Saturday, April 25, 2009

Insiders are selling the rally (not surprisingly)

From Insider Selling Jumps to Highest Level Since 2007

"While the Standard & Poor's 500 Index climbed 28 percent from a 12-year low on March 9, CEOs, directors and senior officers at U.S. companies sold $353 million of equities this month, or 8.3 times more than they bought, data compiled by Washington Service, a Bethesda, Maryland-based research firm, show. That’s a warning sign because insiders usually have more information about their companies’ prospects than anyone else, according to William Stone at PNC Financial Services Group Inc.

"Insiders from New York Stock Exchange-listed companies sold $8.32 worth of stock for every dollar bought in the first three weeks of April, according to Washington Service, which analyzes stock transactions of corporate insiders for more than 500 institutional clients.

"That’s the fastest rate of selling since October 2007, when U.S. stocks peaked and the 17-month bear market that wiped out more than half the market value of U.S. companies began..." [emphasis by me]

This is supposed to cast doubt over the sustainability of the on-going stock market rally since the March bottom (when S&P500 index stopped at 666). See, insiders are selling. Don't become a bagholder, or last one without the chair.

Still, there are couple of observations you could make:

  1. Insiders are not necessarily the best traders or investors, even though they may know their respective companies well.
  2. This is about the first "rally" sustained long enough to take long positions or sell long positions in an orderly way (as opposed to panic sale), ever since the cascading market crash of October/November 2008. Can't blame anyone for selling while they have the chance.
  3. They may have margin calls on their accounts and need to sell. Before you roll your eyes and laugh, remember the CEO of Chesapeake Energy. He had to do exactly that. And Goldman Sachs is reportedly assisting the partners who have margin calls on their accounts.

The market had a first down week since the March bottom (except Nasdaq, which extended the winning streak to 7 weeks). After the sharp V recovery, the pace of the market advance has slowed in the past 3 weeks. Bullish or bearish, caution is indeed warranted.

Friday, April 24, 2009

Bumper Crop for Seed Companies

This from the Seattle Times.

Seed sales are up 30%. People are buying seeds and garden equipments to grow food themselves. Many of them are apparently first-time gardeners.

With uncertainty hanging over the economy, people seem to be striving toward self-sufficiency and self-reliance. Quietly but steadily, as this article from MSNBC states:

"The National Gardening Association, a nonprofit research group based in South Burlington, Vt., projects that 43 million of the nation’s 111 million households will grow at least some of their own fruits, vegetables, berries and herbs this year — a rise of more than 19 percent over last year. More than half — 54 percent — said they were looking to save on their food bills, the association said in its annual report on home and community gardening in the United States."

(And I've been watching this stock forever my other blog.)

Peter Schiff on Our Economic Future

Podcast on The Lew Rockwell Show. It's about 10 minutes long. Following is my quick summary.

About the current stock market rally:
It's not a new bull market. We've been in an on-going bear market since 2000. During the bear market we do have sharp rallies creating opportunities to make money [going long]. But corporate earnings will continue to go down, as interest rate will eventually go up which will bring the present value down. It is like the 70's, only worse.

Effect of increase in money supply:
Prices would have fallen much further, but the government prevented the downward adjustment. It is more likely a wishful thinking on Bernanke's part that he can absorb liquidity later, even though he is a smart guy.

World market:
US is more dependent on consumer spending, borrowing, and asset price than any other large, developed economy in the world. EU and Japan are still creditor nations [with the exception of Great Britain], so they have more fear of inflation and they want to be responsible.

Gold will go up. How high depends on US$ devaluation. US$ is the same as Zimbabwe $; neither has any intrinsic value.

Austrian economics:
Macro-economics Schiff was made to learn at Berkeley is Keynesian nonsense, a brainwash that teach people how free market does not work and how government can fix things.

If the government invites Schiff to Washington D.C., what would he tell them?:
There is no easy, quick fix. What can government do? - Answer, "Nothing". We got into this mess by borrowing and spending. And we can't get out by borrowing and spending more. We have to spend less, save more, produce more, export more, and allow the market to work. The problem is the government wants to do "something" because elections are coming all the time..

