Posts filed under “Corporate Management”
There are thousands of reasons to sell, but only one reason to buy: You think a stock is going to go higher.
The people who are thought of as having the greatest insight into that upside potential — corporate insiders — are always doing both, buying and selling. So it can be instructive to see the ratio of what their Buys/Sells are like. Oftentimes, that can provide a small measure of insight into sentiment and potentially what management thinks the next 6-12 months miught hold. They aren’t infallible, but they do have access to better info than most investors do.
"As Alan Newman notes in his always rewarding CrossCurrents commentary, in November, those worthies, as totted up by Thomson Financial, dumped an astounding $16 billion worth of their stock, or nearly 35 times as much as they bought. By comparison, in the 11 months beginning December ’05 and ending October ’06, the ratio of sellers to buyers among insiders averaged 10.7-to-1.
The early returns for December are even worse: in that month’s first two weeks insiders collectively sold 55 shares for every one they bought. As Alan comments, they were so bound and determined to take money off the table that they couldn’t even wait the few weeks until January to avoid the serious tax bite for what probably was a pretty lush year for them in ’06. "What," he asks, "does that tell you?" We’re terrific at answering rhetorical questions, and the answer to that one is "plenty."
So who’s buying those billions of dollars worth of shares the insiders are selling? Alan speculates that the latest Wall Street wonder, exchange-traded funds — or in the lexicon of the Street, ETFs (see Exchange-Traded Funds) — has been sucking up a lot of that stock gushing out of insider portfolios.
By his reckoning, through mid-December, last year’s net issuance of ETF shares weighed in at a massive $54 billion, extending a smashing seven-year growth that has averaged an awesome 41% annually and has lifted the total value of such shares to close to $400 billion. It’s critical to remember, Alan points out, that for an exchange-traded fund to issue shares it must first buy the underlying assets, primarily stocks. That demand all by itself, he reckons, was enough to keep the market rally of the past few months alive and well.
Not the least interesting thing about ETFs and their powerful impact on market prices is that they don’t trade on the basis of individual corporate prospects. Alan posits that more than half the price of many stocks is now dependent on "index or sector sponsorship, the obvious result of a market that has been increasingly sectored to death and indexed beyond any efficiency" imagined by academics. For ETFs, in other words, valuations don’t matter.
Which is the dangerous message he gets from the fact that the top 10 constituents of the most popular ETF, the Nasdaq 100 Trust (QQQQ), which trades a formidable $4.7 billion a day, sport a P/E north of 33 and are selling at over six times sales.
Unless we’re willing to say history and, for that matter, logic are bunk, it’s plain as the nose on your face that valuations do matter. That’s what investors should have learned from their sorry experience in 2000, reflects Alan, and what they very well may learn again the hard way when this market turns tail."
That’s fascinating stuff. Its hardly a precise timing mechanism, but it does point up an interesting factor: Insiders have been taking advantage of the stock run up from July to year’s end to sell into the strength.
I would be curious to see how this compares to other significant market periods. Is it determinative? Does it provide an early warning, or is it merely an interesting data point?
If any hung over revelers have an idea, please let us know . . .
UP AND DOWN WALL STREET
MONDAY, JANUARY 1, 2007
Here’s a nice free feature courtesy of the online WSJ.com: They posted an updated look at more than 120 companies that have come under scrutiny for past stock-option grants. Note: This list contains companies that have disclosed government probes, misdated options, restatements and/or executive departures. Some companies that have undertaken or disclosed internal probes but…Read More
Another edition of our new series: Blog Spotlight.
We put together a short list of excellent but somewhat overlooked
blog that deserves a greater audience. Expect to see a post from a
different featured blogger here every Tuesday and Thursday evening,
Second up in our Blogger Spotlight: Michael Shedlock and Mish’s Global Economic Trend Analysis. Mike is one of the editors of The Survival Report, covering stocks and the economy. He also writes for the Daily Reckoning, and co-edits Whiskey & Gunpowder. He also runs stock boards on the Motley Fool, Silicon Investor, and TheMarketTraders. He is an avid photographer, when not writing about stocks or the economy, with over 80 magazine and book covers to his credit.
