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 & 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.
It sure doesn't mean you expect a 30% gain either.
Uncle Ben must have told all his banking Wall St. buddies that he was going to pull the plug on the 90 billion dollars a month stock market float since they have drawn enough retail suckers back into the market by pumping it up to the 14000 level while having the business media promote rainbows and unicorns 24/7.
The insiders dump at the peak and the retail suckers get cleaned out again. The market is nothing more than an insiders fleecing operation totally ran by the FED while the captured SEC regulators surf porn and yawn.
YES!
Get out, get out, get out: now is the time to dump your stocks and bonds. If you cannot roll around naked on yoour hard assets (no joke intended) then you do not have assets that you can be assured will survive the coming economic collapse.
We peons do not, but those with significant sums to invest can negotiate for much better rates than the take-it-or-leave-it inflation rape offered to the little guy. Really the only way to fight this is for millions of us to yank all our money out of the banks and force them to offer better rates.
”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.”
Because stocks once again are getting ready for a big correction. It won’t happen till the summer of 2014 so Obama can blame the Republilcans for the impending crash.
Look for a stock that has gone up and down and ride it down. Then ride it back up. I am doing EMC for the 5th time. 30’s down to the teens back up the the 30’s.
Maybe because the Fed is propping up equities with their constant interventions ?
Any one who thinks stock prices are the result of natural supply and demand factors are suckers.
Leni
They see some kind of gun confiscation scenario unfolding, and that will crash every market there is.
Galt’s Gulch intersecting Zombies on parade.
Understand the question. If my stocks are in so-called peril where would I move risk and why?
Bull market possible if the Fed does not stop QE. Some of the Fed members are concern about the excess QE and its affect on the economy since QE is not producing any noticeable benefits to economy and employment. I think the Fed knows that, but is grappling with how to ease out of QE without crashing the over brought stock market and crashing the bond market as interest rates must go out as Fed withdraws QE financing of US budgetary shortfalls. I think the insiders know something that everyone else does not. The 1 percent will be out of stocks while the MSM that serves them will espouse stocks are safe and Joe public needs to buy tons of them for his portfolio.
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.
Sorry about the double post. Didn’t think the first went up.
Note that the savings rate can be modified. Also note that the calculator does not take into account inflation.
Because the Fed is pumping $85 billion a month to too-big-to-fail banks (buying junk CMOs off their books at par) and no small part of that money goes into the stock market.
Get a job with one of the big trading houses and front-run.
NonLinear is of course correct. The anticipated decline is 30%+ of the appreciation. I should have been more specific. However, for the vast majority of corporate insiders, their stock ownership, and gain, comes via the exercise of stock options, and in that case, their cost basis is in reality, zero. It is also important to recognized that non-qualified stock options (NQSOs) which generally given to lower compensated employees, automatically trigger the gain, and tax, when exercised, whereas with ISOs (Incentive stock options) generally given to the higher paid executives; the tax can be avoided merely by holding onto the stock. The fact that these insiders are the ones doing the selling is thus most telling.
FINF is also correct, except his comments ignore two key points:
1.Once I sell, and pay the taxes, I have to "earn that back" somehow. Thus, simply put, the assumption is that if I have a $1000 gain, and pay $300 in taxes, leaving me $700, to invest elsewhere, or put under my mattress, I will end up with MORE $$ in the near future than if I leave the $1000 intact and allow it to hopefully "grow." That's the scary part of this scenario.
2. Over time, careful financial and tax planning can possibly allow one to mitigate somewhat the tax impact of a sale ( assuming of course that the underlying value remains at least the same) A rapid sale now negates that possibility.
I should also [point out that my 30% tax cut is in reality a quite conservative assumption. For many of these highly compensated individuals, some of the gains will no doubt be treated as ordinary income, and since many live in high tax blue states..NY, NJ, CT, MASS, Cal..in reality the tax bite may well EXCEED 40%+.
Which only shows again, how scary the financial markets are now...
Regards...
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