Throwing Caution to the Wind

The number of articles out there in the mainstream press that are designed to create the impression that all is well practically constitute a deluge at this point.

One thing I like to do, especially when an article comes out in a reputable paper like the NYT, is to check their facts to see if they square up with the tenor and tone of their "it's safe to get back in the pool" articles.

Here's a perfectly fine example from today:

Cautiously, Small Investors Edge Back Into Stocks

Like millions of ordinary investors, Cindy and Eric Canup are still recovering from Wall Street’s big downturn. Their portfolio is off by 25 percent. They are mindful of their spending. And their dreams of buying land in Northern California or Oregon have been delayed five to 10 years, until they can rebuild their retirement accounts.

Yet with no guarantee they will ever be made whole again, individual investors like the Canups, who live in Oakland, Calif., are sticking with the stock market. Recently, with help from their financial adviser, they nudged some of their cash into mutual funds and took on riskier investments. They have even stopped tossing unopened 401(k) statements into a filing cabinet.

Comments:  So the framing being established here is that there are people out there doing well because they have stuck to their guns and even piled more heavily into equities.  Never mind the inconvenient fact that equities have returned pretty much zero for more than a decade, making them the worst investment of the decade.  That's not worth mentioning here, where dreams of an effortless future are being peddled.

What's important here is not how individual investors are faring, but whether or not money is flowing into or out of the market.  One measure of that adds up the inflows and redemptions to mutual funds and the NYT, then cites the ICI (a reputable tracker of such things) to bolster the case that money is flowing in!

Now, some of the money that fled stocks for safe harbors like money-market funds and government bonds last year is beginning to return. Even with trillions still sheltered on the sidelines, some $56 billion has poured into equity funds since April, according to the Investment Company Institute.

This all sounds very comforting, but the purpose here is to check the facts, so I went to ICI and found this:


While a good chunk of positive money may have flowed into equities since April, this has not been true for the past three weeks.  I consider that to be important and relevant information for an article such as this, which seeks to establish that people are getting braver, money is flowing in, and folks are getting richer as a result.  If it happens to have a good explanation, such as seasonality (college tuition anyone?), that should at least be mentioned.

The next bit of relevant information might come from the stock-selling activity of insiders.  While they are not infallible, their recent selling has been nothing short of extreme, and this is well worth considering when weighing whether now is the right time to become bolder in the stock market.

Insiders sell like there's no tomorrow

NEW YORK (Fortune) -- Can hundreds of stock-selling insiders be wrong?

The stock market has mounted an historic rally since it hit a low in March. The S&P 500 is up 55%, as U.S. job losses have slowed and credit markets have stabilized.

But against that improving backdrop, one indicator has turned distinctly bearish: Corporate officers and directors have been selling shares at a pace last seen just before the onset of the subprime malaise two years ago.

While a wave of insider selling doesn't necessarily foretell a stock market downturn, it suggests that those with the first read on business trends don't believe current stock prices are justified by economic fundamentals.

"It's not a very complicated story," said Charles Biderman, who runs market research firm Trim Tabs. "Insiders know better than you and me. If prices are too high, they sell."

Biderman, who says there were $31 worth of insider stock sales in August for every $1 of insider buys, isn't the only one who has taken note. Ben Silverman, director of research at the web site that tracks trading action, said insiders are selling at their most aggressive clip since the summer of 2007.

Silverman said the "orgy of selling" is noteworthy because corporate insiders were aggressive buyers of the market's spring dip. The S&P 500 dropped as low as 666 in early March before the recent rally took it back above 1,000.

"That was a great call," Silverman said. "They were buying when prices were low, so it makes sense to look at what they're doing now that prices are higher."

In the chart below, if insiders were being smart when they were buying in March, then what are they being now?

The NYT article continues on with some heartwarming tales of several small investors' rebounds towards riches.

