Thursday, May 26, 2011

What insiders are telling us about stock drop

It’s hard to put a smiley face on the stock market’s recent correction, which has already caused the month of May to be the worst for equities since last August.

But there actually is a silver lining to the correction: It affords us an unparalleled opportunity to see what corporate insiders REALLY think about their companies’ prospects.

Are they so worried that they want to sell their shares into the decline, for example? Or are they confident enough in their companies’ abilities to recover that they are willing to hold onto their shares through the correction?

This is an important distinction, since researchers have found that one of the more bearish things that insiders can do is sell into a decline. Selling into a rally, in contrast, is relatively benign.

Perhaps not surprisingly, the insiders aren’t currently speaking with one voice. On balance, though, they appear to be more confident than worried.

Here are the data, courtesy of Vickers Weekly Insider Report, published by Argus Research. The particular indicator that they publish that is most helpful is a ratio of the number of shares that insiders have sold in the open market to the number that they have bought.

In the week prior to the bull-market high at the beginning of this month, this ratio stood at 5.64-to-1—meaning that insiders, on balance, were selling 5.64 shares for every one share than they bought.

May's correction affords an unparalleled opportunity to see what insiders really think is going to happen in the market, according to Mark Hulbert, who says it's pretty telling if they're selling amid declines.

In the most recent reporting week, in contrast, this ratio had dropped to 3.28-to-1. That’s an encouraging trend.

To be sure, with insiders still selling more than three shares for every one share that they are buying, the insider data do not paint an outright bullish picture.

But, as Jonathan Moreland, editor of Insider Insights, put it over this past weekend: To the extent we CAN derive a signal from insider behavior, it remains “slightly bullish… much to our continuing surprise.”

Moreland adds: “Don’t get us wrong. We are no perma-bulls looking for any positive to justify blithely assuming the continuing loose-money associated imbalances will all work themselves out without causing pain to equity valuations. We are on record stating the opposite…. It all comes down to the timing. And going into this week we remain fully invested… ‘Better nimble than dogmatic’ remains our mantra in this tricky market.”

By the way, it might look on the surface that the sell-to-buy ratio at the market’s top (5.64-to-1) was a screaming sell signal, since at that time insiders were selling nearly six shares for every one than they were buying. But it’s helpful to remember that insiders on average over the last four decades have sold way more than they have bought. This is a function of the number of shares that they have been granted as part of their compensation—which means that their acquisition of those shares never shows up in the sell-to-buy ratio. But their sales do.

In fact, the skewness of this ratio towards the sell side has become more pronounced in recent years, as insiders have been granted an increasingly large share of their compensation through equity grants—especially options. According to some researchers, in fact, prominently including Prof. Nejat Seyhun of the University of Michigan, who is one of academia’s leading experts on insider behavior, the “normal” level of the insider sell-to-buy ratio may now be as high as 6-to-1, which means that even at the market’s high the sell-to-buy ratio wasn’t necessarily screaming “sell.”

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

Silver (SLV): Time to Enter Short Again is Approaching

If you have been following our commentary on Silver, you know that we believe it has been trading in a very solid technical manner. Support points have been both Fibonacci retracement levels as well as the 50 and 100 day moving averages.
More importantly, the recent moves to curtail speculation by the CME and the move higher for the Dollar (especially in relation to the EURO) has created extreme volatility for the price for Silver.
No matter if you trade the commodity, options or ETFs, there has been a fair deal of opportunity. Of course one of the most recent drivers that have pushed up the price and attractiveness for precious metals has been as a safety play in the event of a sovereign default.
Either way, it appears that the Silver bulls have moved prices back toward some key resistance levels and now looks to be like a time that it is make-it-or break-it for this commodity. See the chart below for more details on the important resistance and support levels.
So, for TDI client portfolios, we are initiating a short position of Silver, through an ETF. If the price breaks above the next level of resistance, we will look to cover ( see purple resistance/breakout level).
Click to enlarge

