Stock Market? Warnings of Insiders Selling, Market to GDP!!!!

For six years we had expected  the stock market to have suffered 20% corrections after large moves up and each time it would to be followed by returns to the upside- that would have been normal! Those corrections did not occur. The market continued  to move up despite serious overvaluations in many stocks. Those normal corrections  would have prevented the stock market from its current extremely high overall valuation. More importantly, harsh corrections such as 20%-25% price declines offer investors and institutions exceptional  buying opportunities to buy shares at lower prices while they are “on sale.”

WERE YOU AWARE OF THIS?

The S&P 500 is up approximately 3% in 2018. Fact: This year without  the price performances  in 2018 of  Microsoft, Amazon, Apple, Netflix, Facebook  and five others companies,  the Standard & Poor’s’  500 would not be up!  Business TV rarely mentions some of the unknown facts behind the market as it may interfere with advertising. They do a fine  job of informing viewers of the markets and business news but they should emphasize all the information.

The stage is now set for another brutal bear market. We do not want it to occur and we are not short sellers; we are monitoring various indicators and they firmly suggest caution. Near zero interest rates and Quantitative Easing have been the enablers supporting the stock market.  When it ends it will be very unpleasant. All the excuses will be made by the brokerage industry- naturally blaming others.

While we always are generally fully invested , we see high risk in many popular and highly touted stocks.  Opportunities for exceptional capital gains are always present but far too many stocks are being recommended (shilled) at the very high end of their valuation and price ranges. The old standby rule is to focus on what is undervalued and not what is popular. Again, many of the best performing stocks are now selling at extremely high valuation levels. That always ends sadly. “Paying up” for stocks  leads to disaster.

  TWO WARNING GAUGES-INSIDERS AND MARKET TO GDP     

    CORPORATIONS’ OFFICERS AND DIRECTORS (INSIDERS) SELLING IS AT THE HIGHEST LEVEL EVER IN HISTORY. We note that $810,000,000 of insider selling occurred two weeks ago. We saw the largest dollar total of “insiders” selling their own personally held shares in the companies where they are employed as officers and directors. Yes,  an astounding value of $810,000,000 and last week the insiders sold over $610,000,000-one of the highest levels in history as well.  The last three months have seen the largest total gross value of Insider Selling in history. These levels  in the past have always occurred at the beginning of what led into brutal bear markets.

 

STOCK MARKET TO GROSS DOMESTIC PRODUCT   The value of publicly traded U.S. stocks to U.S. Gross Domestic Production is now over  157%. While not a “timing signal,” the last two brutal bear markets  commenced from similar high valuation levels in 2000 and again in 2008.

 

FOUR TRILLION IN STOCK BUYBACKS Since 2012, S&P 500 companies have spent  more than $4,000,000,000,000 on share buybacks. A share buyback occurs when a company buys its own stock in the market to push up  its share price. Few people are aware that “Buybacks” are one of the major drivers keeping the stock market up and yet many individual stocks are overlooked at the same time.                                                                                                       

  The term “paying up” refers to the investment in stocks when they are far above their proper value. It happens all the time as recommendations by the large brokerage houses are usually ongoing despite overvalued price levels. Think back to the internet stocks and techs that were slaughtered, think back to 2008. It will happen again.

Today, there are some fine quality companies that in our view are selling at much too high prices in view of expected earnings and sales. Some have moved too far too fast. One pundit recently reminded investors that “bear markets have not been outlawed.” Let us know what you think, we want to know.   Thank you, K.C.