Why are some of the biggest names in the corporate world unloading
stock like there is no tomorrow, and why are some of the most prominent
investors on Wall Street loudly warning about the possibility of a
market crash? Should we be alarmed that the big dogs on Wall Street are
starting to get very nervous? In a
previous article,
I got very excited about a report that indicated that corporate
insiders were selling nine times more of their own shares than they were
buying. Well, according to a
brand new Bloomberg article, insider sales of stock have outnumbered insider purchases of stock by a ratio of
twelve to one
over the past three months. That is highly unusual. And right now
some of the most respected investors in the financial world are ringing
the alarm bells. Dennis Gartman says that it is time to "rush to the
sidelines", Seth Klarman is warning about "the un-abating risks of
collapse", and Doug Kass is proclaiming that "we're headed for a sharp
fall". So does all of this mean that a market crash is definitely on
the way? No, but when you combine all of this with the weak economic
data constantly coming out of the U.S. and Europe, it certainly does not
paint a pretty picture.
According to
Bloomberg,
it has been two years since we have seen insider sales of stock at this
level. And when insider sales of stock are this high, that usually
means that the market is about to decline...
Corporate executives are taking advantage of near-record
U.S. stock prices by selling shares in their companies at the fastest
pace in two years.
There were about 12 stock-sale announcements over the past three
months for every purchase by insiders at Standard & Poor’s 500 Index
(SPX) companies, the highest ratio since January 2011, according to
data compiled by Bloomberg and Pavilion Global Markets. Whenever the
ratio exceeded 11 in the past, the benchmark index declined 5.9 percent
on average in the next six months, according to Pavilion, a
Montreal-based trading firm.
But it isn't just the number of stock sales that is alarming. Some
of these insider transactions are absolutely huge. Just check out
these numbers...
Among the biggest transactions last week were a $65.2
million sale by Google Inc.’s 39-year-old Chief Executive Officer Larry
Page, a $40.1 million disposal by News Corp.’s 81- year-old Chairman and
CEO Rupert Murdoch and a $34.2 million sale from American Express Co.
chief Kenneth Chenault, who is 61. Nolan Archibald, the 69-year-old
chairman of Stanley Black & Decker Inc. who plans to leave his post
next month, unloaded $29.7 million in shares last week and Amphenol
Corp. Chairman Martin Hans Loeffler, 68, sold $27.5 million, according
to data compiled by Bloomberg.
Google Chairman Eric Schmidt, 57, announced plans to sell as many as
3.2 million shares in the operator of the world’s most-popular search
engine. The planned share sales, worth about $2.5 billion, represent
about 42 percent of Schmidt’s holdings.
So why are all of these very prominent executives cashing out all of a sudden?
That is a very good question.
Meanwhile, some of the most respected names on Wall Street are warning that it is time to get out of the market.
For example, investor
Dennis Gartman recently wrote that the game is "changing" and that it is time to "rush to the sidelines"...
"When tectonic plates in the earth’s crust shift
earthquakes happen and when the tectonic plants shift beneath our feet
in the capital markets margin calls take place. The tectonic plates have
shifted and attention... very careful and very substantive attention...
must be paid.
"Simply put, the game has changed and where we were playing a 'game'
fueled by the monetary authorities and fueled by the urge on the part of
participants to see and believe in rising 'animal spirits' as Lord
Keynes referred to them we played bullishly of equities and of the EUR
and of 'risk assets'. Now, with the game changing, our tools have to
change and so too our perspective.
"Where we were buyers of equities previously we must disdain them
henceforth. Where we were sellers of Yen and US dollars we must buy them
now. Where we had been long of gold in Yen terms, we must shift that
and turn bullish of gold in EUR terms. Where we might have been
'technically' bullish of the EUR we must now be technically and
fundamentally bearish of it. The game board has been flipped over; the
game has changed... change with it or perish. We cannot be more blunt
than that."
