Monday, June 22, 2009

Risk Asset Rebound... Then Why are Insiders Selling

Business Day reports:

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.
This follows a 40% jump in the stock market over the past ~3 months (apparently the fastest such rally in 71 years) . So why sell? To understand that lets put that rebound (and all other asset class returns since the last "selling period") in perspective.

The chart below shows the cumulative return of a number of assets class indices since that June 2007 date. While the overall trend was apparent pre-September Lehman collapse (i.e. the more leveraged the asset, the higher the sell-off), the massive divergence between risk asset returns becomes more apparent after that date. It is interesting how much those assets higher in the capital structure hurt (i.e. debt - both investment grade and high yield) have rebounded after forced selling by investors at that time (the returns now actually make sense).

So equities still have a way to go before the are fully recovered and the recent rebound reflects the appearance of a stronger economy you say? Well, take a look at the chart below showing the returns of those same asset classes in the September - February period (i.e. the world is ending period) and the time since. It makes the record rally appear to be nothing more than a partial rebound.

Thus, the question remains... is the rebound really justified for ALL risk assets? If you are to believe insiders, the answer is a resounding no.

Source: Barclays