Friday, September 11, 2009

Corporate Executives Dumping Their Stock for Most of Rally; September 11, 2009

I've heard that insiders, i.e. corporate executives within the company, have been selling their stock feverishly the entire rally over the past few months. But in true bullish media fashion, it gets barely any headlines, until now. Insiders obviously know the true story behind their company's earnings and profits and if they're selling in massive numbers, then that's not good for the future and shows they don't believe in the rally. The 800 pound gorilla in the room is that all these firms have been posting great earnings numbers and beating estimates for the past two quarters yet how did they do it? They did it with massive spending cuts, shutting down factories and stores and slashing their work force drastically. So when you add it up, their earnings were good because they had reduced overhead drastically, not because the consumer is making a comeback. So the earnings data and future outlooks are window dressing and fluff. Using this window dressing won't work forever though. Eventually that high unemployment they're dumping on the economy and the shutting down of stores will backfire if the economy doesn't do an about face and rally hard. Which it is not. Insiders probably know this little fact and are selling their stock, knowing that they pumped up their stock prices for the short term in hopes that the economy would recover and then they can hire again and grow. But it's not happening, and the next few quarters of earnings and sales should be horrendous, and fuel the flames of the wave 3 crash. Here's the article on insiders by CNN:


Michael K. said...

Should I load up on DRV?

Michael K. said...

Todd S said...

Hi Michael,

Real estate ETFs should collapse with the stock market collapse but I'd offer two pieces of advice in regards to your question:

1) consider waiting for confirmation that wave 3 down in stock has begun before taking any big positions that you may not be able to sustain for large moves over a long period of time.

2) be careful with the double or triple levered ETFs like DRV because the up/down and violent nature of the decline to come can really erode the value of those ETFs, and the fact that they're highly levered makes me nervous in the crash to come.