In the aftermath of Marc Cuban's oped from two days ago, that the current, second tech bubble is worse than the first dot com bubble of 2000, there has been much anguish by those deeply invested (on margin) in (bio)tech stocks, to demonstrate that the Nasdaq at 5000, or Biotechs trading at 50x or 5000xP/E, is perfectly normal and the global central banks' $13 trillion in liquidity has nothing to do with it. Of course, the answer who is right and wrong on this issue will not be revealed until after the current bubble pops.
Luckily, there are some very clear clues.
As Sundial Capital's Jason Goepfert notes, the best way to figure out whether tech stocks are overvalued is to look what the insiders are doing: those public tech company directors and senior executives who know their companies better than anyone, and who may keep silent as the Nasdaq crosses 5000, but are quite vocal with their shares.
According to MarketWatch, Goepfert said insider selling by tech execs is now at the heaviest pace seen in at least eight years.
Then again, we have seen record insider selling before: surely that can't be the punchline.
It isn't. According to Goepfert, as well as to Zero Hedge which first revealed that companies had announced a record amount of stock buybacks in February, the punchline is that these tech insiders are selling a record amount of personal stock... to the very companies they control!
Per Sundial, technology companies have been buying back a record amount of their own shares. And who is selling: why the management teams and directors that make the decision whether to allow the company to buyback stock in the open market.
“It seems odd that insiders would be selling their stock at the very time they’re directing their company to buy back that very same stock,” Goepfert said, adding that "it’s a better sign for stocks when insiders are buying, or at least not selling heavily,” Goepfert said. “When they do sell en masse, it’s a yellow flag.”
We would be less politically correct: when the same management teams that sell record amounts of their own company stock to the companies they control - companies which are now buying back record amounts of stock, this is not only the worst possible conflict of interest, it means, for lack of a better word, that the Nasdaq, bubble or not, has become the biggest circle jerk in history!
A circle-jerk which will continue until the Nasdaq itself, with its trademark zero cashflows, ends up as loaded up with debt as any mature, late cycle company. Because by now it is clear to everyone that if and when rates do rise, and all that all time high corporate, financial, household and sovereign debt has to be services, nobody is getting out alive.