The Lull Before the Storm?
The Lull Before the Storm? by Brian Maher
We’ve been scratching our noggin lately over the calm — the eerie calm — that’s descended upon markets.
A rate hike this Wednesday is a dead cinch. More hikes are in prospect later this year. The debt ceiling expires this Wednesday, with high odds of a budget crisis (see below).
As the Daily Reckoning’s International Man, Simon Black tells us this morning the government’s cash hoard is down to just $34 billion. It’ll be out of cash by Memorial Day if the ceiling isn’t raised.
To these possible head winds we add roiling tensions in Asia and critical elections in Europe.
But the VIX index, Wall Street’s “fear gauge,” is down again today…
Worry not, says the market. It’s safe out there. Come… cast your bread upon the waters.
But what’s this we see? Weather ahead? Details in a moment.
But first the latest report…
The Dow’s off 22 points today, the S&P’s just about flat.
Meanwhile, crude lost a nickel, and gold — a barometer of sorts — is up about three bucks.
A quiet day overall. Too quiet.
But it’s something else that’s got us pulling in our sails today…
The Wall Street Journal reports that insider buying — company brass buying its own stock — is at its lowest level in 29 years:
Corporate executives are buying their own firms’ shares at the slowest pace in at least 29 years, the latest sign of uncertainty as the bull market in U.S. stocks enters its ninth year… There were a total of 279 insider buyers in January, the lowest number going back to 1988, according to the Washington Service, a provider of insider-trading data and analytics.
Many consider insider action a leading market indicator. It’s a good sign if the insiders are buying. It’s a bad sign if they’re selling.
After all, who knows a company’s prospects better than the insiders? Theirs is the “smart money.”
And now the smart money’s selling… just as the fools are rushing in.
Maybe the insiders know something the fools don’t?
The Journal offers a clue:
While many investors expect corporate earnings to pick up in coming quarters, reflecting the continuing U.S. economic recovery and Trump administration tax cut and deregulatory plans, the strong market gains mean that investors are paying more now for expected corporate earnings than at any point in over a decade.
That’s the thing. Price/earnings (P/E) ratios are now firmly in what David Stockman calls the nosebleed level of history.