Reuters/Jefferies CRB Index 1749-2011

Welcome To Hyperinflation Hell: Following Currency Devaluation, Belarus Economy Implodes, Sets Blueprint For Developed World Future

"A ‘91-style meltdown is almost inevitable." So says Alexei Moiseev, chief economist at VTB Capital, the investment-banking arm of Russia’s second-largest lender, discussing the imminent economic catastrophe that is sure to engulf Belarus following the surprise devaluation of the country's currency by over 50%, which we announced on Monday. "Unless Belarus heeds Russia’s call for mass privatization of state assets, it is headed for “hyperinflation, massive un- and under-employment, and a shutdown of production" Moiseev concludes. Ah: "privatization" as Greece is about to learn, the lovely word that describes a fire sale of assets to one's creditors, courtesy of a "globalized" new world order. Ironically, this is precisely the warning that will be lobbed at each country in the developed world, as the global race to devalue currencies, first against each other on a relative basis, and ultimately against hard currencies, or on an absolute basis, as the world realizes that there simply is not enough cash flow to cover the interest payments on a debt load, in both the public and private sectors, that continues to rise at an astronomic rate, even as the world prepares to exit from the latest transitory, centrally-planned bounce in the Great Financial Crisis-cum-Depression that started in earnest in 2007 and has been progressing ever since. Ultimately, Belarus will succumb to hyperinflation, as will each and every other government seeking to devalue its currency (hint: all of them): "Unless Belarus heeds Russia’s call for mass privatization of state assets, it is headed for “hyperinflation, massive un- and under-employment, and a shutdown of production,” VTB’s Moiseev said. The ruble will slide to 10,000 per dollar, he added." Of course, this is the primary side effect of attempting to avoid formal bankruptcy through currency devaluation. And all those who continue to believe deflation is an outcome that will be allowed by the Fed, need to look just to the former Soviet satellite to see what lies in store for everyone currently doing all in their power to devalue their currency.
First look at the Belarus Ruble chart below: this is what always happens to every country that resolutely continues to live outside its means. Always.
And here are some additional observations from Bloomberg on the country that everyone in the media continues to ignore, yet which will very soon be the model for virtually everyone else engaging in central planning warfare.
The Belarusian central bank let the managed ruble weaken by 36 percent versus the dollar on May 24 as demand for dollars and euros from importers and households threatened to derail an economy already laboring under a current-account deficit equal to 16 percent of gross domestic product. Russia and other former Soviet partners last week agreed to give Belarus a $3 billion loan and urged President Aleksandr Lukashenko’s government to sell $7.5 billion of assets to replenish the state’s coffers. 

Finance ministers from former Soviet nations agreed in Minsk on May 19 to give Belarus up to $3.5 billion over three years, with the first $800 million payment expected in the week after a separate meeting on June 4, Russian Finance Minister Alexei Kudrin said in Moscow yesterday. 

The Nationalnyi Bank Respubliki Belarus set its official dollar-ruble rate at 4,931 for today’s trading, from 3,155 on May 23, according to its web site. Trading of foreign currency between companies, banks and individuals needs to stay within a 2 percent range of the daily rate, the regulator said May 23, when it announced the devaluation and reintroduced restrictions lifted on the interbank market on April 19 and for households on May 11.

Devaluing the currency will only worsen the situation for Belarus, VTB’s Moiseev said.

“The main problem is that the economy produces goods which consist of little else than a combination of imported spare parts,” he said. “So devaluation only makes things worse.” 

Belarus’s economy effectively collapsed in 1991 as the disintegration of the Soviet Union eliminated natural markets for the country’s exports of farm machinery, textiles and agricultural products.
The catalyst for the country's imploding economy: socialism and price controls. Sound familiar?
Lukashenko reintroduced controls on prices and the currency and re-nationalized some companies and infrastructure after coming to power in July, 1994, on a platform of “market socialism.” The nation’s economy returned to growth in 1996, according to World Bank data.

