GAFM Expert Opinion

Good Sign or Indeed "Very" Bad Sign ?

By Michael Preiss

Sunday, June 21, 2009 14:34:14 PM

For information only:

Ref: Company Insiders Exit Shares at Fastest Pace in 2 Years as Market Rises

• Executives at U.S. companies are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago.

• One Gentleman’s take on this: “If insiders are selling into the rally, that shows they don’t expect their business to be able to support current stock- price levels,”

• Insiders increased their disposals as S&P 500 companies traded at 15.5 times profit on June 2, the highest multiple to earnings in eight months, Bloomberg data show.
. “It’s the most bearish we’ve seen insiders, on a whole, in two years.”

• The last time there were more U.S. corporations with executives reducing their holdings than adding to them was during the week ended June 19, 2007. The next month, two Bear Stearns Cos. hedge funds filed for bankruptcy protection as securities linked to subprime mortgages fell apart, helping trigger almost $1.5 trillion in losses and write-down’s at the world’s biggest financial companies and the 57 percent drop in the S&P 500 from Oct. 9, 2007, to March 9, 2009.

• Insider selling during the height of the dotcom bubble in the first quarter of 2000 climbed to a record $41.7 billion on a net basis. The sales coincided with the end of the S&P 500’s bull market and preceded a 2 1/2 year slump that erased half the value of U.S. equities. Maybe this time it is different and maybe mainstream analysts and economists are right to tell you that now it is a good time to BUY stocks for the long-term. If on the other hand, “deflation” and not inflation is the real concern, our friends the US company insiders might be right to take money of the table after all.

Insiders Exit Shares at Fastest Pace in 2 Years as Market Rises

2009-06-21 23:00:01.12 GMT


By Lynn Thomasson and Michael Tsang

June 22 (Bloomberg) -- Executives at U.S. companies are

taking advantage of the biggest stock-market rally in 71 years

to sell their shares at the fastest pace since credit markets

started to seize up two years ago.

Insiders of Standard & Poor’s 500 Index companies were net

sellers for 14 straight weeks as the gauge rose 36 percent, data

compiled by InsiderScore.com show. Amgen Inc. Chairman and Chief

Executive Officer Kevin Sharer and five other officials sold

$8.2 million of stock. Christopher Donahue, the CEO of Federated

Investors Inc., and his brother, Chief Financial Officer Thomas

Donahue, offered the most in three years.

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.

“If insiders are selling into the rally, that shows they

don’t expect their business to be able to support current stock-

price levels,” said Joseph Keating, the chief investment

officer of Raleigh, North Carolina-based RBC Bank, the unit of

Royal Bank of Canada that oversees $33 billion in client assets.

“They’re taking advantage of this bounce and selling into it.”



Banks Downgraded



The S&P 500 slid 2.6 percent to 921.23 last week, the first

weekly decline since May 15, as investors speculated the three-

month jump in share prices already reflected a recovery in the

economy and profits. Stocks dropped as the Federal Reserve

reported that industrial production fell in May and S&P cut

credit ratings on 18 U.S. banks, saying lenders will face “less

favorable” conditions.

Insiders increased their disposals as S&P 500 companies

traded at 15.5 times profit on June 2, the highest multiple to

earnings in eight months, Bloomberg data show. Equities climbed

as the U.S. government and the Fed pledged $12.8 trillion to

rescue financial markets during the first global recession since

World War II.

Executives at 252 companies in the S&P 500 unloaded shares

since March 10, with total net sales reaching $1.2 billion,

according to data compiled by Princeton, New Jersey-based

InsiderScore, which tracks stocks. Companies with net sellers

outnumbered those with buyers by almost 9-to-1 last week, versus

a ratio of about 1-to-1 in the first week of the rally.

“They’re looking to take some money off the table because

they think the rally will come to an end,” said Ben Silverman,

the Seattle-based research director at InsiderScore. “It’s the

most bearish we’ve seen insiders, on a whole, in two years.”



Bear Stearns



The last time there were more U.S. corporations with

executives reducing their holdings than adding to them was

during the week ended June 19, 2007, the data show. The next

month, two Bear Stearns Cos. hedge funds filed for bankruptcy

protection as securities linked to subprime mortgages fell

apart, helping trigger almost $1.5 trillion in losses and

writedowns at the world’s biggest financial companies and the 57

percent drop in the S&P 500 from Oct. 9, 2007, to March 9, 2009.

Insider selling during the height of the dotcom bubble in

the first quarter of 2000 climbed to a record $41.7 billion on a

net basis, according to data compiled by Bethesda , Maryland-

based Washington Service. The sales coincided with the end of

the S&P 500’s bull market and preceded a 2 1/2 year slump that

erased half the value of U.S. equities.

Bill Latimer, the director of research at O’Shaughnessy

Asset Management, says insider transactions aren’t an accurate

barometer of stock performance because executives often reduce

their stakes for reasons that have little to do with a company’s

prospects.



‘Clouding the Picture’



“When you’re dealing with an individual’s buying or

selling, you’re clouding the picture with what their specific

financial situation may be,” said Latimer, whose Stamford ,

Connecticut-based firm oversees about $4.5 billion.