Today’s focus commentary is called Falling Dominoes and addresses the impact of Housing’s decline on the economy:
The Sentinel is reporting State targeting abusive lenders.
The [Massachusetts] state Division of Banks is cracking down this month on what it sees as abusive business practices by mortgage lenders and brokers.
The agency issued a series of new emergency regulations earlier this month, requiring better documentation from lenders and prohibiting them from pressuring consumers into taking out mortgages they can’t afford or working without their own independent lawyers. It also forced four companies — two of them located Worcester — to close immediately and place all pending mortgages with another, more established lender.
Commissioner of Banks Steven L. Antonakes said in a recent interview that division examiners found a pattern of deceptive business practices by some lenders during their most recent round of company inspections.
"We want to spell out in very plain English to send a message to lenders and brokers that these specific acts, whether they’re very obviously unfair or deceptive, or more subtle, they weren’t going to be tolerated," he said. "And you would put your license at risk by engaging in this kind of activity."
Abusive lending practices can destabilize the entire real-estate market. As an example, he described a hypothetical street containing 10 homes, each worth a certain amount of money.
"If loans were originated for two of those homes, in which the loan was made that the broker knows the consumer has no hope of repaying those loans, very likely the borrower will become delinquent," he said. "In the worst case, the home will be foreclosed upon, and that kind of activity could result in the home being sold for less than its value and before you know it, you have a domino effect."
But the slowdown has also put lenders in a tough position, said Christopher J. Iosua, president of the Mortgage Connection Inc. "When business slows down the way it has in the past six to nine months, new loan originators and those without a strong base of customers do things they probably wouldn’t normally do," he said.
The idea that lenders are doing things they may not have done in "normal conditions" may have some merit for some lenders but when 40% of the loans sold in California before the bust were either stated income loans or pay option arms, I think the idea if more fiction than fact. Anything and everything was done to keep the bubble booming, and that was as I said happening well before the bust.
With every bubble comes fraud. The two go hand in hand and housing is not unique in this respect. We are only beginning to scratch the surface of the fraud that supported this bubble. Lending standards are going to tighten as a result, and will continue to tighten as more and more of the fraudulent activity is exposed. I consider fraud and tightening of lending standards to be two big dominoes that are now falling. Tightening of lending standards was previously discussed in Lending Guidelines / Credit Squeeze and The Blame Game.
Today we start a new series: Blog Spotlight.
We put together a short list of excellent but somewhat overlooked blog that deserves a greater audience. Expect to see a post from a different featured blogger here every Tuesday and Thursday evening, around 7pm.
First up in our Blogger Spotlight: Tim Iacono and The Mess That Greenspan Made. Tim is a software engineer in his mid-forties, living in Southern California. He calls his blog is a "vain attempt to stave off a mid-life crisis, and here’s hoping that it’s going to work."
Today’s focus commentary is called Friends in High Places? and it address the controversey we discussed last week.
Friends in High Places?
Life is always much more fun when there’s a good
conspiracy theory to kick around. When the New York Times starts kicking it
around too, then it can really be
Such is the case with the recent plunge
in the price paid for gasoline by formerly dour consumers leading up to an
election where the party in power is clearly having difficulty wooing the
electorate. It just so happens that the newly appointed Treasury Secretary used
to run the investment bank that controls the world’s most important commodity
index, which seven weeks ago cut the weighting of unleaded gasoline by nearly 75
percent, causing all commodity investments based on this index to sell their
unleaded gasoline futures.
For the same number of buyers, a glut of
sellers means lower prices, and voila! Prices at the pump drop precipitously,
consumer confidence rebounds, and the electorate develops a new spring in their
Or at least, that’s what some would have you believe. . .