Daniel Kelhoffer, 67, an investor in Georgia, visited his son in Germany this summer and cruised the lake near his house in his wooden 1959 Chris-Craft motorboat, encouraged by the steady rise in his monthly account statements. Joseph Fredrick, an investor in Cincinnati, exulted that, largely because of his financial adviser, his portfolio had fallen only 12 percent since the market tanked.

In North Carolina, a retired Wachovia executive, Robert Paynter, lost tens of thousands of dollars when his stock options and Wachovia shares hit the skids. In October, he told The New York Times that he felt as if he were witnessing his own death with each plunge of the stock market. This summer, he bought a year-old Corvette convertible. And while he and his wife canceled a trip to Europe, they are contemplating a Mediterranean cruise next year.

“I’m feeling a whole lot better,” he said. “As ugly as it got, I never got to a point where I thought I was going to have to go back to work or miss a meal. I can take a lot bigger hit than I thought I could.”

After the crash, Gil Livingston, a retired Hewlett-Packard manager from suburban Detroit, decided he would manage his own money instead of letting asset managers at UBS handle his portfolio. He missed the bottom of the market in early March, but has made money from well-timed purchases of technology stocks and investments in emerging markets.

“I’m slowly sticking my head back out of the ground,” he said. “I’m doing fairly well. My equities are up.”

It's entirely possible that these people will do well and the stock market will continue to advance. But I think they would do well to consider the potential risks and the rewards.  Most perplexing to me are those like Mr. Paynter, who described watching his holdings decrease as a form of death for him, but once they turned back up he bought a Corvette convertible.

If I were him?  I'd sell my stocks so that I could evade those nasty feelings of death and sleep easily at night, but that's just me.

A more prudent form of this story could be told from the ICI data table I posted above.  It tells a recent tale of people selling stocks and buying bonds - an entirely prudent reaction after a decade of going nowhere and witnessing the fraud, greed, and theft visited upon the equity markets by the scorpions on Wall Street over these past few years. 

But a significant source of Wall Street money comes by selling equity products to small investors, and so we get articles extolling the virtues of 'getting back into the pool.'

Caveat emptor.

This is a companion discussion topic for the original entry at

Thanks for all your insightful posts.  I have felt for a long time that most financial news is just marketing posing as news.  However, most of the news articles are still cautious, and not the “over the top rejoicing” you see just before the bubble bursts.  I still think we have a quarter or two left, while the Fed pulls out all stops trying to stop the plunge.  I just wish gold had not broken resistance so soon, since I’m still accumulating.
Keep up the good work Chris

In the chart below, if insiders were being smart when they were buying in March, then what are they being now?



Hi Chris - I know you have an incredible ability for finding obscure data. Seeing as the Spring insider buying lead to a big rally in the market, I was wondering if you can find past episodes of heavy insider selling or buying and see how that correlated with the future value of the stock market. Thanks!

Chris, thank you as ever for your analysis and insight.

When I begin to wonder if I’ve missed something fundamental reading, hearing and viewing so much in the mainstream media saying how good things are looking, my own feelings (‘trust yourself’) are confirmed each time I read your posts…


Thanks Chris. I'm a new member and the more I read the more impressed I am.

This article has brought home a point. I used to be a broker (retired 9 years ago), and I remember that we were not allowed to talk to the smart guys upstairs - the corporate finance guys. The reason given was for the Chinese Wall of information - to protect against things like insider trading leaks. I believed it at the time.

In today’s brokerage houses, most brokers get a piece of the ‘fee based’ revenue. It therefore makes sense that as the client’s assets grow in size, so does the broker’s income - the incentive (supposedly) is on the right side of the equation. The broker wants his clients to make money, not to mention the stress of angry phone calls when the clients lose money.

But, as your article points out, “the Canup’s, with the help of their financial adviser” are getting in at the wrong time, and I now realize that the financial adviser is as much in the dark as the clients are. The smart boys ‘upstairs’ need the unwitting adviser to push the small guys into the market, and there is great pressure placed upon brokers from their employers to become believers in the ‘right time’ to buy.