At the Minsk Refrigerator Plant Co. shop in the capital today, about 20 people queued in drizzling rain to use their rubles to buy fridges. While the shop didn’t open on the day of the devaluation, most of the models in the store already had ‘Sold Out’ stickers on their doors.

“I came on Saturday and it was a nightmare, the store was stormed by people who wanted to spend their rubles because of rumors about the devaluation,” said Nikolay, a 74-year-old pensioner who declined to provide his last name. His entire savings of 6 million rubles now buy one fridge compared with three before the devaluation, he said.
The people are not happy...
The devaluation lifted the local price of automobile fuels as much as 24 percent, according to Belneftekhim, an industry group for the country’s oil sector. Last night, about 50 people protested the price increase in the car park of a Minsk hypermarket. 

“I can’t describe how I feel without using obscenities, this is all our government’s fault,” said Sergey, a 32-year old attending the protest who works for a computer importer. “The whole world tells them, guys, you have economic problems, you should do something, and all they did was live off getting more and more loans.”
Who can blame the country if it devolves into civil war: as a result of Monday's decision the average salary was "1.6 million rubles in April, according to the government statistician. Converted into dollars, it fell to $325 after the May 24 devaluation, from $507 a day earlier, using central bank exchange rates."
Naturally, the IMF wuz here:
Both the IMF and the EBRD have blamed Lukashenko’s spending before last year’s presidential election for much of the economy’s woes. Lending was increased by 38 percent last year and public-sector salaries rose by about 50 percent, the Washington-based IMF said in a March 9 report.

Belarus got a $3.5 billion bailout loan from the IMF during the global credit crisis and the country has more than $2 billion of ruble and dollar debt outstanding. Foreign-currency reserves hit a 1 1/2-year low in March.

“The ruble is probably still too strong, but devaluation hurts the average consumer through imported inflation and deteriorating purchasing power,” Sanna Kurronen, an economist in Helsinki at Danske Bank A/S, said by e-mail yesterday. “There is really no easy way out of this economic distress and the only way is to do a major reform in the country.”
Here comes hyperinflation...
The price of children’s diapers has “gone completely insane” in Minsk, said Natalia, a 24-year-old mother also queuing outside the refrigerator store. “I used to buy a pack for 69,000 rubles, now they cost 140,000,” or almost half the 343,260-ruble monthly child benefit paid by the government, she said.

“We have become paupers,” said Tatiana, a 70-year-old woman in the line who also declined to give her last name. “We have been squeezed into a corner by this devaluation.”

Belarus’s dollar debt has been buoyed by news of the Russian loan, with the yield on the government’s debt due 2015 dropping four basis points to 9.881 percent by 6:35 p.m. in Minsk, the lowest since March 14. Dollar-denominated notes due 2018 yielded 10.38 percent, down six basis points. 

The country has raised its refinancing rate twice since April 20 to 14 percent, the highest in Europe. The central bank also stopped selling foreign currency out of its reserves in March and will continue to stay out of currency markets, spokesman Anatoly Drozdov said by phone in Minsk yesterday.
...And following that, complete socio-economic collapse
Unless Belarus heeds Russia’s call for mass privatization of state assets, it is headed for “hyperinflation, massive un- and under-employment, and a shutdown of production,” VTB’s Moiseev said. The ruble will slide to 10,000 per dollar, he added.

Unemployment was 0.7 percent in December, according to government data. Inflation accelerated to 14 percent in March, the fastest since April 2009 and more than neighboring Russia’s 9.6 percent in April. Imports into Belarus exceeded exports by $7.3 billion at the end of 2009, according to the latest annual data available.

Russian media are creating a “flurry” of speculation about the nation’s asset sales so they can “make good at our expense,” Lukashenko said today in Astana, the capital of Kazakhstan, according to comments reported by state news agency Belta. “But we will not throw anything to anybody for nothing.”
Note the parallels to Greece, which would follow the same fate if it were to make the choice of returning to the drachma.
Alas, there is nothing left to add: this is the future, and it is coming to a developed country near you.

