Monday Night and Who Will Stop the Rain?

It has been raining or misting for 5 days now. Enough is enough! No Sun until Thursday. Still waiting for the summer.

I left a comment on the computer post from last night. As of now the wireless is behaving ok, but I would still like to get some kind of upgrade. I will put it off until this weekend, or longer as I am lazy! A little short on time this evening, so a shorter post.

Insider Selling
To me insider selling of company stock can mean many things, but it most often means the people most in the know are abandoning ship. Other reasons like diversification, tax reasons, or many others can be very true at times. When looking at insider selling you want to see some real spikes up (or down) to make an inference for the market direction.

Tim Iacono over at The Mess That Greenspan Made has a write up and a great graph:

What to Make of the Insider Selling?
Bloomberg files this report on the recent rise of insider selling, company executives dumping the most shares since mid-2007, shortly before the broad stock market's peak.
Surely this can't be a good development for retail investors , many of whom have just recently convinced themselves that it's OK to put some money back into stocks again.
Perhaps a visual aid might help...(click for larger view)

Tim notes that the last insider selling top nicely coincided with the top in the market in 2007.

I have been wondering just who in the world has been snapping up all the bank secondary offerings as of late? I mean who would want to step in front of that train wreck? Deep down I have a bad feeling that big investment houses used things like pension money to purchase the shares. I also think the FED/Treasury has provided some kind of downside protection here.

Massive Treasury Auctions Hurting the Stock Market?
The Treasury is on tap to sell $165 Billion in bonds this week. That kind of debt issuance may be sucking up available funds from things like the orchestrated SPY futures gunners near the market close which have suddenly fallen silent.

Of course a nice stock market route is just what the government needs to spread some fear so investors will run for the solid "safety" of US Treasuries. This line of thought will one day be the butt of pointed financial jokes like "Remember when we all ran to US bonds when things got rough?" "Yeah, well we should have kept on running!" HAHAHA.

Anyways, Market Ticker has the goods on what this may mean:

Liquidity Disappearing
I hope you folks who got all giddy about the SPX in the 900s and the DOW up around 8,800 took the opportunity to either sell or hedge.
While there is no guarantee that this pattern will continue the fact remains that liquidity matters and there is little point in trying to argue that the primary fuel for the rally off the March lows has been unprecedented system liquidity provided by Sir Feds-a-lot.

The problem is that Treasury has been and continues to suck all the oxygen out of the room with their unprecedented issuance of debt to fund Obama's silliness in the form of his budget "priorities" and the raw handouts to banking interests, much of which is apparently going to show up in Goldman Sachs bonuses.
Again, to put this in perspective this 7-day window has $165 billion in issuance. The entire S&P 500 - all 500 stocks - has been trading in the $2-2.5 billion a day range for the last month or so. That's the capital flow that is represented by all trades in all 500 stocks.
There are of course lots of other stocks, but in aggregate the S&P 500 posts the largest dollar volume on a typical day by a significant margin.
You simply cannot issue $165 billion in Treasury Debt and expect it not to have a major impact on system liquidity. It is not possible. That which is spent on one thing (in this case Treasury bonds) cannot be spent on another (in this case stocks.)
The Fed cannot "monetize" this debt without creating an instant dislocation in the Treasury market - their games thus far have produced a SMALL rumbling of trouble there, but nothing like an outright monetization campaign would produce.
Bernanke and Obama are backed into a corner, exactly as I predicted would happen. In order to continue to issue like this in the Treasury market while not driving Treasury rates to the moon money will have to be "scared" into bonds - which means blowing up the stock market.
Sorry folks, but those "green shoots" are in fact marijuana plants and our President along with his economic advisers have been smoking 'em.

So either the early part of the week will be rough for the markets to get the needed bond buyers active, or this could be the signal for a lot more weakness going forward. I have argued that the government can either goose the stock market or have a stronger dollar, but they cannot have both. I will be looking forward to seeing how they balance this high wire act.
Disclosure: I had taken a small position in SPY a while back to show my "Split the Distance Bull Market" call. It never got there, and I was stopped out today for a loss. I always said never do what I do!

When Great Minds Think Un-Alike
I was pulled in two directions today after reading two outstanding posts regarding the inflation/deflation debate. Truly this debate is great economic thought exercises, and today I had a full work out!

First up, Mish with his deflation manifesto. I will not excerpt as the entire post must be read.

After reading Mish's article, I certainly appreciated his fine arguments. As I have said, there can be no debate about deflation is on right now. It is the longer term I think it cannot win out. Still, I will admit I was flip flopping after the great read.

Later in the day Jesse's Cafe entered into the fray with a very complete essay on why inflation is going to happen. Again, no excerpts as the article is well worth your time.

I wish I had written that piece. I think Jesse captures exactly what I have been feebly trying to say about how dollar devaluation will have to be the endgame, if not then I am all in the deflation camp.

Use the comments section to discuss the Mish and Jesse's takes. Both high level analysis, both perfectly credible. The articles as a pair really capture the heart of the debate.

Sorry for the short post, but the rain is making traffic terrible! Who'll Stop the Rain?

Have a good night.

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.