7/26/2018 – A mixed day with the Dow Jones up 113 points (+0.44%) and the Nasdaq down 80 points (-1.01%)
Consider the following….
“SEC May Want To Take A Look”: Facebook Insiders Dumped $4.1 Billion Weeks Ahead Of Record Crash
We wrote about it a few weeks ago. Here is how the scam works. A corporation announces a multi-billion stock buyback at an all time bubble high valuation levels, followed by a pop in the stock price, followed by a barrage of insider selling to unsuspecting retail fools. A nice gig if you can get it.
We had a number of interesting views on the subject matter. Let’s take a look…..
He reminded us that “in the years leading up to the financial crisis, top executives at Bear Stearns and Lehman Brothers personally cashed out $2.4 billion in stock before the firms collapsed.”
Tying executive pay to the growth of the company, he said, “only works when executives are required to hold the stock over the long term.”
Part of the problem is that the SEC has not yet turned the provisions in the Dodd-Frank Act that were “designed to give investors more information about whether and how managers cash out” into actual rules. Thus investors are still kept “in the dark about executives’ incentives.”
“But it’s not just that the regulations haven’t been finalized. It’s that the problem itself keeps getting worse,” he said. The new tax law “has unleashed an unprecedented wave of buybacks, and I worry that lax SEC rules and corporate oversight are giving executives yet another chance to cash out at investor expense.”
SEC Says Executives Dumping Shares on Buyback Announcements: No Skin in the Game
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In 385 buybacks over the last fifteen months, a buyback announcement lead to a big jump in stock price.
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In half of the buybacks, at least one executive sold shares in the month following the buyback announcement.
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Twice as many companies have insiders selling in the eight days after a buyback announcement as sell on an ordinary day. So right after the company tells the market that the stock is cheap, executives overwhelmingly decide to sell.
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On average, in the days before a buyback announcement, executives trade in relatively small amounts—less than $100,000 worth. But during the eight days following a buyback announcement, executives on average sell more than $500,000 worth of stock each day—a fivefold increase.
In simple terms, this is yet another red flat for our bubblicious stock market.
I have argued in the past,with corporate buybacks being at record highs, that corporation are acting in foolish, but predictable way of buying their own stocks at record highs. The flip side of that view is corporate officers unloading their own shares to unsuspecting investors.
Criminal, unethical or above the board? None of that really matters. This is just another indicator that we are either at or approaching a bubble top. If you would like to find out what happens next and/or when the market will crater, please Click Here.
