Insiders Sell Shares at Record Pace

As markets have headed down south again the Financial Times reports Pessimistic executives cash out of shares:

Growing pessimism about the prospects for a global economic recovery sent stock and commodity prices tumbling on Monday while new data showed that leading US corporate executives were cashing out of their share holdings at a rapid pace.

And it is certainly likely that commodity and stock prices are headed lower while gold will outstrip them all – the deflation trade as Mish calls it.

US government bond yields followed equity prices lower, confounding analysts who had expected that Treasury rates would rise this week as the federal government auctioned off a record $104bn of debt.

I should point out that I was not among those who expected Treasury rates to rise, in fact I said that I expect them to go lower in Inflation Fears vs. Reality. How people can think that $104 billion alone will create a flight out of treasuries in a $10+ trillion market remains to be explained. Does anyone look at the demand side of things?

On another note, what I said in that article about silver applies to all other commodities to a much larger degree, in fact I think silver will recover once those who bought in for the wrong reason, namely inflation fears, are washed out.

Analysts said the market mood was captured by a World Bank report that said the global economy would contract 2.9 per cent this year, compared with a previous estimate of a 1.7 per cent fall. A White House spokesman said later in the day that the US unemployment rate was likely to rise to 10 per cent in the next couple of months.

The downbeat commentary reinforced the view that investors should be more worried about the impact of economic weakness on corporate profits than the possibility of higher inflation and interest rates.

Yes, inflation expectations where out of whack with reality as I pointed out already.

“We have had a great run in equities, emerging market currencies, credit and other risky assets, now people are struggling to justify lofty valuations,” said Alan Ruskin, strategist at RBS Securities. He added: “The ‘green shoots’ argument for the economy was very tentative to start with.”

Executives in charge of the largest US companies sent a signal of their concerns by selling far more shares than they bought this month, according to data based on Securities and Exchange Commission filings.

Share sales by so-called company insiders are outstripping purchases so far this month by more than 22 times. TrimTabs, the investment research company, said insiders of S&P 500 listed companies have unloaded $2.6bn in shares in June, compared with $120m in purchases.

“The smartest players in the US stock market – the top insiders who run public companies – are not betting their own money on an economic recovery,” said Charles Biderman, chief executive of TrimTabs.

The S&P 500 index fell 3.06 per cent to 893.04 – its first close below 900 this month. Analysts noted that the index closed below its 50-day and 200-day moving averages. “This is evidence that the rally since March has been a correction and not necessarily the start of a meaningful multi-year rally,” said Jack Ablin, chief investment officer at Harris Private Bank.

The yield on the 10-year Treasury fell 10 basis points to 3.68 per cent. Crude oil prices fell $2.62, or 3.77 per cent, to $66.93 a barrel.

Earlier, the FTSE Eurofirst 300 index slid 2.6 per cent while London’s FTSE 100 index fell 2.3 per cent. Emerging market equities also fell sharply, with Russia leading the retreat.

Even if for some reason we see another temporary bounce up in the stock and commodities markets, for the mid term it may make sense to look out and be prepared for a continuing implosion of consumer credit, declining production and sales of consumer goods, falling home prices, falling consumer prices, falling interest rates, a stronger dollar and, after a minor initial sell off, a solid and possibly rising gold price.

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