Might I offer you a wet blanket? -g-
How come, if the stock market is telling us everything is coming up roses -- the Dow has shot up 23% since March 9, the S&P 500 28% and dear old Nasdaq 34% -- corporate insiders are selling like there's no tomorrow?
Much as anything, we suspect, what has given legs to this rather improbable but undeniably impressive rally is the rally itself. Let us assure you that we haven't gone mystical (we've enough sins to atone for without adding still another).
Let's put it this way: As a stimulus for equities, come rain or come shine, just about nothing beats higher prices. They entice risk-shy investors, including or especially (hard to decide) those who have been mauled by the bear market, to edge off the sidelines and get their feet wet.
Higher stock prices (as Ken Lewis might say) escalate expectations and earnings estimates of analysts, most of whom are, in any case, reflexively bullish. They give the yak-yaks on Tout TV something to crow over and excite their innocent viewers.
In other words, they serve to inject a dose of euphoria into the investment atmosphere, particularly after a long and morose stretch of gloomy markets, like last year's.
Of course, rising equity prices also inspire less chimerical reasons for the quickened interest in the stock market. They are widely taken by institutions, individuals and kibitzers as a welcome harbinger of economic recovery, and there's been a lot of that lately. Our own feeling, as you may have gleaned, is that such hopes are heavily laced with wishful thinking.
Leading us to the question with which we began these musings: If those now infamous shoots of recovery are popping up all over, why would insiders be so aggressively dumping stocks?
Yet, they indisputably are. According to a study prepared for Bloomberg by Washington Service, a research outfit, directors, officers and the like have sold $353 million worth of stock in this fading month, or 8.3 times the total bought. As a matter of fact, according to the firm, insider purchases of $42.5 million are on track to make April the skimpiest month for such buying since July 1992.
The pace of selling in the first three weeks of this month, incidentally, was the swiftest since the market peaked and the bear came out of hibernation with a vengeance in October '07.
We're quite aware that insiders are not infallible. But they are, after all, in the front lines of commerce and industry and so presumably have a better fix on the economy and the prospects for recovery than analysts and economists, whether of macro or micro persuasion.
And just as they wouldn't be laying off people in such extraordinary numbers if they thought their business was about to rebound soon, they'd be loath to liquidate their holdings in such an emphatic way if they espied a turnaround in the offing.
It all boils down to this: Nobody ever sold a stock because they thought it would go up. And as a group, corporate insiders obviously are scarcely enthusiastic about the prospects for a genuine bull market.
Barrons |
