INSIDERS CONFIRM THAT THE RALLY IS FAKE, ECONOMY IS “GETTING WORSE”
We’re slowly beginning to piece together the puzzle of insider selling that has been so pronounced throughout the rally. By now we all know that the uptick in the economy has been mostly stimulus based. We also know that businesses are still seeing deteriorating top line growth and unsustainable growth via cost cuts. These have been the primary reasons for our skepticism regarding the sustainability of the rally and the economic upturn. As the market soars higher insider selling has been confounding to say the least, but the recent comments from Ken Langone and the Business Roundtable Survey essentially confirm what we have long thought: the rally is built on quicksand. Of course, we’re not the only ones who think the rally is built on quicksand (see here & here for more from Peter Thiel and David Rosenberg).
For the latest week ending 10/01/09 insider selling to buying soared 44:1. Total insider buying was just $11.9MM for the week while insiders continued selling en masse – a staggering total of $532MM in selling. Perhaps most alarming is recent evidence from insiders themselves that confirm why they have been selling. (Full data can be found below).
The recent Business Roundtable Survey results showed that 49% of all CEO’s expect their sales to be flat or down in the coming 6 months. 51% expect an increase. 79% of all CEO’s surveyed expect their capital spending to be flat or down in the coming 6 months. 87% of all CEO’s expect to do no hiring in the coming 6 months:
If you missed the recent interview with Ken Langone I highly recommend you take a few minutes and watch it in its entirety. Langone is an insider amongst insiders. Not only is he one of the co-founders of Home Depot (one of the companies at the heart of this economic downturn), but he is a board member at Yum! Brands, ChoicePoint, and former board member of the NYSE & GE. In the interview Langone was brutally honest about the state of the recovery. Not only does he believe that the government is lying about the recovery, but he says the economy is actually getting worse:
I’m confused. All of the people that I respect as investors and as people are all scratching their heads saying “we don’t get it”. All the businesses that I talk to – I spend a lot of my time now reaching out to people that are running companies, running businesses – I’m getting it back from everybody: it’s terrible, it’s getting worse, September was worse than August…I think this (rally) is a reflection of the fact that you get nothing in the way of rate of return in the bond market….
The weekly rail data, weak retail sales, lack of revenue growth, extraordinary job losses and recent downturn in housing data all validate the actions taken by corporate insiders – the rally is not sustainable because the economy is not actually recovering…..
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makes you wonder where ECRI is getting its data; they have hedged themselves by saying that this will be a serviced based recovery rather than a mfg one. My guess is that when the retail sales finally turn up convincingly, the market will head south.
“I think this (rally) is a reflection of the fact that you get nothing in the way of rate of return in the bond market….” Da.
I think this will continue as long as equities remain correlated with TBonds (it means that the threat of a currency or US$ crisis is minimized, and the Fed + Gov will keep the taps open). The party might last until, the 10 yr TBond hits 2.5%, then the house of cards will be very fragile (how much are you willing to gamble when the government says it will target 2% inflation?). Of course any reversal will be very volatile. If we can get through Q1 2010, there might be a reasonable mid-term run here, but there is lots of unknowns and politics between now and then. I’ll also be keeping an eye on lifeco’s and pensions … I’m wondering how they will behave in a long T 1-2% rate environment?
I am shocked tha people feel comfortable buying with this news out.
People who are buying are speculators right now. Not sure how long this gambling instinct will last (think as long as the Fed is doing QE, this thing keeps running) but at some point in the future, we will need to stop this…thats when this house of cards will crumble into the abyss. But this maybe months to years away in the making.
And the market rallies 1%!!!!!
Some people who are buying may simply have an under-allocation to equities. Whereas insiders may simply be selling because they have an overallocation to the company stock. Where should one put ones money right now? No one really knows what will happen going forward. Diversification, while leaning toward where you think things are going, is the best answer.
Don´t you worry, the market will go down but it´s going to take some time. Many of the indicators do not show realtime(maybe also being a little bit manipulated) and that´s why we aren´t going to see a downturn yet. Wall Street also like to overreact and third quarter is coming up and as usual in some cases better than expected. BUT soon, probably in the end october or in the beginning of november we are going to see a downturn. But how low and how long?
Could just be investors trying to get ahead of earnings. Everyone seems to think this earnings season will be better than expected. Eagerly awaiting TPCs report on earnings….
That’s what it’s beginning to look like – earnings front running….Don’t want to be short here….
What? The government is lying? How can that be? Not our government?
And the real horror is what they’re NOT telling us.
TPC nobody wants to be short here. Just remember that…me…I am going to open some put positions on the SPY etf tomorrow if we see things remain flat.
TPC,
Don’t know if you saw this…
http://www.businesscycle.com/reuters/freenews/2009/october/pdf/2y1zt8p5148gqc1.pdf
Van,
Doesn’t it seem like the ECRI has a VERY high correlation with the market? Is it actually a leading indicator of anything?
TPC – read some of the links/your comments to the rail data (and your tables/analysis) posted on ZH this weekend, I just wanted to say your site and your work is some of the best out there…plus the added bonus of good reader/comment quality. Thank you for your work!
P.S. – I picked up on some of your comments how you are about as mystified as I am on the continued rally (overvaluation in fundamental terms) of equities & debt alike in this environment. With rail data and the Baltic Dry Index (two indexes that in my mind are some of the last remaining unmanipulated data points) continuing to swoon…something has to give in this false act….
I mean, good lord, the BDI is still down approx. 80% from its peak rates…meaning the incremental costs of shipping indicate massive over-supply of previously deployed capital in the system…and “rational” investors think fair value of today’s equities should only receive a haircut of approx. 35% of their peak value while defaults on previously deployed capital (in the form of residential/CRE loans) continue to be clogged in the banking system system (i.e. non-charged off non-performing loans) certainly lends massive credence to the “irrationality” argument as exemplified by some of your article/link postings today.
I noticed that also, except it bottomed in Dec 08 whereas the market bottomed in March. It also bottomed in late 01 and the market didn’t bottom until Mar 03.
It’s stuff like this piece from BR that keeps me up at night:
http://www.ritholtz.com/blog/2009/10/what-follows-record-setting-dow-quarters/
Otter,
Thanks for the compliment. Glad you’re enjoying the site. I am here to help as best I can…
What I’m hearing reminds me of the way I felt as the real estate bubble expanded. Interest rates were low, so real estate prices took a leap. I thought the Fed would increase interest rates to compensate, but instead they dropped rates lower and real estate prices went higher. Every year I was sure the madness would stop, but it was almost 10 years before the bubble exploded.
The fact that insiders are selling so much more stock than they are buying is interesting. But how many months or years will pass before the word get out and the market bubble explodes? I’m in for the ride.
Until global central bank policies are all coordinated toward removing stimulus, the bubble will continue and these 30-something video-game trained kids will use the mo-mo trade to bid it all up. Heaven help the margin accounts when the lights get turned out.
If you look at the list of those selling insiders shares? They are crap or way over priced companies.
Not a single company is in the S&P 500
This article is crap….no real value
It is well known that Arthur Blank(owner of the NFL’s Atlanta Falcons) and Bernard Marcus are the co-founders of The Home Depot. Anybody else representing themselves as having done so is a pure charlatan. This article is pure garbage.