Monday, September 14, 2009

Insiders not really loving their own companies

There is an old theory that says no one knows a company like the executives of a company and thus, you should follow their trading patterns in order to glean a bit of knowledge about a company's prospects.

Well, if that theory holds true, you might want to start stockpiling some twinkies and spam because insiders appear to HATE the prospects for their companies.

Insiders sell like there's no tomorrow....

"While a wave of insider selling doesn't necessarily foretell a stock market downturn, it suggests that those with the first read on business trends don't believe current stock prices are justified by economic fundamentals.

"Insiders know better than you and me. If prices are too high, they sell."

Biderman, who says there were $31 worth of insider stock sales in August for every $1 of insider buys, isn't the only one who has taken note. Ben Silverman, director of research at the web site that tracks trading action, said insiders are selling at their most aggressive clip since the summer of 2007.

Silverman said the "orgy of selling" is noteworthy because corporate insiders were aggressive buyers of the market's spring dip. The S&P 500 dropped as low as 666 in early March before the recent rally took it back above 1,000. "

As we observe the one year anniversary of the beginning of the financial crisis, I'd like to offer up one observation. The financial industry should help grease the wheels of global commerce, but it should not be in and of itself, the driver of economic activity. In 2009, I think we've seen the big banks become more aggressive in an effort to recover faster and that could make things very challenging for our recovery prospects.


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