Thursday, April 23, 2009

Goldman Sachs upgrades auto makers

Goldman Sachs upgraded US and Japanese auto makers on Wednesday (4/22):

Ford Motor Company (F) : from Neutral to Buy
Honda Motor (HMC, 7267.T) : from Neutral to Buy
Nissan Motor (NSANY, 7201.T) : from Sell to Neutral
Toyota Motor (TM, 7203.T) : from Neutral to Buy

F went to $1.01 on November 21. (Currently trading at $4.38)
HMC went to $17.35 on December 5. (Currently trading at $28.13)
NSANY went to $5.59 on February 23. (Currently trading at $10.60)

TM went to $55.41 on December 5. (Currently trading at $79.47)

Are easy trades on these stocks over? I wonder...with chatter about GM and Chrysler Chapter 11 bankruptcy getting louder by the day.

Wednesday, April 22, 2009

Necessary process for recovery

from Morgan Stanley Global Economic Forum: "Capex [capital expenditure] Bust and Capital Exit"

"The silver lining in this capital spending bust is that it will help to purge investment excesses; indeed, it is essential to do so. Most of the excesses in this cycle have been concentrated in housing, where foreclosures continue to fuel vacancy rates and supply-demand imbalances. But as noted above, easy credit did fuel exuberance in commercial construction, and the downturn has unmasked acres of obsolete plant and equipment. The cure for excessive investment is the exit of capital from what my former colleague Steve Galbraith calls the ‘capital pigs’ – overcapitalized industries – and the redeployment of that capital into new products and new industries that can use it productively." [emphasis original]

The article is basically saying the easy money resulted in misallocation of capital and that these malinvestments need to be purged before the new growth can begin.

Tuesday, April 21, 2009

Credit Default Swaps market update

US Credit Default Swaps Little Changed, CDX Trading Shows (

Watch out for this for the market direction in general, and financial stocks in particular (C, BAC).

That's where the heavy betting by big traders seems to be: CDS market.

They are speculating on the company's ability to repay its debt (or the government's willingness to protect the debt holders). Some people believe this was what caused the crash in financial stocks last year, and that's what they are doing now again.

Survivalists 2.0: Regular people get ready for the worst

This from Houston Chronicle.

"Jack Spirko owns a media company, is married to a nurse and has a son in college. He has two dogs and lives in a nice house with a pool in a diversified neighborhood in suburban Arlington, Texas. Spirko, 36, considers himself an average guy with a normal life. But for the past few years, Spirko has been stockpiling food, water, gas, guns and ammunition. He also has a load of red wine, Starbucks coffee and deodorant stashed away..."

"Theirs is a different breed of survivalist, far from the right-wing militants or religious extremists who hole up in bunkers, live off the land and wait for the apocalypse.
Preppers are regular people with regular jobs who decided after Sept. 11, after Hurricane Katrina or when their 401(k)s tanked that they can’t rely on someone else to help them if something goes awry."

Maybe this explains those upticks in retail sales in January and February... People were hoarding...

Monday, April 20, 2009

OT: Georgian Waltz

relaxing music during the stressful market hours... They (Il Stravino Armonico) are talented musicians in Munich, Germany. (The leader of the band is my friend.)

Harvard economics professor's solution

It May Be Time for the Fed to Go Negative (New York Times)

in order to encourage more spending. According to the professor, we may have to figure out a way to make holding money less attractive. His suggestions are:

  • Pick a digit from 0 to 9, and announce that all currency with serial number ending with that digit will not be legal tender any more. Effective 10% negative return on holding the currency. (To be sure, it is his graduate student's idea, not his.)
  • Produce significant enough inflation so that the real interest rate as measured by purchasing power becomes negative.

And here's hoping it's a delayed April Fools Day joke:

Sunday, April 19, 2009

US to put conditions on TARP repayment

This from Financial Times:

"Strong banks will be allowed to repay bail-out funds they received from the US government but only if such a move passes a test to determine whether it is in the national economic interest, a senior administration official has told the Financial Times."

I wonder who is going to define "national economic interest".

Obama To Take Aim at Credit Card Abuses

This from The president now wants to crack down on "deceptive" credit card industry practices.

[quote]"We need to do things to stop the marketing of credit in ways that addict people to it," Summers said in an interview on the NBC television talk show "Meet the Press." [end quote]

So credit cards are like packs of cigarettes?

[quote] The meeting comes as lawmakers have vented anger that banks with big credit card operations charging high interest rates and fees are the same institutions getting government bailouts from U.S. taxpayers who use these credit cards. [end quote]

That's the mantra these days: how dare they, when they are getting bailout money from taxpayers!

I wonder if this is going to be popular, just as bashing executive bonuses at a government-bailed insurance company was popular for a while.