Tuesday, May 5, 2009

Insiders Say Thanks for the New Bull Market

After a nice week of 85 degree weather it is so much fun to come back to rainy cool days in the lower 50 degree range! Spring will arrive at some point I imagine.

Rise of the Central Government
For some time now I have discussed the reality that the US Government will not be able to get out of the financial fixing game for some time to come. Of course my argument hinges upon the idea that the government would want to stop supporting almost every single facet of the financial system. Once again, I may have missed the bigger picture.

While all time low interest rates, multiple acronym lending programs, and bottomless funds for bailouts seem aimed at the credit and stock markets the government is now progressing to another area of support that will be hard to end: State Sponsorship.

As numerous states have seem large tax revenue shortfalls during the recession, one might think it time for the good old "belt tightening" process that follows every other downturn in the states as they cannot run budget deficits. Not this time:
Federal aid is top revenue for states
In a historic first, Uncle Sam has supplanted sales, property and income taxes as the biggest source of revenue for state and local governments.
The shift shows how deeply the recession is cutting. Federal stimulus money aimed at reviving the economy and a sharp drop in tax collections have altered, at least temporarily, the traditional balance of how states, cities, counties and schools pay for their operations.
The sales tax had been the No. 1 source of state and local revenue since the mid-1970s, according to the Bureau of Economic Analysis. Before that, property taxes were the primary source. That changed in the first three months of 2009.
Federal grants — early stimulus money plus conventional federal aid — soared 15% in the first quarter to a seasonally adjusted annual rate of $437 billion, eclipsing sales taxes, which fell 2%.
The dominance of federal money is set to expand dramatically this year because tax collections are sinking while the bulk of federal stimulus aid is just starting to arrive. "This money isn't manna from heaven. It comes with a price," says Indiana state Sen. Jim Buck, a Republican. He worries that the federal money will leave states under greater federal control and burden future generations with debt.

When looking at how the TARP banks and AIG bonuses were handled, I think the idea that the states may have to cede more control to the central government is a sure bet. Serious mission creep is happening on this front. How California is handled is one of the most important issues to watch over the coming year.

Corporate Insiders Love the New Bull Market
Insider buying or selling of stock is not one my favorite indicators to look at most of the time. In almost every instance the selling outpaces the buying by large margins. Most corporate insiders are handed a bunch of stock, and going out and buying more just does not make much sense. Unless you are a banking CEO and want to show some "confidence".

That said, looking at sell orders can have some informative value on what may be going through the heads of company insiders. The Pragmatic Capitalist does all the work for us:
I recently wrote about reports that insider selling was at record highs and buying was practically non-existent. The selling has become even more alarming in the last week and the buying has slowed to an absolute trickle. Below you’ll find the list of latest insider buys and sells. The sells are staggering with the amounts ranging from $3MM to $63MM (and I was only able to copy one page). The buys, on the other hand, are meager and range from $100K to $635K (the $800K purchase is a few months old and shouldn't’t be in the data). You’ll also notice that the screen came up with just 18 total purchases vs 170 total sales (the lowest of sell screen data were sales of over $400K which is not shown here due to the large size of the results).
Insiders are overwhelmingly bearish on this market and have become even more so in recent weeks. I can’t remember the last time the ratio of selling:buying was so lopsided….

Please follow the hyper link for a great compilation chart.

Look, insiders may just want to diversify out of company stock as I am sure their 401k's and other investments have taken a fall. After a 30% run up in the general market, one could argue it very prudent to lighten up on stock options. Still, these numbers are at extremes and it seems those on the ground floor of many firms want to sell this rally very hard.

A little short this evening as I was home late from work. Thanks for all the comments on my return post, glad to see all the loyal readers again.

Have a good night.


Lisa said...

GM is diluting (wiping out) common shares and the US Treasury/UAW gang will pretty much own it all. A judge has decided that Chrysler can proceed with it's asset sales to Fiat. If you own shares of an American company, or loaned money to an American company, and are not part of the New Establishment, then you are just SOL. Gonna be a long summer.

Lisa said...

Oh, and Bank of (we don't need no freakin' capital) America is told it needs to (steal) raise $33B in capital............... :(

Anonymous said...


With a government that is desperate to keep the illusion of recovery going and a largely financially ignorant population who are only happy to buy the illusion whether it is based on reality as long as their 401k is going up either due to accounting trick, fraud, government spending, Fed money printing and devaluation and lies were pretty much screwed.


Anonymous said...

Goldman Sachs Group Inc. reaped more than $100 million in trading revenue on a record 34 separate days during the first three months of 2009, up from the previous peak of 28 in last year’s first quarter.

For December, there were 10 trading paydays bigger than $100 million, the New York-based firm said today in a filing with the U.S. Securities and Exchange Commission. The first- quarter number was almost double the total for all of 2005.


Your tax dollars at work, now get out there and spend dang it.


getyourselfconnected said...

No time to post this evening, too many errands.

I am working on a "Top Ten Reasons This Bear Is/Was Wrong" post as the doors to the insane asylum were blown open today big time. Leave some suggestions in the comments tonight if you like!