Archive - Sep 24, 2009

Insider selling outpaced buying by "only" a factor of 41x (data from FinViz). The data was adjusted to exclude the $37 million purchased by Elevation Partners as part of the Palm follow on, as that transaction was likely premarketed and was designed to generate deal interest by the underwriter Goldman Sachs. Pro Forma for this purchase, there was $2.1 million in 24 insider buys versus $84.4 million in 139 insider sells. While sellers are still outpacing buyers by a material margin, the volume on both side of the equation is dropping dramatically (well, mostly the sellers). At some point once the selling is exhausted, a contrarian could say that the motivation to keep the market propped up could very easily disappear.

• Yields 3.005% vs. Exp. 3.047%
• Bid-To-Cover 2.79 vs. Avg. 2.55 (Prev. 2.74)
• Indirects 61.7% vs. Avg. 51.44% (Prev. 61.3%)
• Indirect Bid-To-Cover: 1.29x
• Direct accepted: 6.3% of Total accepted
• Allotted at high 30.22%

While I am bearish on a 2/3 year horizon for certain, I have been cautiously trying to pick spots to sell risky assets for the past 3 to 4 months. Over the past 2 weeks I have become more vocal because a lot of signs that a possibly significant reversal (think more of a 10% move than a 3% move in major equity indices) could be in the works.

According to the BLS, the exhaustion rate, or the number of people who have used up their benefits, and will no longer be receiving unemployment checks, has hit an all time high of 52.40% for August. This is a staggering number, and whats worse it was grown in practically a linear fashion with not even a hope of a second (third or fourth) derivative green shoot in sight. In fact, the deterioration in "employability" is accelerating. And yet assorted "pundits" claim the employment picture is improving. We wish them and their newsletters (and, heaven forbid, LPs) all the best.

And the undisputed winner of the market bad timing awards is RCN. Just as the world is finally getting concerned and quite vocal over a two-tiered market in which certain exclusive market participants reap the gains of extensive infrastructure investments which may or may not allow them a distinct "informational asymmetry" advantage, and hot on the heels of a vote by the SEC seeking a Flash trading ban, RCN has announced that it set to launch a "low-latency co-location and exchange-only network connecting the major bourses and data centers in the New York and New Jersey financial hubs."

Global derisking in practice. This is what a normal market should look like (and a mirror image when in reverse). Yet one can count on 2 fingers such charts over the past 3 months.

Labor series should not be so volatile. Yet they are. The BLS reported Mass Layoff Events for August which dropped by over half, from 3,054 to 1,428, the lowest number recorded so far this year, and almost a thousand below the 12 month rolling average. A comparable move was recorded in the Initial Claimants series, which went from 336k to 125k, well below the 12 month SMA of 249k. This volatility is undoubtedly predicated by the government's intervention in the economy via cash for clunkers. If Edmunds.com is correct about the major swing in August-to-September SAAR, expect to see comparable deterioration in MLEs for the upcoming month.

The analyst upgrade games continue, even as gullible investor lemmings jump off cliffs to chase price target revisions and capital offerings, compliments of conflicts of interest too numerous to mention.

Instead of lending to businesses and homebuyers, banks may have been using some of their bailout money to buy stocks from an oversold base in March, Moonraker believes. The British Bankers’ Association’s own figures show that gross mortgage lending by the banks has fallen from a high of £21.5bn in June 2007 to £9.1bn in August 2009, while new term lending to small businesses was £796m in July, compared with around £900m last October.

• China trade war escalates: Paper is next front in China trade war (WSJ)
• Baltic Dry index falls for 10th day in a row, now at 2,163 (Navigate)
• Michael Pento: America digs deeper into debt (Delta Global)
• New deadly dollar carry trade (FSU, h/t Project Mayhem)
• The message is spreading: break up giant insolvent banks using America's 100 year old anti-trust laws (Washington's Blog)
• Ex-Deustche Bank manager says boss knew of spy case (Bloomberg)

• Crude Oil drops nearer to $68 after unexpected US supply gain.
• EU raids cement makers, Holcim & Cemex in Spain, as part of a price-fixing probe.
• Euro falls from one-year high versus Dollar before meeting of G-20 leaders.
• European Commission proposed new bloc-wide regulatory bodies to supervise banks.
• Fed highlighted signs of recovery as it left rates steady.
• Japanese exports fell 36% in August from year ago, 11th straight decline.

Just because words like "failing", and "bail out" have no place in the prepared remarks of a former chairman of the SEC, and a advisor to The Carlyle Group, Getco and, of course, Goldman Sachs. Always better to sugarcoat a little just to be on the safe side. Especially when you are in the pocket of High Frequency Trading, Private Equity and Goldman.

One example of the market saturation with the speculative commercial real estate bubble is yesterday's REIT IPO by LA-based Colony Capital, which raised just $250 million, a mere half of the number circulating as recently as a week ago. The reason for this major surprise: a glut of comparable offerings by competitors such as Apollo Group and Starwood Capital, all of which are rushing into the public markets for the same reason insiders continue to sell in bulk: the tide is about to turn. And with the dramatic drop in investor interest in just one week, it likely already has.

An important support level around S&P 1080 (broken during the fall 08 crash) may now offer significant resistance, which in the context of our current rising wedge, could mark the top of this equity rally, the calm before the storm.