The Coming Gold Standard

It is time that we all acknowledge the coming gold standard. I have said on numerous occasions that the price of gold is all about the dollar. I may have spoken too quickly and in so doing given little shrift to the other fiat currencies around the world that are playing the foil for the dollar in the dollar’s latest run up. I want to revise my comment and make it more to the point. The rise in gold is all about the fiat currencies and their diminishing credibility. This diminished credibility is throwing open the door for the coming gold standard.

If fiat currencies were not being debased at the rate that they are, gold would be reflecting the nominal inflation rate. Government and Fed speak describe the nominal inflation rate as between 1 & 1/2% to 2% on a annual basis. Everyone who actually buys anything knows that the real rate of inflation is somewhere between 10% and 15% per year. Let’s face it, the government has to lie about the inflation rate because if they tell the truth, the daily deficit would be way above the current $2 billion per day as the cost of living increases get tacked onto the entitlement programs. The government is truly between a rock and a hard place of their own making!

Systemic Fractures in the Fiat Currency System

The debt concerns surrounding the Euro have caused a devaluation of almost 6% this month alone! There is little news that would indicate that the “PIIGS”, Portugal, Ireland, Italy, Greece and Spain are on the road to recovery. The ECB keeps trying to get the “PIIGS” to implement serious austerity plans with little or no success. The more they try, the more the people, who have been saddled with this debt, take to the street.

Riots have occurred in the streets of Athens, Madrid, along with protests in London, expressing the public’s dissatisfaction with their government’s policies. The socialist dependency on the welfare state is providing fertile ground for Marxists to stir the pot of dissension in hopes of bringing chaos to the region which would allow them to take over after the inevitable “people’s revolt”. This is somewhat akin to what is loosely described as the “Arab Spring”. Make no mistake about it, these protests are not spontaneous expressions of democratic “free speech”, but rather carefully orchestrated left wing demonstrations.

The results of this carefully orchestrated strategy can be seen in the defeats in regional elections that beset the ruling party in both Germany and Spain. The ruling class is getting a wake up call and they are not pleased with it because it threatens their very existence. I would add one personal comment here. “Change” is not always a good thing, witness the last 2 & 1/2 years of the rule of the “Community Organizer In Chief”. Sometimes it is better to keep the “snake” you know, than to change for some unknown commodity, but that’s just me!

Things seemingly go from bad to worse for the “PIIGS”. This past Saturday, Standard & Poors cut its outlook for Italy to “negative” from “stable” , which followed Friday’s downgrade by Fitch for Greek debt. The political situation in Europe is in flux, but there is one consistent factor that remains, The Debt.

The Euro Offers Relief For The Dollar

The Euro’s fall has been the dollar’s gain. The financial press and investors, flit from one story to another without realizing that these events are directly connected. This is not a Euro crisis nor is it a flight to safety in the dollar. It is simply an expression of the diminished credibility of the world’s fiat currencies.

The Euro's Fall From Grace!

If you take the chart above and flip it over, it mirrors the dollar’s rise. The problem is that neither currency represents real value and protection of wealth. That role is being relegated to gold. That is why the price of gold did not drop drastically during this latest correction and that is why the price of gold is creeping back up as the weeks roll on. Gold inversely mirrors the decline in the fiat currencies.

What we have is investors fleeing one problem and engaging with a new one because they simply have done nothing different in the past. The euro goes down and they run, like lemmings, to the dollar. The dollar goes down and they run to the euro. That reflex reaction is changing as the fiat currencies lose credibility.

The Coming Gold Standard

Both China and Russia are rapidly moving toward creating a basket of currencies to form the new world’s reserve currency. China is definitely in the lead and they will demand that gold be a part of the new basket of currencies that is used for the new reserve currency. The only thing that is in question will be how large a role will gold play in the new reserve currency? When the fiat currencies implode, the world will demand linkage to something solid. That something has been and will always be gold, because it cannot be manipulated like fiat currencies.

