Corporate Insiders Most Bearish In 24 Years

Tyler Durden's picture

Just last week Goldman noted that February was "the busiest month in the buyback desk's history," so one has to wonder just what management is thinking when the Wall Street Journal reports that corporate insiders are more bearish than they have been at least since 1990. According to this adjusted measure, there have been two prior occasions when the insider ratio got almost as bearish as it is today - early 2007 and early 2011 - and the first came a half a year before the beginning of the worst bear market since the 1930s. Simply put, it seems management teams are using their company's balance sheet as their own personal piggybank.


As we noted last week, Goldman is concerned that the party is ending:

With stocks rising to record high after record high, and with even Goldman's clients now asking "When does the party end?" as noted by Goldman's David Kostin overnight, the answer is simple: nothing has changed. Specifically, between the Fed's ongoing monetization of tens of billions monthly in bonds, the missing piece to the equation is also a known one - corporate buybacks. In fact as Goldman admits, "February was the busiest month in our buyback desk’s history." (which surely is Chinese walled off from Goldman's prop trading desk). Why? Because as Reuters reported previously, this was the second-busiest week ever recorded for high-grade bond issuance. And with the use of proceeds certainly not going to capex, companies continue to buyback their shares in record amounts to mask the decline in actual cash earnings by lowering the amount of shares outstanding and thus keeping EPS rising or flat.


But aren't companies leery of buying back their shares at all time highs?

And this "adjusted" measure (discussed by the Wall Street Journal's Mark Hulbert) supports these concerns as  the traditional insider-buying/selling measure is misleading, says Nejat Seyhun, a finance professor at the University of Michigan who has extensively studied insider behavior...

Corporate insiders are more bearish than they have been at least since 1990.


That isn't good news for the stock market, since these insiders—corporate officers and directors—know more about their companies' prospects than the rest of us. You may want to take their pessimism as a signal to ditch some of your stocks or shift into industries in which insiders aren't heavily selling, such as energy, financials and basic industrials.




Mr. Seyhun strips out the largest shareholders from the sell-to-buy ratio, and that adjusted figure shows the current record level of insider bearishness. According to his calculations, corporate officers and directors in recent weeks have sold an average of six shares of their company's stock for every one that they bought. That's more than double the average adjusted ratio since 1990, when Mr. Seyhun's data begin.


One year ago, Mr. Seyhun's adjusted ratio was solidly in the bullish zone, he says. And in late 2003, the ratio was more bullish still.


The current message of the insider data "is as pessimistic as I've ever seen over the last 25 years," he says. What makes this development so ominous, he adds, is that, while no indicator is perfect, his research has shown that "the adjusted insider ratio does a better job predicting year-ahead returns than almost all of the better-known indicators that are popular on Wall Street."


There have been two prior occasions when the adjusted insider ratio got almost as bearish as it is today—early 2007 and early 2011.


The first came a half a year before the beginning of the worst bear market since the 1930s.




Among the stocks you should be looking to sell are those in industries whose officers and directors are selling particularly aggressively. These sectors, according to Mr. Seyhun, include capital goods, technology, consumer durables (such as automobiles, construction and appliances) and consumer nondurables (food and beverages, clothing and tobacco).

Simply put, it seems management teams are using their company's balance sheet as their own personal piggybank.

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LetThemEatRand's picture

Isn't there an article here tonight about someone being arrested for pumping and dumping?

jbvtme's picture

fuck the insiders. wake me when the algos go short

TruthInSunshine's picture

It's all very simple, in terms of how the scam works.

And here we go:

1) Implement a system where a massive amount and % of corporate officers are compensated based on the award, vesting & ability to sell large blocks of the shares of the corporate stock they are awarded.

2) Have central banks artificially and significantly suppress yields on interest bearing credit instruments (such as corporate bonds, government bonds, etc.) through destructive policies such as QE (starving savers of interest). Oh, also have CBs coordinate the manipulation of the Libor rate for the same purpose.

3) Now that yields are low on credit instruments thanks to Central Bank monetary policy perversions, sell as much corporate debt in the form of bonds as possible, at absurdly low yields.