I read recently Goldman Sach, then JP Morgan both said the S&P is headed for 1100, and yesterday, BOA calls for 1200. After seeing your insider trading graph, these forecasts would appear to be the blow-off these guys want to become fully short and strip the Canup family of the rest of their cash.

Makes me sick!


Another great read!  The fall is typically when investors begin to take account of how the year has gone, and do some serious sobering up.  A true measure of how things have gone is not a pretty story.  On the other hand investors are future focused, and tend to push the market up about 6 months before the actual bottom.  The herd can be very wrong, and every run up in stocks does not offer total assurance that it was nothing more than a burst of enthusiasm that will subside as reality unfolds.  The smart insider money operating with the most current information is saying reality does match the present level of enthusiasm.
I agree with joemanc that it would be very interesting to see what happened after the last 5 or 10 big swings in insider trading.  No single indicator is always right.  But if an indicator is right 75% of the time it bears material consideration.

This reminds me of another related experience. Quite amusing:

Celebrating the 'Recovery': I'm Disgusted  

by: Sold At The Top August 24, 2009    

It seems that “recovery” is in the air…

The Fed says so… The White House says so… even Boston’s oldies station 103.3 says so as they segued into another run of Prince’s 1999…. The “recession is over” they excitedly declared… Time to party!

I’m simply disgusted…

On the plane upon arrival from vacation, I overheard a middle-aged dad asking his teenage daughter to use her cell phone to check on Citigroup stock… it was up… they shared in a moment of bonding while talking about being able to watch Jim Cramer’s Mad Money now that they were back in the States (… no joke!)…

America doesn’t just deserve a serious beat down… it needs it.

Our population has lost all respect for risk… This is the real moral hazard created by the Feds…

If you randomly polled Americans and asked them if the Federal Reserve and Federal Government have a responsibility to protect stock prices, I can only imagine that the overwhelming response would be a resounding ‘yes’!

But Americans are more than just faithful… it’s been so long and the manipulations so deep and varied (GSEs in the mortgage market, Fed Reserve easy money policies and resulting dynamics, bailouts, incentives, rebates, etc.), they are simply ignorant.

After last fall’s financial panic came a period of clarity in early 2009 that I believe marked a momentary realization that circumstances for all people (the down-market and dual-income alike) could seriously deteriorate.

Likely many middle and upper-middle class Americans had a sense, possibly for the first time in their lives, that they too could lose their job… maybe even their home or worse yet… their status.

While I believe that this moment of truth has since continued to have consequences (…consumer behavior, low sentiment), the government stepping in to bail, prop and spend and support stock prices essentially gave people what they have grown to expect… a sense that the Feds are in control and can always put a floor under crisis.

The collapse of the nation’s housing markets and the resulting economic decline really represent an immense opportunity.

Like a blast of ice water to the face, this period has been a wake up call… frightening yet a fundamentally positive agent of change forcing both households and firms to reevaluate and relearn the basics… planning and saving, using debt sparingly … questioning popular assumptions… especially those fostered by industry groups with dubious interests.

Yet, the Feds are bent on circumventing this process, stopping at nothing, to “save” the economy.

And while they ironically congratulate themselves for the “courage” they displayed late last year while forcing the country down this low road, let’s remember that real courage would have been to simply face the problems head on - not attempt to avoid their realization with bailouts, incentives, gimmicks and trickery.

More Info on the points cited above:
$5.1 Billion in Outflows For Domestic Equity LT Mutual Funds Over Past Month