China Becomes World’s Largest Gold Buyer

By: Mark O’Byrne 5/20/2011

Gold and silver are higher again today with the debt-laden dollar, euro and yen all being sold. News that China has become the world’s largest buyer of gold bullion and has seen investment demand double continues to reverberate in the markets and may have contributed to this morning’s strength.

Both gold and silver are marginally higher for the week and after last week’s gain appear to have regained their poise and are consolidating after the recent sell off.

China becoming the world’s largest gold buying nation is very important. While informed analysts have been saying that this would inevitably happen much of the commentary and most of the public remain completely unaware of the huge implications that Chinese gold demand has for the gold market…..

China, From None To Number One!

China’s emergence as the next super power of growth will solidify gold’s roll in the next world’s reserve currency. China has learned what the U.S. Government is willing to do in order to walk on its debt and they are not going to sit idly by while the U.S. devalues its currency. China is moving out of paper debt into physical gold as the chart clearly shows.

In essence, as the fiat currencies collapse, gold will be the base of the next attempt by governments to quell disorder by offering a “currency that you can believe in”. Empty words, maybe, but the masses will jump on board quickly after what is coming for the U.S. dollar becomes reality. To qoute the powerful HBO show “Game of Thrones”, winter is coming!

Events That Will Drive The Coming Gold Standard

Sell in May and go away may not be the tale this year. The gold correction has been pretty mild and it looks like the price of gold has gone back to reflecting the devaluation of the world’s fiat currencies. The gold miners have not really followed the spot gold prices, so look for a major pop in the miner’s stock prices come this fall. The stocks can only lag for so long before the reality of the companies profits hit the markets.

There are a few things going on in the world that will propel gold forward come mid summer. There is general unrest in the Middle East, conveniently labeled “The Arab Spring” by the progressive media, a civil war in Libya, Al Qaeda suffering through the loss of Osama Bin Laden, a leadership crisis at the International Monetary Fund, doubt surrounding how the U.S. political class will resolve the U.S. debt ceiling issue and a shaky coalition government in the UK. Add to this the burgeoning inflation in the U.S. economy, the lack of growth in the same and the difficulties in the supply side of the mining sector and we are set for a very interesting summer and fall in the precious metals markets.

Make no mistake about it, we are approaching a new age with the coming gold standard. Be prepared and take advantage of what is coming, or be mowed over and left by the wayside. The choice is yours.

Till next time, good luck and good trading!

Gerald Celente/Trends Journal: Arab Spring + European Summer = World Winter of Discontent

The biggest news this past week was not the rape accusation scandal embroiling International Monetary Fund chief, Dominique Strauss-Kahn. It was not President Barack Obama’s much ballyhooed Middle East speech, nor was it the historic floods devastating the Mississippi flood plain. 

But these were the stories that preoccupied the US press. Whereas all were certainly newsworthy – and a cut above the usual obsession with the purely titillating and violent – the most trend-significant story of all got scant, or no coverage from the mainstream media. 

While the downfall of Strauss-Kahn shattered his hopes to run for the French Presidency, the repercussions would be mainly confined to France. His resignation from the IMF, however, would have limited consequences. A new chief will quickly be found to replace him, and regardless of the Strauss-Kahn rape verdict, the IMF will continue raping countries that are forced into accepting their “aid.”

As for Obama’s speech, it was essentially meaningless; many empty words and more vague, unfulfillable promises that will lead to no action of consequence. 

Undoubtedly, the devastation wrought by the violent weather patterns will be felt severely by all those directly affected. The physical and emotional toll on the tens of thousands whose homes, businesses and livelihoods were destroyed is incalculable. Nevertheless, the consequences will impact mostly those directly affected while the spillover implications will only temporarily affect the national, and to a lesser extent, the global economy. 

