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  • Writer's pictureJeff Matthews

Feed the Ducks When They’re Quacking

.“Insider Sales Rise, but Not to Worry.”..Thus today’s Wall Street Journal blandly describes a “sharply” increased rate of stock selling by corporate insiders in the last two months..“What you have to remember is that all selling is not bad,” a fellow who studies these things tells the Journal, which then explains as follows:.While open-market sales compared with purchases by insiders have increased significantly in September and October, that increase is the predictable result of the rise in the stock market….So, if I am grasping the logic correctly, “sharply” increased sales of stock by corporate insiders are apparently bad only if they occur when the stock market is going down..Well, that’s a relief!.I guess you can’t blame the Journal for downplaying an indicator that tends to have a pretty good track record for marking sentiment extremes on both the bull and bear sides of the market: after all, the Dow Jones Industrial Average, as even my dog Lucy now knows, just broke through 12,000..Who wants to rain on that parade?.Besides, insider sales are not by any means a perfect leading indicator of impending trouble—CEOs and CFOs and other Corporate Bigs sell stock all the time, what with taxes to pay and G-IVs to buy and second wives to impress and options-granted-miraculously-at-the-lowest-price-of-the-year to exercise..And even if those sales do indicate signs of worry among the men and women who run American businesses, and are, therefore, thought to possess foresight into future economic trends, there’s no telling when the prevailing sentiment mood will shift back to “fear” from “greed.” I mean, after all—to borrow a line from “Hot Shots!”—what could go wrong?.Still, why wouldn’t insiders sell?.Why not take advantage of all the hoopla over that magical 12,000 figure, which anybody inside a corporation knows is entirely meaningless; yet which is terrifically meaningful for the investment professionals whose business depends on “beating the market” even if that “market” is deemed to consist of 30 random stocks whose aggregate theoretical index value just reached 12,000?.Why, with the bond market, along with cyclical stocks and “Dr. Copper” sniffing no let-up in worldwide growth despite the U.S. homebuilding crash, wouldn’t insiders arbitrage the higher price/earnings ratio of stocks on the one hand and the higher yield on the no-risk 10-Year on the other?.Why with companies like Whirlpool and Kimberly Clark and Caterpillar Tractor missing numbers thanks not to weak demand but to higher input costs—a 25% higher increase in the raw material bill than previously expected, in the case of Whirlpool—wouldn’t a savvy insider let some go?.Why not, in short, feed the ducks when they’re quacking?.As for what could possibly go wrong—what might lurk on the horizon that could trigger an end to, or at least a pause in, the euphoria sweeping the market (a euphoria almost as palpable as the gloom two months ago, before the insider selling picked up “sharply”)— I have a thought..How about this: how about two weeks from now when Wall Street wakes up and finds Charlie Rangel has become chairman of the House Ways and Means Committee and Barney Frank is now in charge of overseeing Wall Street for the financial illiterates—Republicans and Democrats alike—in Congress?.Whoops, I forgot: this is the stock market! What could go wrong?..Jeff MatthewsI Am Not Making This Up.© 2006 Jeff MatthewsThe content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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