Most Recent Insider Selling/Buying Ratio Hits 95x

ICI Money Market Flows

Assets of Money Market Mutual Funds (billions of dollars)
  8/26/2009 9/2/2009 9/9/2009 Change
Taxable Government 1,174.00 1,156.94 1,150.49 -6.46
  Retail 185.92 183.78 184.01 0.22
  Institutional 988.08 973.16 966.48 -6.68
Taxable Non-Government 1,965.37 1,962.08 1,955.39 -6.69
   Retail 726.66 724.68 723.52 -1.16
  Institutional 1,238.70 1,237.41 1,231.88 -5.53
Tax-Exempt 440.72 439.65 437.50 -2.15
  Retail 255.03 254.12 253.46 -0.65
  Institutional 185.70 185.53 184.03 -1.50
Total 3,580.09 3,558.68 3,543.38 -15.30
  Retail 1,167.61 1,162.57 1,160.99 -1.59
  Institutional 2,412.48 2,396.10 2,382.39 -13.71

Retail: Assets of retail money market funds decreased by $1.59 billion to $1.161 trillion. Taxable government money market fund assets in the retail category increased by $220 million to $184.01 billion, taxable non-government money market fund assets decreased by $1.16 billion to $723.52 billion, and tax-exempt fund assets decreased by $650 million to $253.46 billion.

Institutional: Assets of institutional money market funds decreased by $13.71 billion to $2.382 trillion. Among institutional funds, taxable government money market fund assets decreased by $6.68 billion to $966.48 billion, taxable non-government money market fund assets decreased by $5.53 billion to $1.232 trillion, and tax-exempt fund assets decreased by $1.50 billion to $184.03 billion.

(emphasis mine)

From this info, not only is money leaving the equity funds, but it also leaving the money market funds. Where is this money going? Gold? China? Consumption?

My bet is on Corvettes :slight_smile:

Joe asked:

I was wondering if you can find past episodes of heavy insider selling or buying and see how that correlated with the future value of the stock market.

Hi Joe,

Jason Goepfert at tracks this specific relationship. I no longer subscribe to his service or I would pilfer a chart. Trust me, there is a strong correlation to insider selling preceding market plunges over a longer term time scale (4-9 months). Right now, Goepfert’s chart shows a strong sell signal based on the current level of insider selling.


My 401K has very limited options when it comes to investments, but I do have some. Based on the above information should I be in bonds or in commodity based stocks, something different altogether or does it even matter?  My understanding is very limited at this point but I am learning more all the time. Thanks for your input.

This article ( just appeared and it reminds me of the same type of thing: a desperate effort to project the most positive (even if distorted) view of the economy as possible. Apparently, being 33% of the way through September is enough to definitively claim that the ninth month has not triggered a selloff, thus failing to live up to its infamous reputation…This very well may turn out the case, but wouldn’t it be more appropriate to make this call on, say, September 27th or so?
P.S. - I’m with joemanc, that graph of insider selling and buying is great! Are there any more?

wbogle…None of us on this site, especially Chris, give specific investment advice  The purpose of the site is to inform you, as fully as possible, about what is going and what it might mean, then leave it to you to decide what is in your own best interests.  Good luck, and welcome to the site!

Five Points Worth Making On The Markets, Earnings, And The Economy by David Rosenberg
1. This remains a hope based rally with strong technicals. All the growth we are seeing globally this year is due to fiscal stimulus. I say that because during this six-month 50%+ rally in the S&P 500, the U.S. economy has shed 2.4 million jobs, which is almost as many as we lost during the entire 2001-02 tech wreck in just six months. The market's ability to shrug off the loss of 2.4 million jobs is either a sign that it is treating this as old news or sees the cost- cutting as good news for profits. Either way, what we are seeing transpire is without precedent the magnitude of the employment slide versus the magnitude of the market advance. Truly fascinating stuff. 2. Companies have not really been beating their earnings estimates only the very final estimates heading into the reporting quarter. For example, the consensus view for 3Q EPS at the start of the year was $21.00, last we saw the estimates were down to just over $14.00. But there is a deeply rooted belief that earnings are coming in better than expected. This is a psychology that is difficult to break. It is completely unknown (for some reason) that corporate revenues are running at a -25% YoY rate, which compares to the -10% we saw at the worst part of the 2001-02 bear market and the -3% trend at the most negative point in 1991. 3. Valuation is a poor timing device but even on "normalized" trailing 10-year earnings, the S&P 500 is trading near 18x, which is now above the historical average of 16x. 4. All the growth we are seeing globally this year is due to fiscal stimulus; not just here in Canada and the U.S., but also in Korea, China, the U.K., and Continental Europe too. For 2010, the government's share of global growth, by our estimates, will be 80%. In other words, there are still very few signs that organic private sector activity is stirring. For a Keynesian, government stimulus is necessary, but the question for an investor is the multiple one attaches to a global economy that is still relying on a defibrillator. The problem is that governments do not create income or wealth, and today's stimulus is really a future tax liability. Curiously, that future tax liability is likely going to pose a roadblock for the return to a "normalized" $80 operating EPS estimate that strategists are now starting to pen in for 2011. 5. While Mr. Market may be pricing in a fine future for the U.S., but when the 3-month Treasury-bill yield is 13bps north of zero, which is completely abnormal, you know that there are still substantial fundamental imbalances that need to be worked through.


