Insiders are getting out! - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 24 September 2014
Insiders are getting out! A  A  A

Delray Beach, Florida

Dear Diary,

Dow down 116 points yesterday. Why?

Airstrikes in Syria...Ebola...inversion crackdown...housing slowdown... record high prices...Alibaba...

The smart money knows what to do.


    American companies have seldom spent more money than they are now buying back shares. The same can't be said for their executives.

    A total of 7,181 insiders bought their own stock this year through Sept. 12 and 23,323 sold shares, according to data compiled by Bloomberg and Washington Service. The ratio of buys to sells is near the lowest since 2000. At the same time, corporate repurchases reached $275 billion in the first half of the year, the second busiest since S&P Dow Jones Indices began tracking the data in 1998.

    Share purchases by executives are becoming rarer after seven straight quarters of advances pushed valuations in the Standard & Poor's 500 Index to a four-year high. While companies are pouring money into their own stock because they have nothing better to do with it, officers and directors aren't -- and that's a bearish signal for share prices, said Brad McMillan, chief investment officer at Commonwealth Financial Network.

    "It doesn't say anything very good about the growth prospect for the business," McMillan, whose firm oversees $86 billion, said in a phone interview on Sept. 18 from Waltham, Massachusetts. "Who would know the business better than an executive in the middle of it? Even executives are buying on the corporate level, their hearts are not in it personally."

    Insiders buying stock have dropped 8 percent from a year ago, poised for the fewest in more than a decade, according to data compiled by Bloomberg and Bethesda, Maryland-based Washington Service. Monsanto Co. and Cisco Systems Inc. are among companies whose executives have done less buying even as corporate repurchases increased.

    They're getting out!
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They say they 'don't ring a bell at the top of a market.' But we hear alarms going off all over the place.

The insiders are using shareholders' money to buy back shares. Then, these same shares are awarded to managers - as performance bonuses. What do the insiders do with them? They dump them.

Pump up the market with cheap money and zero-cost credit. Shares rise, shifting trillions in wealth to the richest people in the country...and drawing more and more naive investors into the stock market. Meanwhile, corporate insiders buy back their own shares. This puts their share prices up even more. They are rewarded for this marvelous performance with more shares, which they promptly sell.

But let us put that to the side and continue with our series on "How to Get Rich ." We're still in the first part, entitled "Homage to Poverty."

Yesterday, we pointed out that often a person gets rich and finds he is no longer doing what he likes doing. In yesterday's example, we mentioned a chef who likes cooking. His restaurant is packed every night. So, he opens a chain of restaurants. Now, he's really making money. But he's no longer cooking.

In other cases, he simply retires...or sells out. Now, it's even worse - he has nothing to do!

In our own case, we have continued working. But our avocations have suffered. An amateur builder for the last 40 years, what gave us most pleasure was scavenging for building materials and creating nice living spaces with very little money. We did so because we liked it. But we also had little choice; we had to 'make do' with what we could find.

Now, we don't have to 'make do,' so it is hard to justify poking into dumpsters or picking up discarded furniture on the sidewalk. It's hard to do the work ourselves, too, when we know we can hire a professional who will do it better.

We still build things...but some of the fun has gone out of it.

A few years ago, for example, we decided to build a gypsy wagon. They are delightful and fanciful antique versions of today's Winnebago. Built of wood, which you can decorate them as elaborately as you want, they are fun to look at and they can be very charming and comfortable inside, depending on how much work you put into them. You use one your garden as an ornament...or put it to work as an office or a guest bedroom.

I found an abandoned hay wagon to use as the foundation. But before I started work, the question inevitably came up:

But buying one would have deprived us of the pleasure of building it ourselves.

We went ahead and did it ourselves (I got the children to help), and we're glad we did. Still, without need driving us onward, we felt a little frivolous. It was just a hobby.

Money frees you from the need to do anything. But when you ditch Mother Necessity you become an orphan. You are alone in the world, with no one to tell you get up in the morning, stand up straight and polish your shoes. Pretty soon, you can look like a homeless person.

When you have no one to answer to but yourself, your boss can be a moron. Then, you can slip into the existential abyss. With nothing you have to do, no matter what you do, it can feel as though you have done nothing worth doing. Life itself can see pointless and empty.

Then what? You can make a life out of being wealthy. You can hang out with other rich a big house in Aspen...give money to the arts and charities...and eventually blow your brains out. Aspen has a suicide rate four times the national average.

Tomorrow: More "Homage to Poverty...Where you do it."

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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