INSIDERS REMAIN DOUBTFUL OF THE RALLY
Few things have been more confounding over the course of the 60% rally than the lack of insider conviction with regards to purchasing their own stocks. The latest data on insider selling and buying continues to show alarmingly low levels of buying accompanied by very high levels of selling. As we continue to see the very weak rebound in revenues and non-existent hiring it has become more and more clear why insiders lack conviction in their own shares – after all, without a rebound in hiring and organic revenue growth a sustainable economic recovery remains highly unlikely.
Yesterday’s Business Roundtable Survey confirmed much of this. Despite increased confidence over Q3 we continue to see very low confidence in future hiring and spending. Hence, the likelihood of a long and slow recovery remains very high:
“The economy is in the throes of a long transition back to health; recovery will be long, extending beyond 2010,” said Ivan G. Seidenberg, Chairman of Business Roundtable and Chairman and CEO of Verizon Communications. “The outlook of our CEOs reflects that reality: we see noticeable gains in sales and capital spending, but employment growth continues to lag.”
TPC, I am bearish on the 2010-2012 timeframe, but I don’t happen to think all the noise related to insider selling is that meaningful. Excluding dot com executives most executives haven’t seen their large holdings drop by such a large amount in their lifetimes until 08/early 09. I am sure it was life changing. Most executives build a life around them (multiple houses, cars, girlfriends) that’s very expensive. I know one with a large apt in NYC, large house in Southampton, large ski house in Aspen, large apartment in Paris. This is blindingly expensive and requires lots of cash sitting around in one of those “insured up to 50M” Chase bank accounts. If I held a large chunk of stock in my company I would likely sell too if the market swooned then recovered. It’s a smart hedge (you’re Mr. Risk Mgmt, after all). If the company does great, you have a job, get a raise, and likely get more options. If the company doesn’t do well you’ll be fired and you can retire on all the money you’ve socked away. So I would argue that it isn’t a bullish or bearish sign: it’s a sign that nobody can really see how bad the future is going to be (although it is quite clear it will be seriously bad).
I don’t disagree at all. It’s one of these long-term macro indicators that are kind of useless in terms of trading…
I’m beginning to think that the reason insiders are not buying is simple: they’re essentially fundamental traders and are not feeling the effects of increased liquidity on the “ground” (for the same reasons that ordinary folk are not better off). Stock prices may get lifted, but their sales volumes and revenues are not.