I understand.  I appreciate all the info on the site. Thanks to everyone involved.

I am grateful for the Government/Media campaign of disinformation and propaganda.  It will not change the outcome but hopefully it will succeed in holding the financial system together long enough for me to fully prepare.   I don’t believe that any one who has watched the Crash Course and frequents this site is surprised that there is a concerted campaign by the Government, Media and Big Business to suppress and twist financial information.  Look upon this as a gift.  If the entire Country were taking the steps to prepare that we are taking it would make our task much harder.   



I understand.  I appreciate all the info on the site. Thanks to everyone involved.

[/quote]Hello Wbogle:


I have a few more years of earnings (I’m mid forties) and I’m not advocating this or giving advice: This site is super, CM gives great facts, not adultered data, and fantastic easy to understand insite on how the gears move.

Some folks on this site have MEGA investment knowledge and savy.

Having said that I have faith in the 4G’s. G-religious so moving right along, Gold, Guns, and the fact that no matter what they are given to fix - the Government will fudge it up worse than possibly imaginable or humanly fathomable.

With those guiding principles in mind I asked myself what equities, treasuries or cash would be worth given that this is a period that I perceive to be classified as wealth/debt destruction.

We took incredible hits in capitol gains for real estate, and 401ks and IRAs, we paid taxes and penalties. In 2004 when our friends were building 8,000 square foot MacMansions we were downsizing into a self built 1800 sq foot home. We felt like we were going the oposite way on a one way highway.

But when the crash hit in 2008 I didn’t wet myself. The bigger fool I sold the land to is stuck with it, and I was a happy fool for getting the sale I did. My foolish thoughts about not getting more than 3x what I paid for it evaporated as did the kicks I gave myself for flipping it and paying the 20k or 30k we paid in CGs tax for that transaction.

If the dollar and equities tank and if there is a bubble in securities then what good is anything? There are some funds that hold gold, sometimes folks can swap into 401ks that afford this option but from what I have read about this it is laden with fees.

Again, not giving advice, I have seen a few posts to this effect, if I recall FarmerBrown ditched his 401k a while back as well. Personally when pigs fly and he** freezes is when I’d get another 401k. In Argentina the government took the retirenment accounts people had and doled out the money to them. Google IRA GRA Raleigh for a good read on that float. (Here is the link to that old post I did)

Best luck in whatever you decide to do.

Take care

If a number of articles in the mainstream press are designed to create the same impression, this implies there must be a designer.  Who is the designer?

If a number of articles in the mainstream press are designed to create the same impression, this implies there must be a designer.  Who is the designer?

[/quote]Who. Or possibly: What?


spinone wrote:
If a number of articles in the mainstream press are designed to create the same impression, this implies there must be a designer.  Who is the designer?
Who. Or possibly: What?

The Fed and banking cartel in cahoots with the U.S. political system.



The popular press sells the reader/viewer what they want to hear.  Their entire purpose for existence is circulation/audience size.  Fact and reason are very secondary!   People do not want their lives cluttered with reality!