Blogs & Comment

Insiders not so confident

The big question in markets right now is whether this boom is a genuine presaging of an economic recoveryand therefore realor whether this mini-boom is more akin to the pseudo recovery that took place in the spring of 1930 after the Great Crash.
Back then markets came back strongly after the initial crash of 1929 and rose through the spring of 1930. But that was only a false rally before the stock market cratered again and the Great Depression got off to its official start.
Some suggest were at a similar point now. Ongoing debt deflation has yet to run its course and the economy has further to readjust yet, all of which is going to take markets lower end leave this boom a good chance to sell out before the big crash. It is the ultimate bearish stance. But the bears seem to have some corporate insider data to back them up.
One of the best forward signals there is about corporate behaviour is the buying or selling patterns of corporate insiders. Insiders have access to privileged information at a company, and so when securities reports suggest they are selling its often taken as a signal the companies they work for are going to do worse in the years ahead. (And on the contrary. When insiders are buying its a signal corporate executives are optimistic).
So the fact that there was a massive spike in insider selling this past April (at a rate of 20-to-1), suggests that many in the corporate sector think things will get worse in the months ahead and were taking this rally as an opportunity to lock in some higher gains.
Sure, many economic indicators appear to have bottomed. And we may now be sailing into an economic recovery. But weve also seen an amazing amount of economic stimulus provided to markets, and so that has to have something to do with whats going on right now. At the very least that stimulus has to represent the end of the collapse. But does that necessarily mean this is the beginning of a recovery? The SUV and McMansion sector of the economy has collapsed. But we may yet need to get through a disaster in the airlines and it looks like Citibank and Well Fargo have got to raise a lot of capital yet after their stress tests. And the price of oil is trebling at around $50, ready to run as soon as growth returns and flare out the economy again. Taken together, its not clear the burn-off of the old order is done, and that a base has been laid for long-term growth. At leat thats what the insiders are saying.