Skip to comments.The Big Dogs On Wall Street Are Starting To Get Very Nervous
Posted on 02/23/2013 4:42:22 PM PST by blam
The Big Dogs On Wall Street Are Starting To Get Very Nervous
By Michael Snyder
February 21st, 2013
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 & Poors 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 worlds most-popular search engine. The planned share sales, worth about $2.5 billion, represent about 42 percent of Schmidts 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 earths 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.
A friend of mine told me he sold everything he had right after Obama’s SOTU address. My tax lady said she wasn’t putting any more money in the bank, even if she has to bury it in the back yard.
If you’re thinking about raising cash, this link might interest you:
CNBC said it's time for me to buy, buy, buy!
Now where's that Home Equity Loan checkbook?
It’s important to realize that by selling stock, the tax hit is about 30% of the gain ( federal and state)if notg higher. Thus, this means that sellers are happily taking a 30%+ haircut just in order to get out of stocks..or, to put it another way, they are anticipating a DECLINE of MORE than 30%
Where do you get interest rates of 5% on savings? Bernanke and his WS pals and his puppets in Congress and WH are forcing those Americans that have lived responsibly, without debt, to pay the price for the irresponsibility and corruption of the greed of the NY bankster thieves and others that thrive on the desire to enhance usury.
When you put it like that: Wow.
“Nobody should panic right now”
I always get in on the tail end of the panic. I think I’ll go ahead and panic now ahead of the pack:)
If it gets started with a a fast but relatively short fall and doesn’t bounce back quickly, were in for a catastrophe.. A dead-cat bounce! We could loss as much as 35%, in the first wave, followed by a steep recession and an additional crash..
I and many too many others missed the last one in 08, but caught the March 6th bounce to recover all of my losses.. It started this way, and I don’t believe in miracles enough to catch the next wave.. I’m more than reticent, I’m out.. jus sayn’
We know that the main issue behind the stock market, BTW, is that of the automatic spending cuts (AKA “sequester”). Not so much of a real issue, but made big by special interests, IMO.
Its never too early to panic.
Taxes going up w/ Obamacare and the recent deal
High gas prices sucking consumers dry
Debt bubbles in student loans and can-he-fog-a-mirror auto loans
Avalanche of business-killing regulations spewing forth
Europe looks puny
China bubbles bubbling
Gold in backwardation?
That happens when futures buyers don’t think the counterparties will actually deliver the gold.
FRiends, get yur guns, gold, and grub ready
Why is the market going up if corporations are unloading stock?
Someone will be along in a minute with an answer then we'll both know.
But you have to pay the 30% tax eventually anyway. And the more you make, the more tax you have to pay. So you either pay that 30% tax now or you pay it later.
So no, it does not mean you expect a 30% decline in the market. That is false.
OK, the idea is good, but the math is bad. If you bought the stock for zero dollars (you got it for FREE) and sold it for market value, then your math works.
However, if you bought the stock and now it has gone up, as many have, 10%, and you sell it, then you are taxed on 30% of the 10% gain. So they are anticipating a DECLINE of 3% or more on that example stock.
Put in more succinct form, they expect the decline (D) to be more that 30% of the GAINS (G) that they have realized over the term of their holdings.
D = 0.30 G
D = 30% P (where P = PRICE of the stock)
Bear in mind (no pun intended) that if D > G then you are losing money, and not because of taxes, just because the stock is worth less than you paid for it. I believe that the recent gains WILL be wiped out, so I'm not criticizing the intent nor the sentiment, only the math.
FYI, many large companies are expanding. That bottom line won’t be seen for a couple of years. Holding capital is very dangerous. Strictly a Carolina’s perspective.
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