The Real Truth Behind Insider Selling
I think it's fair to say many of the traditional sources of market sentiment that have become popular over the last handful of decades or even longer are not terribly useful since this bear market started. That's why I don't rely on anecdotal sentiment indicators. In fact, we wrote back in 2oo6 that sentiment data was likely to fail. And, it has.
The title link cites another indicator which is now being cited as a reason to be bearish on stocks. That being insider selling. Might I remind anyone that many were citing insiders that were supposedly buying finance stocks hand over fist before the market collapsed. That didn't work out too well now did it?
So Bloomberg reports that insiders are selling. Once again one has to understand the macro environment to understand what any data is actually telling us. I other words, looking at this data point and drawing thoughtless conclusions based on historical precedence is nothing more than garbage in => garbage out analysis. I will repeat this again for the sake of any new readers. We are witnessing an environment of forced selling. People, companies, countries. Might I add that the unwinding is occurring at a much higher rate among those that have benefited most from the economic environment over the last few decades - many of society's most successful are becoming substantially less successful and even penniless. Nothing typifies this statement any more than corporate executives that have typically perpetrated current economic ideology taught to them by our finest institutions of learning. In other words, corporate executives are typically ill-prepared for the economic reality facing us.
The fact that insiders are selling at a record pace tells us nothing about the future direction of stocks. Nada. Zilch. The concept that insiders are generally knowledgeable about their business may be true and it may not be true. It's really a case by case analysis. But it definitely wasn't true as a general rule. We watched this cycle smash corporate executives in the face time and time again. We highlighted this fact over and over and over again including our analysis of the PwC CEO survey where most CEO's were incredibly bullish just as the stock market was peaking.
What this data does tell us is that insiders are seeing their finances unwind and they are raising capital to meet their personal financial needs. Often because of overleverage or overconfidence in current economic ideology. We would be witnessing this deleveraging of executive finances at an incredibly higher pace were the Federal Reserve not backstopping the entire economy. Yet, while the Fed may be able to slow the process down, they cannot stop it. And the day may come when they are unable to even slow it down.
The future direction of stocks may be lower or it may be higher then lower or some combination probably unforeseen by most. But any relevance to the future of equities will not be divined, even anecdotally, by the actions of corporate insiders. In fact, I'll make you a wager. There will be no pick up in insider buying when the market finally does bottom and starts to rise. To that point, just as insiders are selling frantically, let's consider this. While I am concerned shorter term and remain very concerned about an eventual low of 200-450 on the S&P, we may have seen the stock market low for the year. Or close to it. The Fed has relieved a substantial pressure from the markets for some period of time and there are plenty of bulls that would love nothing better than to rub every bear's face in a pile of you know what. A retest of the lows or even marginal new lows is not impossible as I have outlined in our most recent charting posts. We shall see as more data reveals itself but as I wrote back at the beginning of the year, do not be wedded to any direction in the market unless you are an adept trader. And don't be fooled by charlatans quoting useless data such as insider selling. The markets are not the economy. Insider selling is the economy.
In closing, remember the entire global economy has lost nearly $50 trillion in wealth. And amongst the largest hit are corporate executives who bought into Pax Globalia hook, line and sinker. Sentiment readings of their behavior, much of which may even be forced behavior counter to their wants or desires, ie real sentiment, are completely worthless. And likely so has become this data point as a useful sentiment tool.
The title link cites another indicator which is now being cited as a reason to be bearish on stocks. That being insider selling. Might I remind anyone that many were citing insiders that were supposedly buying finance stocks hand over fist before the market collapsed. That didn't work out too well now did it?
So Bloomberg reports that insiders are selling. Once again one has to understand the macro environment to understand what any data is actually telling us. I other words, looking at this data point and drawing thoughtless conclusions based on historical precedence is nothing more than garbage in => garbage out analysis. I will repeat this again for the sake of any new readers. We are witnessing an environment of forced selling. People, companies, countries. Might I add that the unwinding is occurring at a much higher rate among those that have benefited most from the economic environment over the last few decades - many of society's most successful are becoming substantially less successful and even penniless. Nothing typifies this statement any more than corporate executives that have typically perpetrated current economic ideology taught to them by our finest institutions of learning. In other words, corporate executives are typically ill-prepared for the economic reality facing us.
The fact that insiders are selling at a record pace tells us nothing about the future direction of stocks. Nada. Zilch. The concept that insiders are generally knowledgeable about their business may be true and it may not be true. It's really a case by case analysis. But it definitely wasn't true as a general rule. We watched this cycle smash corporate executives in the face time and time again. We highlighted this fact over and over and over again including our analysis of the PwC CEO survey where most CEO's were incredibly bullish just as the stock market was peaking.
What this data does tell us is that insiders are seeing their finances unwind and they are raising capital to meet their personal financial needs. Often because of overleverage or overconfidence in current economic ideology. We would be witnessing this deleveraging of executive finances at an incredibly higher pace were the Federal Reserve not backstopping the entire economy. Yet, while the Fed may be able to slow the process down, they cannot stop it. And the day may come when they are unable to even slow it down.
The future direction of stocks may be lower or it may be higher then lower or some combination probably unforeseen by most. But any relevance to the future of equities will not be divined, even anecdotally, by the actions of corporate insiders. In fact, I'll make you a wager. There will be no pick up in insider buying when the market finally does bottom and starts to rise. To that point, just as insiders are selling frantically, let's consider this. While I am concerned shorter term and remain very concerned about an eventual low of 200-450 on the S&P, we may have seen the stock market low for the year. Or close to it. The Fed has relieved a substantial pressure from the markets for some period of time and there are plenty of bulls that would love nothing better than to rub every bear's face in a pile of you know what. A retest of the lows or even marginal new lows is not impossible as I have outlined in our most recent charting posts. We shall see as more data reveals itself but as I wrote back at the beginning of the year, do not be wedded to any direction in the market unless you are an adept trader. And don't be fooled by charlatans quoting useless data such as insider selling. The markets are not the economy. Insider selling is the economy.
In closing, remember the entire global economy has lost nearly $50 trillion in wealth. And amongst the largest hit are corporate executives who bought into Pax Globalia hook, line and sinker. Sentiment readings of their behavior, much of which may even be forced behavior counter to their wants or desires, ie real sentiment, are completely worthless. And likely so has become this data point as a useful sentiment tool.
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