REVEALED: What the Insiders Are Doing
We prefer to graze against the grain here at The Daily Reckoning… and avoid locations where the crowd is thick.
If the crowd jumps into stocks, we jump out.
If the same crowd piles into bonds? Then we pile out.
The business applies doubly, triply — quadruply — to market fads, manias and zeals.
Yet by one group of market participants… we set great store.
If these fellows buy, we go rushing in. If they sell, we are out the exit straight behind them.
Who are these mystery men? What are they up to right now? And what does it signify?
Patience, dear reader, patience.
We first have today’s market notes to tackle…
The Yield Curve Inversion Steepens
The Dow Jones was 155 points in green territory earlier today — until it caught sight of the yield curve.
The yield curve gave off an intensified warning signal.
That is, the yield curve inversion “steepened” today.
Not since 2007 have 10-year Treasury yields sunk so deeply beneath 2-year Treasury yields.
Another section of the yield curve withstood an identical outcome — 10-year yields versus 3-month yields.
This inversion is also now steepest since 2007.
As we have detailed at infinite length, an inverted yield curve is a formidable recession forecaster. Each of the past seven recessions it has foretold, stretching to the 1950s.
Now it is steepening.
“The primary thing is yields are going down and going down with some acceleration,” laments Art Cashin. Mr. Cashin is director of floor operations at UBS.
The steepening inversion is “certainly validating that a recession has a great chance of being here a year, year and a half from now,” adds Kevin Giddis, who directs fixed-income capital markets at Raymond James.
Meantime, yesterday’s gleam of trade war optimism has winked out.
Hope Fades on Trade
The president announced this weekend that China phoned to reopen discussions. The stock market bounced with hope yesterday.
But today Chinese authorities denied it happened at all… and yesterday’s bounce came thudding down.
All the while, the Organization for Economic Cooperation and Development’s leading economic indicators tell a woeful tale.
They suggest the worst global economy since 2009 — near recession levels.
Chinese industrial production growth languishes at 17-year lows. South Korea may be going backward.
Export muscleman Germany may already wallow in recession, they reveal.
And so global growth appears awfully used up.
Add it all together and the Dow Jones went from 155 points up… to 121 points down on the day.
The S&P lost nine; the Nasdaq, 27.
Unsurprisingly, safe haven gold caught a bid today — up $15 and change.
A Powerful Market Indicator
But what about those owlish market participants… whose buying and selling carry a great authority?
Who are they?
Corporate insiders is the answer.
These are the corporate executives and directors familiar intimately with the business… and its prospects.
They command information out of public sight. Their comings and goings in and out of the stock market therefore hold capital significance.
If these industrial captains are buying stock, it is because they sense favorable winds at their backs and a clear sky ahead.
If they are selling stock, it is often because their binoculars reveal weather ahead… and a poor business outlook.
What are these insiders up to right now?
Are they selling stocks — or are they buying stocks?
Here is the answer, by way of TrimTabs Investment Research:
These corporate insiders are heaving stocks overboard at a clip.
“A Good Time to Be Outside the Market”
We are 27 days into August. And corporate insiders have sold an average $600 million of stock each day of the month.
Insider selling has exceeded $10 billion four months of 2019. August will likely be the fifth.
TrimTabs research informs us this market omen has formed only twice — in 2006 and 2007 — before the great bear market that followed.
“It signals a lack of confidence,” argues TrimTabs analyst Winston Chua, adding:
“When insiders sell, it’s a sign they believe valuations are high and it’s a good time to be outside the market.”
These insiders may well have justice with them.
By some measures, today’s valuations rise even above 1929’s — and 2008’s. Only during the dot-com delirium did valuations rise above today’s.
Financial journalist Mark Hulbert has rummaged the data stretching to 1900.
His research reveals bear markets sink to greatest deeps… after stock valuations soar to dizziest heights.
Given today’s alpine valuations, how far might the Dow Jones plunge next time?
The answer, says Hulbert… is 35.3%:
If a bear market were to begin from current levels, the Dow would tumble 35.3%. Though that’s less severe than the 2007–09 bear market, it still would sink the Dow below 17,000.
But when might the bear market begin?
Is a “Lehman-like” Collapse Imminent?
Analyst Michael Snyder — he of the eternally cheery Economic Collapse blog — believes insiders are donning their life vests against imminent crisis:
This kind of wild selling indicates that there is a tremendous amount of fear among corporate insiders right now, and such selling would only make sense if a stock market crash is imminent.
Perhaps this Snyder stretches the facts to fit a theory. What again is the name of his site?
Yet this Cassandra is not alone…
Nomura analyst Masanari Takada claims a “Lehman-like” plunge may be days away.
You may recall the Dow Jones sank 33% when Lehman Bros. went over the rainbow in 2008.
Takada insists present market conditions bear “uncanny resemblance” to 2008:
The U.S. stock market especially is facing its greatest test of the year thus far… The correlation between sentiment then and now remains quite high. Even the passing risk-on phase after the initial shock of the yield curve inversion… and the risk-off mood that struck on Aug. 23 neatly track the pattern recorded in 2008.
A blindsiding crash is likely due to “panic-selling by fundamentals-oriented investors and systematic selling by trend-following technical investors along the way,” concludes Takada.
Wisdom From Matthew 24:36
Of course… we advise you to take it in with loads of table salt.
Thousands have announced market collapses to the very date. Without exception those date have jogged on by; happy, harmless… and free of incident.
As reads Matthew 24:36:
“Of that day and hour no one knows, not even the angels of heaven, nor the Son, but the Father alone.”
We certainly do not pretend to know the day nor the hour — or even the year.
But what if the Father has tipped off the corporate insiders?
for The Daily Reckoning