The Stock Market and Insider Buying
Jan 23, 2009
Posted by Jody Eisenman | Filed under Uncategorized
It used to be a rule of thumb that when corporate insiders (upper management and/or members of the board of directors) purchased stock in their own companies, it was a positive event. If these insiders saw fit to but their stock in the open market, wasn’t that a great sign of confidence that these shares were undervalued? After all, these people were “kicking the tires”, and should know better than anyone the value of the company. Unfortunately, this is no longer the case. Most of the insider buys last year were ill timed. Generally, if you followed in turn, you lost money. Two that really stick out were McClendon’s purchases of CHK stock (which we sold at a huge loss due to forced margin calls) and Lester at WSM who had the same problem.
It was reported yesterday that top executives of Bank of America and JP Morgan bought stock in the open market. I don’t put any particular significance into this other than these guys trying to prop up investors’ confidence. I’m not sure how Ken Lewis at Bank of America (whom I can’t believe still runs the show there) could possibly think B of A is a great buy when they only exist thanks to the largesse of the US government. He actually purchased $1.2 million worth of stock. According to Forbes, Lewis made about $165 million in compensation the last five years. I guess he can afford it. Speaking of B of A, it seems that John Thain is now out. It was also revealed today that Thain (the former head of Merrill) spent a startling $1.2 to redecorate his office which he has now vacated. Over $800,000 was spent just to the decorator! Of course, you the taxpayer helped pay for this with TARP money. The greed here is astounding. At the close, BAC dropped about another 15%.
January 24th, 2009 at 2:16 am
Call me crazy, but I think that this 8000 Dow is bottom bumping on the second trough. I said in a previous post (http://www.jodyeisenman.com/2008/11/28/is-the-recent-stock-rebound-sustainable/#comments) that there would be [1 or ] 2 more, so I’ll count this as one of those two. I expect a third of course, and that’ll probably be in 3 months or so.
At the start of all this was the deleveraging of the hedge funds. Last time was lead by deleveraging of investment firms, this time by the banks that wanted to be investment firms. The next time, I don’t really know. Maybe by the companies that can’t get a loan because the banks and investment firms are being stingy.
I’m an observer, not an economist. Call this what you will.