tuned in here to see.

Cognitive Dissonance's picture

From time to time I too have suffered from Zero Hedge fatigue and have pulled back from commenting and writing. Speaking only for myself there are usually many reasons for the fatigue, but after some down time for reflection and reassessment I remember again why I am here on Zero Hedge and I return.

It is when I become idealistic and my expectations grow larger than the present reality that I become discouraged and disillusioned. The systems in place, the slave mentality and continuity bias, are powerful forces that will not be overcome in a few short years. The reason I am here is because someone must speak the truth in order to make it real and thus irrefutable. A truth unspoken can be easily ignored. A truth spoken is recognized for what it is, a refutation of the Big Lie.

So I remain long the TRUTH while I short the Big LIE.