NO WONDER INSIDERS AREN’T BUYING THEIR OWN SHARES….
As we have reported repeatedly over the last few months, insiders have voted a resounding “no confidence” in the future share price of their own corporations via the use of their own dollars. Insider trading trends have remained extraordinarily lopsided despite signs that the economy is stabilizing. The latest report showed 6 sellers for every insider buyer. Well, today’s business roundtable survey results shed a bit of light on their current outlook for the economy, spending and hiring – and perhaps explains why insiders aren’t buyers of their own shares.
The 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:
It will be nearly impossible for a robust recovery to develop without a capex recovery and hiring. With the market currently pricing in 20% EPS growth for 2010 and 4% GDP it might be more than safe to say that investors have grown overly optimistic about the strength of the recovery.
Source: Business Roundtable
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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10 Comments
Then why is the market so bullish? This appears to connect the dots so simply (which is why I love your site btw), but the market doesn’t even respond. WTF?
why is the market so bullish? take a look at the share prices of FMN or ABK in October of 2007 – when it was already widely known that a fincial crisis centered on mortgage credit had begun.
the market is not rational, and has become a lagging indicator of economic reality. then, when it wakes up to said reality, such as happened later in 2008 , it quickly moves to play catch-up.
something similar is likely to happen this time around.
Yes, the market is not nearly the efficient forward looking mechanism that so many think it is.
PS – Love the latin….”Father of darkness” if high school serves my memory correctly?
Something bizarre is that the markets go up like 2% because Xerox is buying ACS, and today the markets go down like .30% even when the 2 prominent managers said the economy will need a second stimulus and the FDIC is out begging for money because its coffers are almost empty.
Interesting stuff and it makes me think of CEOs and insider buying as a lagging indicator or even contrarian. It’s been shown that they always buy at the worst of times price wise, when their shares are overvalued and in good bull runs etc… they wait for things to be great before buying. Then in this particular case, it appears their negativity is reactionary to everything that has happened. Rather than anticipating slowed sales and the crisis, they are just reacting to it. Sure we all know the economy will be down/flat for a while but I’m almost inclined to think of this as contrarian. When they are buying, we all should be selling since they are horrible timers. Now that they’re selling, maybe we should be buying? Just playing devil’s advocate on that point. It’s tough to gauge since again, we’re all well aware of the economic issues at hand.
Jay
@marketfolly
Another motivation for the insider selling is that the execs are getting their house in order in a big generation shift. The boomer execs know that the market will go no where in the next 5 years, so just take the bird in the hand now and move to AU$ before the cash is worthless. Some probably excersised options last year and have been holding to take advantage of lower tax rates, and they have been blessed for taking the gamble, but they were probably sweating for a while!
Oh yea good point jt, a lot of them probably lost their asses last year and are looking to shore up their consumer balance sheets and just get out ‘even’ (or as close to it as possible)… especially those who were considering retirement. Have to keep in mind that the majority of insiders are just retail investors and get freaked out just like everyone else and exhibit the same behavioral patterns typically. I don’t mean to lump them all into one giant category but just wanted to illustrate a point.
Jay
TrimTabs CEO Biderman said insiders are always selling more due to stock options.
We know historically they are right, but they and TrimTabs followers sure look a lot poorer today.
As Marc Fabor & Nouriel Roubini have remarked many times in the last six months: Much of the new money the FED has injected into the banking system (by buying up toxic RE debt) has been speculatively reinivested by money-center and investment banks into equity markets and high-yield bonds. The main logic for this is a hedge against the inevitable inflation that will result from the increase in money supply. This strategy has little relation to real economic conditions or prospects over the next couple of years.
You can bet your bottom dollar that the FED will keep interest rates as low as possible until the real estate bubble has finished imploding in 2012, or until Japan, China, and the Gulf oil producers no longer purchase US government debt at rock-bottom yields.
Insiders are acquiring stock at record levels, but public reports do not reflect this. You need to look at the option exercises and see that many sales are used to cover costs + taxes. Net-net stocks are under accumulation.
Look at GE, DHR, ECL, VMC, a host of REITs, a host of industrial cos and etc.