That is a very ominous warning, but he is far from alone. Just
the other day, I wrote about how legendary investor Seth Klarman is warning that the collapse of the financial markets
could happen at literally any time...
"Investing today may well be harder than it has been at
any time in our three decades of existence," writes Seth Klarman in his
year-end letter. The Fed's "relentless interventions and manipulations"
have left few purchase targets for Baupost, he laments. "(The)
underpinnings of our economy and financial system are so precarious that
the un-abating risks of collapse dwarf all other factors."
Other big hitters on Wall Street are ringing the alarm bells as
well. For example, Seabreeze Partners portfolio manager Doug Kass
recently told CNBC that what he is seeing right now reminds him of the period just before the crash of 1987...
"I'm getting the 'summer of 1987 feeling' in the U.S.
equity market," Kass told CNBC, "which means we're headed for a sharp
fall."
And of course the "perma-bears" continue to warn that the months
ahead are going to be very difficult. For instance, "Dr. Doom" Marc
Faber recently said that he "
loves the high odds of a ‘big-time’ market crash".
Another "perma-bear", Nomura's Bob Janjuah, is convinced that the
stock market will experience one more huge spike before collapsing
by up to 50%...
I continue to believe that the S&P500 can trade up
towards the 1575/1550 area, where we have, so far, a grand double top. I
would not be surprised to see the S&P trade marginally through the
2007 all-time nominal high (the real high was of course seen over a
decade ago – so much for equities as a long-term vehicle for wealth
creation!). A weekly close at a new all-time high would I think
lead to the final parabolic spike up which creates the kind of
positioning extreme and leverage extreme needed to create the conditions
for a 25% to 50% collapse in equities over the rest of 2013 and 2014,
driven by real economy reality hitting home, and by policymaker
failure/loss of faith in "their system".
So are they right?
We will see.
At the same time that many of the big dogs are pulling their money
out of the market, many smaller investors are rushing to put their money
back in to the market. The mainstream media continues to assure them
that everything is wonderful and that this rally can last forever.
But it is important to keep in mind that the last time that Wall Street was this "
euphoric" was right before the market crash in 2008.
So what should we be watching for?
As I have mentioned before, it is very important
to watch the financial markets in Europe right now.
If they crash, the financial markets in the U.S. will probably crash too.
And the financial markets in Europe definitely have had a rough
week. Just check out what happened on Thursday. The following is from a
report
by CNBC's Bob Pisani...
Italy, Germany, France, Spain, U.K., Greece, and Portugal
all on track to log worst day since Feb. 4. European PMI numbers were
disappointing, with all major countries except Germany reporting numbers
below 50, indicating contraction.
What does this mean? It means Europe remains mired in recession: "The
euro zone is on course to contract for a fourth consecutive quarter,"
Markit, who provides the PMI data, said. A new insight is that France is
now joining the weakness shown in periphery countries.
You're giving me agita: Italy was the worst market, down 2.5 percent.
The CEO of banking company, Intesa Sanpaolo, said Italy's recession has
been so bad it could cause a fifth of Italian companies to fail, noting
that topline for those bottom fifth have been shrinking 35 to 45
percent. Italian elections are this weekend.
It wasn't any better in Asia. The Shanghai Index had its worst day in over a year, closing down nearly three percent.
And the economic numbers coming out of the U.S. also continue to be
quite depressing.
On Thursday,
the Department of Labor
announced that there were 362,000 initial claims for unemployment
benefits during the week ending February 16th. That was a sharp rise
from a week earlier.
But I am not really concerned about that number yet.
When it rises above 400,000 and it stays there, then it will be time to officially become alarmed.
So what is the bottom line?
There are trouble signs on the horizon for the financial markets.
Nobody should panic right now, but things certainly do not look very
promising for the remainder of the year.
http://theeconomiccollapseblog.com/archives/the-big-dogs-on-wall-street-are-starting-to-get-very-nervous