4) Use proceeds of corporate bond sales to buy back massive shares of own corporation's shares, regardless as to now overpriced these shares become (the goal is to elevate them to nosebleed levels).

5) Sell as many shares that were awarded as part of compensation packages as often as possible while they are at nosebleed levels, ensuring maximum profit before the bottom falls out.

6) Salute the massive aggregate amount of outstanding corporate debt that was issued in order to enrich corporate insiders with a proper toast.

kliguy38's picture

green shoots! trot out some more CNBS shills and Warren Buffoon........once we've got all the sheep in then lets FRY um......after all what are sheep for

MisterMousePotato's picture

@sunshine ... makes sense, but ... who is buying the bonds?

TruthInSunshine's picture

The dumbest motherfuckers to ever walk the earth (e.g. calPERS,etc.).

Bonapartist's picture

7) watch the  MFer crash and then go to Uncle Sugar for a bailout. rinse and repeat.

TruthInSunshine's picture

8) Pour a drink on the earth in honor of Tupac, Bernanke & Draghi. "For all my central bankster bitchez, yo."

Oldwood's picture

Thats the beauty of the casino....morals have nothng to do with it.

Voice of Reason's picture

Seriously, I am shocked they haven't used their buying power on the short side yet.  When they do, it will be massive!  Hey Tyler, why do you suppose they are waiting?

eXMachina's picture

I told her I wasn't interested in a committed relationship. I thought arrest was a bit harsh.

onewayticket2's picture

Possible explanation: the 5 yr lock up on those 'retention' bonuses in the early days of obama's war on high compensation have matured.

Mar 2009 issued equity would be lookin pretty good.

medium giraffe's picture

"You may want to take their pessimism as a signal to ditch some of your stocks or shift into industries in which insiders aren't heavily selling, such as energy, financials and basic industrials."


Why?  Looking for a discount?

TheRideNeverEnds's picture

Pfft tell it to the e-minis as they trade straight through 1900 into the end of the week.  

mayhem_korner's picture



+1 for the Pass the Pigs teaser pic to the post.  Lost a silver maple to a very questionable leaning jowler last night...

mayhem_korner's picture



Fed wasn't printing $65B/month in 2007.  That liquidity has to find a home, and unless there is a mass dumping of US securities, tough to see equities falling too far before Mr. Yellen puts a floor on it.

Winston Churchill's picture

Actually it was  $103 bn last month from the growth in the FedRes balance sheet.

When it gets serious ,they lie.

Soul Glow's picture

Crisis averted!  BTFD!

Azwethinkweiz's picture

I wanna see these "corporate insiders" inside a Gladiator arena armed with stock certificates against bearish bears and bullish bulls. That's my "Make a Wish" for the foundation of this country!

Oxygen's picture

It's easy to understand.
The world economic system is
about to collapse.
World War 3 is about to start.
If I would be an insider,
I would sell like a crazy.
The stock market worldwide will
crash soon. All it need is something
like 9/11.
By the way, we have a lost plane..

moonstears's picture

Oxygen, I liked your post, but:

"World War 3 is about to start"...

As per ZH the other day...

We(USA) give 1Bil to Ukraine in loans to fight the Russians. IMF, well they wanna loan some too. If Ukraine debt passes 60% of GDP, bonds must be paid. 1st in line bonds owned by Russia for 3bil.

Looks like TPTB are paying one another off, JMO and WTF?

P.S. What's really important, though...Look, an airplne went down..look Miley Sirus has showed her clit...Bieber spotted at nightclub and etc.

Oxygen's picture

Did you notice the close of the Dow
For the last week?
And the start of the Dow for this week?
16 067.65
16 066.37

I think it's a signal.

Azwethinkweiz's picture

GREEN means go, you idiot. I hate when people park at a green light and wait. It's not a fucking yield signal....GREEN MEANS GO!

Ceylon tea's picture

In China green means bad things...

TheRideNeverEnds's picture





That the all time hign in the DOW will be just shy of my 36,000 price target?  Hmm, something is missing.  Wait I think I know...


