Saturday, August 8, 2020
League of Power

The League of power

"Freedom by Friday"

What The Insiders Are Doing

If You’re Not on The Inside….

Another week, another new 52-week high for the US stock market. It doesn’t pay to be short right now considering that all these companies are reporting stellar results, first Intel, then JP Morgan and UPS. Its all clear folks, time to load up on stocks. Er…not so fast.

Remember back in the spring of 2009 when the market was crashing? There was a particular number that surfaced a few weeks after the market hits its low in February. That number…drum roll please…was 1.96. Actually it’s part of ratio – 1.96 to 1. That number reported by Vickers, a firm that measures insider buying and selling means that in February of 2009, insiders sold 1.96 shares for every 1 share they bought. Now, the INSIDER SALES/BUYS ratio has always been over one, as far as I can remember because insiders are always selling shares thanks to fat options grants and maybe just a teeny bit of knowledge that you and I just aren’t privy to.

So, that said, what does the ratio mean?


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Well, nothing really…unless you were to compare it to different points in time. Yes, you guessed it, I am going somewhere with this! In fact, just prior to the beginning of the last correction this ration was 5.15 to 1, meaning insiders were selling more than 5 shares for every one share they were buying. Hot damn…do you see what I see? When the market was at its lows, insider selling was also at its lows. When the market was close to its highs, so was insider selling. Do you think there’s a correlation? Nah that would be too easy. But, what if there was?

Well, the current ration based on the last 8 weeks is at 4.18 to 1, about double the level of where it was when they weren’t selling as much and only about 20% or so off the recent high watermark.

I actually pulled up the fancy service that I use, which costs an arm and a leg, the other day. Yep, sure enough there was a LOT more selling than buying. A sampling maybe, how about a multi-hundred thousand-share sale by a couple of Ruby Tuesday (RT-NYSE) insiders? Or the fat 37,000 share sale at $50 by the president of Tiffany (TIF-NYSE). Or clothing retailer Aeropostale (ARO-NYSE) where four officers were selling thousands of shares. Of course there are hundreds of reasons why insiders sell and really only one reason why they buy.

Insider selling has never been a good gauge of what may happen to an individual company’s stock…but the insider-selling ratio across all stocks usually provides a better feeling of what insiders as a whole are thinking. And, if history is any guide, it’s time to think about joining that selling party!

Another Day, Another Euro

Well, at least 61 billion of them. That’s the price tag of the new Greece bailout plan. You read it here first folks, the 21 billion Euros was not enough, so what the hell, just triple it. It’s just paper after all. Man, am I glad I don’t own Euros. Wait, I still own Dollars though. So, it’s a race to the bottom with the Dollar now holding nicely in second place. The Dollar is getting stronger friends, against the Pound, the Euro and the Yen. Woohoo! But, alas, against the currencies that do matter since they are connected to resource prices, like the Canadian Dollar, The Aussie Dollar and the little Norwegian Krone, the greenback and the Euro are both losing value. And, against the almighty itself…well gold just set new highs in Euros and is approaching the same in US Dollars. So, if you want to take the party to the Euro zone when you retire – it’s cool. Hey, Francois, another bottle of wine with the cheese please!

Are we there yet?

In speaking to a bunch of real-estate people this past week, they are all convinced that the bottom in housing is in. Of course, they also thought so last year. Here’s the good news: first time buyers are snapping up housing at bargain basement prices. Here’s the bad news: all those foreclosures that were put on the back burner by government mandate last year…well a nice chunk of them are getting ready to hit the market, about 1 million foreclosed homes in the coming few months…and there’s about 2 million more sitting on the books just waiting to get dumped on the market. There’ll be bargains to be had for quite some time to come. Home prices are still not showing any signs of an upward trend, just a slowing in downward pressure.

There will come a point when prices and sales will begin to rise in a sustained fashion. And, that time will be when jobs are being created and the unemployment rate begins to move lower. This past week, first time jobless claims increased by 24,000, yet another sign that this recession is not yet over.

Statistic of the week:

Speaking of home prices and sales one would think that the price for homebuilding materials would be decreasing right? Well, here again we have a conundrum. As I mentioned a couple of weeks ago, commodities are reflecting inflation while the government is talking deflation. The market is the final arbiter of who’s telling the truth…lumber prices started the year a tad above $200. They are now at a tad under $300. What inflation?

Best regards,

Kevin Raymond

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