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‘Inside’ Information Makes a ‘World’ of Difference

Posted by Larry Doyle on June 22, 2009 7:24 AM |

Can an individual investor get a fair shake on Wall Street?

Many smaller investors believe Wall Street is biased against them. Why? Information is hoarded by major institutions who act upon it prior to it disseminating to individuals. With the development of the internet, information is processed and distributed much more quickly. How do institutional investors stay ahead of individual investors? Utilizing ETFs and financial futures.

How can individual investors try to keep pace with institutions? Track the activity of institutional insiders, that is, the senior executives within publicly traded corporations. An insider may have reason to buy or sell the company stock that goes well beyond company prospects. Often an insider will sell company stock strictly for tax purposes. However, when insider activity, either buying or selling, moves dramatically in one direction or another, every investor should pay attention. On that note, please pull in your chairs and pay particular note, as Bloomberg highlights Insiders Exit Shares at Fastest Pace in Two Years:

Executives at U.S. companies are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago.

Sales by CEOs, directors and senior officers have accelerated to the highest level since June 2007, two months before credit markets froze, as the S&P 500 rebounded from its 12-year low in March. The increase is making investors more skittish because executives presumably have the best information about their companies’ prospects.

In typical fashion, analysts assess this insider activity as nothing more than an attempt to lock in the returns of the recent equity rally. I seriously discount that. I view major moves in insider activity as a signal of strong, macroeconomic outlook. If the insider activity was more trading related, then the insiders would not actually sell the company stock but would more likely hedge it via purchasing put options.

What do all these insiders see on our economic horizon which is leading them to sell on such a massive scale? Well, the World Bank sees dark clouds out there. Bloomberg reports,  World Bank Cuts Forecast for Global Growth to 2.9%:

The World Bank said the global recession this year will be deeper than it predicted in March and warned that a flight of capital from developing nations will swell the ranks of the poor and the unemployed.

The world economy will contract 2.9 percent, compared with a previous forecast of a 1.7 percent decline, the Washington- based lender said in a report today. Growth will be 2 percent next year, down from a 2.3 percent prediction, the bank said.

This outlook on the global economy does contrast with a more sanguine view provided by the IMF.  While economic forecasts from different organizations and analysts will often vary, there is nothing vague about massive insider activity, and right now they are headed for the exits.


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