32134.02 * 2 * .666 - 666*2 - 1492 - 1776 - 1987 - 14 - 88 =  36113.51


Eureka! It IS sign!  BUY THE DIP DOW 36,000 IS A LOCK!


naughtius maximus's picture

Corporate insiders read too much zerohedge. Don't they realize that its all skittle shitting unicorns form now until the end of time? Oh and it IS different this time!!! :D

deeply indebted's picture

"Wealth effect" in action.

kurt's picture

Pardon me. How does dumping cash into overpriced stocks support management taking a "bearish" position. How does less cash make buying stocks into a piggy bank?

Seems to me if you were bearish you'd want cash and would sell as much paper as you could, for cash?

Please explain.

TheRideNeverEnds's picture

great, so they are as bearish now as they were the year we began the longest running bull market in history.   guess I should buy more calls in tesla and facebook to supplement my long spoos, wouldn't wanna under perform as everything quintuples in price from here in the next few years. 

bk1037's picture

I'm not seeing much new here. Over the past 20 years, this trend of movemnet of capital to investors and away from labor has continued more or less unabated. Resources paid to labor are minimized totally. Corporations signalled in the 1980s and 90s that they felt their labor costs were too high, whether we agreed with them or not. With GATT, NAFTA and others, they enacted changes they telegraphed in advance, the reduction of payment to the American labor force. All kinds of empirical evidence exists now how the multinational corporations have dried up much of the middle class in America, all in the name of boosting their bottom line in the eyes of their bosses, the shareholders. Can one honestly see anyway where this trend would be reversed? When the managers job performance depends on maximum profits, employees will continue to be left out of the process.

Nothing in particular happened in early 2011 to justify what the insiders were doing, so they were wrong. They do not have clairvoyance to know exactaly what is going to happen. I wish there was a way the rich who profited from the Great Recession could have their net worth taxed to return some of these gains back to the country, and that would include obscene amounts paid to Wall Street. Cause sure as hell they are not going to donate some of it back, and I would rather see this than other money grabbing being discussed such as confiscation or haircuts on retirement assets.

sink critically's picture

It's a perpetual destruction (theft) machine, with the same goal as a perpetual motion machine. Neither works quite as intended because neither operates in a completely controlled environment. If those starving peasants would only die quietly this could go on forever!

kenezen's picture

Good Comments in your article. Government shares some responsibility for business direction if only from a perspective of greed! Japan, post WWII understood from Deming the need for efficiency in process and government cost and competitive capability. S. Korea followed that pattern successfully as did belatedly Deng of China who made the greatest change. Now those countries reap good economies better that what was before. American central government did not adjust to post-war industrial changes and slowly with the old model of centralization and federal supremacy become inefficient in global competition.

We have a decision. Continue drifting to federal power and centralization with mainstays of "Federal" public control and finance; or; becoming as we were in 1850 when we "Were" the Japan, S.Korea and China where industrial production was concerned. We allowed in the middle 1800's our states unfettered rights to bring industry in to provide wages and commerce without interference and direct control by "Central Government" and we succeeded beyond any expectation! NOW, We have become "Socialistic" while others have aspired to our past "Capitalistic" model.

One Idea:

Replace our Industrial base which is at historic lows: Woo the international Industries with equally competitive wage of others and restrain "Class Action" law suites, keep our carbon limits to a level acceptable to industry and allow States to compete without overbearing Federal interaction!

Keep wages low, and, they will be , then supplement the differential with payments to the workers until equilibrium is reached. That's far better for States revenue and the Federal Government debt than the current process of hand outs.  Our MFG is appx. 6% now! At one time when we had a vibrant Middle Class (Now a disaster) the MFG was 55% to 60% of the work force and we we were the envy of the Earth.  Let's do it again. 

ghostfaceinvestah's picture

Is the Fed balance sheet growing or shrinking?  That's all that matters.

TheRideNeverEnds's picture

Officially?  Growing at a moderate rate consistent with below 3% inflation. 


Unofficially? Expanding in a manner akin to the big bang; the larger it gets the faster it gets larger, accelerating into the unknown abyss of infinite darkness and desolation forever and ever.

Puncher75's picture

What can I tell you? Acquiring physical gold & silver as quick as I can. Maybe I'm an idiot. Didn't like what I saw behind the curtain for 15 years on WS. Again, maybe I'M the sucker.