Trend Forecast: Should current weather patterns become more a norm than an anomaly, the socioeconomic consequences will prove long-term, far-reaching and disastrous. Farming, shipping, seafood, food supplies and petroleum refining will be among the foreseeable casualties, accompanied by massive population displacement. But the ensuing chain reaction (inflation, shortages, unemployment, etc.) will claim many other victims, which, at this time, are unquantifiable. 
The 800 Pound Gorilla in the Press Room Strauss-Kahn, Obama’s speech, tornadoes and floods notwithstanding, the biggest news with the greatest implications was the story with the least coverage. If you watched the Sunday night network news (ABC, CBS, NBC, etc.) you wouldn’t have seen it. If you read the front page of The New York Times, America’s self-described “Paper of Record,” it wasn’t there either. 
The most prominently placed story with the biggest photo, that was obviously intended to catch the reader's eye of the flagship Sunday edition, also bore testimony to what the Times considered the news most “fit to print”:

 The Gossip Machine, Churning Out Cash Appetite for Dirt
Fuels a Growing, Round-the-Clock Industry

To satisfy the Times’s own insatiable “Appetite for Dirt” it devoted some 4000 words to an imbecilic, inconsequential, lowest common denominator, supermarket tabloid, junk news story on the growth industry of celebrity gossip. Spread across three pages and emphasized by eleven meaningless and superfluous color photos, the Times did what all the mainstream media characteristically do: hawked sleaze and justified it with the reasoning, “This is what the people want.” 

Perhaps it was this lust for lust that accounted for the inability of the “Paper of Record” to recognize a megatrend-in-the-making that was already reshaping the global geopolitical landscape. To their credit, however, unlike the networks that ignored the story, the Times at least covered it. According it less than 500 words and relegating it to the Page 12 boondocks, its innocuous headline read: “Despite Ban, Protests Continue Before Spanish Vote.”

Anti-austerity/anti-big bank bailout protests had been sporadically erupting throughout Europe for over a year. But these Spanish demonstrations signaled a major turning point. It was the unrest and discontent in Europe that led us to forecast our “Off With Their Heads” trend that would lead to revolts and topple governments (Trends Journal, Autumn 2010). 
But European unrest was overshadowed by the far more violent and widespread Middle East and North Africa uprisings of late 2010 and early 2011. Unlike the Europeans who still believed in the power of their vote, Arabs, with only autocrats, dictators and monarchs in control, had no ballot boxes to divert them. They knew that unless the system changed, nothing would change. 

As I had forecast in the Trends Journal and repeated in media worldwide, it would only be a matter of time before Europeans would wake up to the same realization: the system had to change. What distinguished this latest round of Spanish protests from earlier ones in Europe was that very realization; no matter how many votes were dropped into the ballot box, the result would be essentially the same. All the shouting, demands, marches and strikes would accomplish nothing without a responsive government to address them – and this could not be achieved through the current system in which, despite the rhetoric, there was little difference between the major parties. 

Trend Forecast: The massive bailouts of Greece and Ireland are already proven failures, and the Portuguese bailout will follow the same path: more debt, higher unemployment, draconian austerity measures imposed upon the people, and a wholesale sell-off of valuable public resources. 

Spain, the UK and Italy are next in line to suffer the long-term consequences of the economic “Panic of ‘08” … that has been only temporarily assuaged by the trillions pumped in by the central banks to keep the financial system afloat. 

Economic conditions will continue to deteriorate for most European nations. The worse they get, the louder and more heated the protests will become. Entrenched political parties, unwilling to make adequate concessions or yield power, will intensify their crackdown efforts. 

The youth-inspired Spanish demonstrations, sit-ins and camp-outs will serve as a template for the equally disenfranchised youth of other countries. In the absence of an economic miracle, divine intervention … or a fulfilled Doomsday Prophesy (in which case all forecasts are off), expect protests to mount throughout the summer of 2011 and continue into 2012 and beyond. 

One wild card that might derail the demonstrations, quiet the discontent and unite the people, would be one or several terror strikes in European cities. Considering NATO’s military actions against Libya, revenge attacks are a distinct possibility.