Wednesday, January 27, 2021

Follow the smart money...CEO's cashing out

 


Follow the smart money...After reducing buybacks to conserve cash, American corporations are repurchasing shares again at a breakneck pace. Corporate officers, on the other hand, are a bit less enthusiasm for their employer’s shares. In the first two weeks of 2021, a total of 1,000 insiders sold a bevy load of their own stock and 128 bought shares, leaving the sell-to-buy ratio poised for the highest monthly reading in data going back to 1988, according to Washington Service. Meanwhile, the same corporations announced $33 billion of buybacks over the stretch, up 49% from a year earlier, according to data compiled by Birinyi Associates. CEO’s and CFO’s and company insiders are NOT stupid, as share buying by corporate officers has declined significantly after a FED liquidity intervention and massive fiscal stimulus flood, and a near parabolic 10-month rally drove valuations of their firm’s stock to levels not seen since the dot-com bubble. Insiders and corporate leaders fully know that their firms are more than fairly valued, and they are not going to rush to put more of their own money into their firms shares at these nosebleed prices JMHO.

This is NOT first time that CEO’s/CFO’s and insiders have diverged like this.

Ø  In 2014, insider buying dried up while corporate America spent a near-record amount of money on buybacks. That year, the SPX-500 advanced 11%. Since the end of December, the SPX-500 Buyback Index has risen almost 6%, compared with a gain of 1.1% for the broader index.

Ø  Financial fuzzy-math engineering through corporate buybacks are returning back in a significant manner once again as firms are sitting on cash, are likely to break several quarters of profit declines this year; via financial “smoke-screen”

o   Corporate insiders, on the other hand, are retreating after their buying correctly signaled the bottom in March. The sell-buy ratio tracked by Washington Service exceeded 4-to-1 in November for the first time in almost 2-years and has since risen to even higher levels.

Company executives sold over $347 million worth of shares this year through Friday, that is 19 times the total they purchased. How are investors objectives aligned with management and if management is selling why are investors buying?  Ideally you would like to see that insiders and management feel that what they own will continue to grow in value, as opposed to the SELL message. Clearly, the message from the C-Suite, much like that of so many officials across the nation during Covid-19 lockdowns, (like I used to tell my kids...“do as I say, not as I do.” In this case just keep buying my stock while I sell my discounted shares to the next herd of bag-holders as I find my shares to be over-valued!

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