stock market

What do Corporate Insiders Know?

One well-known contrary sentiment indicator for what the next direction of the stock market is corporate insider trading. In the aggregate, insiders are more likely to purchase their company's stock when they think it's cheap, and to sell when it is expensive. In that way, they also tell us something about the health of the overall economy.

At the exact market bottom in March, when people thought the economy was about to drop into a black hole, I copied the insider trading graph from Barron's (which is a terrific weekly financial magazine and the best way imho to educate yourself about what is really going on in the markets and to become more sophisticated about the economy. Anyway, I digress). Here's what caught my eye about the graph then:

The significance of (-1.5%) deflation

Tim Iacono of "The Mess that Greenspan Made" has published the latest version of his very revealing graph series of the Case Schiller-CPI, which replaces "owners equivalent rent" with actual house prices:

I consider this graph the best proxy available for measuring the competing forces of inflation and deflation. As Tim points out, the graph is now "screaming" deflation. Tim, however, doesn't think measuring deflation is particularly productive. Here I respectfully disagree, for reasons I discuss below.

Why Have the Markets Crashed?

The major US stock market averages have lost over 20% in two weeks alone, and over 10% just in the first four days of this week. Every single day, a major bank on some continent fails. We are in the midst of a full-fledged run on the financial system (I hasten to add: NOT your neighborhood savings bank) that by all definitions except the formal one of a 10% loss in a single day, should be called a crash.

I'll confess right here. I did not believe a crash would happen. In 1929 and again in 1987, crashes occurred less than 3 months after a fresh, exuberant high had been reached. It was exactly one year ago today that the DJIA reached its all time high of 14,165. Until 2 weeks ago, the decline was a slow grinding inexorable washing out much like 2000-2002 or 1973-1974. So much pessimism was already in the system that a crash seemed almost impossible. Then, after Lehman was allowed to fail, suddenly the emergency was upon us. Kudos to Lee Adler of the Wall Street Examiner who exactly cautioned a couple of weeks ago that his technical indicators were consistent with an imminent crash. He was right.

But that does not tell us WHY the market has crashed. This diary is somewhat stream of consciousness, and I'll add on graphs if I can later on, but for now, a narrative of why.

Updated: NEWSFLASH: Gov't to offer "loan" to AIG

Not all the details have been released, so I will update this as new things come forth.
Bottom line, the government is going to offer American International Group (AIG) a bridge loan. The amount of the loan will be to the tune of $85 billion. In return, from what we know now, AIG will begin to sell assets ASAP to serve as collateral for the loan. Also, the company will grant the government Warrants.

Losing in the Stock Market costs more than money

One of the amazing things I've run across in the research and promotion of "Crazyman's Economics" is that people who brag about how much money they've made in the markets don't care about those who lose money.

They claim it's their fault they lost their money. They didn't do the proper research, they trusted the wrong people. Look at the report Wall Street put out earlier this week. They said it was human nature that caused investors to be too greedy when things were going well and panic too soon when things got shaky. (Translation: It's not our fault, it was the investors' fault.)

In fact, we've asked dozens of people who made money one question: "Where did your money come from?" Almost every single one of them, from guys in the coffee shop in Veedersburg, IN to afternoon host Tracy Jones on 700 WLW in Cincinnati say the same thing..."I don't care." 

A brief stock market aside

This may be a strange title for a "populist" blog, but the behavior of the stock market is a leading indicator for the economy, so there is some value in calling attention to it when it signals something to us. Not to mention that progressives like to make money too.
I'm really impressed with the behavior of the stock market these last couple of days. We've had a slew of bad news, mainly worse than expected, and instead of collapsing, the market has held its own both days, finishing, less than 1% lower as of Tuesday's close.
Not only that, but both days have seen strong rallies in the last hour. That's the sign of a market that wants to go higher, i.e., a bull market.
I know, I just got done posting graphs for a 120 year period and said I distrust short term charts. But when the market behaves in an unexpected way -- going down on good news or up on bad news -- I pay attention. This market wants to go up, even on bad news.