During January 2008, executives at New York Stock Exchange-

listed companies bought more shares than they sold for the first

time since 1995, Washington Service data show. The S&P 500

slumped 40 percent in the next 12 months.

Citigroup Inc. CEO Vikram Pandit purchased 750,000 on Nov.

13, paying an average of about $9.25 apiece, the New York-based

bank said in a U.S. Securities and Exchange Commission filing.

Citigroup closed last week at $3.17.

U.S. laws require executives and directors to disclose

stock purchases or disposals within two business days to the

SEC.

Sharer, the chairman at Thousand Oaks, California-based

Amgen since January 2001, disposed of $1.76 million worth in the

world’s largest biotechnology company on May 12, an SEC filing

showed.



Unrestricted Stake



The sale of 36,411 shares trimmed his unrestricted stake by

13 percent and came three weeks after the company reported

first-quarter earnings that trailed analysts’ estimates. Between

May 22 and June 9, five Amgen officers, including George Morrow,

the executive vice president for global commercial operations,

and Roger Perlmutter, the executive vice president for research

and development, sold a combined $6.4 million.

“From time to time, and within appropriate trading

windows, Amgen executives exercise their right to sell shares

for tax planning, to prevent stock option expiries and other

purposes,” spokesman David Polk wrote in an e-mailed response

to questions.

Federated’s Christopher and Thomas Donahue together sold

about 65,000 for $1.68 million on June 4 and June 5 through a

family trust, according to SEC filings. The transactions were

the biggest outright sales for each since December 2005 and

followed a 52 percent rally this year that recouped more than a

third of 2008’s stock losses.



Eight-Month High



The executives began selling two days after the third-

biggest U.S. manager of money-market funds, which was founded by

their father, John Donahue, in 1955, reached an almost eight-

month high compared with reported profits.

Federated said in a statement on June 8 that the officers

sold as part of a “longer-term” diversification strategy. Ed

Costello, a spokesman, said the Pittsburgh-based company had no

comment beyond the news release.

“If these folks don’t have confidence in the company and

don’t feel that it’s an attractive value, then why as a

shareholder would I think it’s a good value?” said Jason

Cooper, who helps manage $3 billion at 1st Source Investment

Advisors in South Bend , Indiana .

Seven directors at CME Group Inc., the world’s largest

futures exchange, disposed of almost $3 million since May. John

Pietrzak sold for the first time since becoming a director of

the Chicago-based company in July 2007, according to data

compiled by InsiderScore. Board member Joseph Niciforo cut his

stake by 28 percent.



Stock Options



“It’s our policy to never comment on any executive sale of

shares,” said Allan Schoenberg, a CME spokesman.

Nine insiders at TiVo Inc., the maker of digital video

recorders, sold $10.6 million between June 3 and June 11, after

the Alviso, California-based company jumped to a five-year high.

That was the most by value over a one-month period in more than

five years, InsiderScore data show.

A 53 percent jump in TiVo’s stock on June 3 initiated

trading plans of some insiders such as CFO Anna Brunelle, who

cut her holdings by 17 percent, according to regulatory filings

to the SEC compiled by InsiderScore.

The so-called 10b5-1 programs allow executives to cash out

a portion of their holdings when stocks reach predetermined

prices. Brunelle also sold through her plan from exercising

options with average expiration dates about seven years away,

InsiderScore data show.



TiVo Director



Geoffrey Yang, a TiVo director since 1997, cut his stake by

8.4 percent, raising $1.5 million. The sale was the first by

Yang in almost two years. Chief Technical Officer James Barton

reaped an 89 percent profit from selling $2.8 million that he

received from exercising stock options that were due to expire

in four years, according to InsiderScore.

Whit Clay, a spokesman for TiVo, declined to comment.

Electronic Arts Inc. Chairman Lawrence Probst and two other

executives sold a combined $1.2 million worth since May 28,

after the world’s second-largest video-game publisher jumped 49

percent from an almost nine-year low.

Probst, who joined the Redwood City, California-based

company in 1984 and was CEO between 1991 and 2007, trimmed his

holdings by 25,000 shares on May 28, SEC filings show.

Frank Gibeau, president of the EA games division, slashed

his stake by 66 percent after unloading about $538,300 worth the

same day, the filings show. The sales came three weeks after

Electronic Arts, which makes “Madden NFL,” the world’s most-

popular sports video game, reported a narrower fiscal fourth-

quarter loss than analysts estimated.



‘Out of Steam’



Jeff Brown, a spokesman for Electronic Arts, didn’t

immediately return a telephone call seeking comment.

“It does make you wonder if the market rebound is running

out of steam,” said Scott Leiberton, the managing director for

the equities division of Principal Global Investors, which

oversees $189 billion in Des Moines , Iowa . “If you see broad-

based selling among the management team or large holders, that’s

generally not a good sign because presumably who knows that

business better than they do?”

Is Africa the new Asia?

By Naaim Abbasi

Thursday, June 18, 2009 11:04:43 AM

Is Africa the new Asia?

A year ago, fund managers were touting Africa as the new Asia. A
mighty commodities boom boosted corporate and individual incomes and
helped lure investments from big emerging markets such as China. The
World Bank predicted that the instability that plagued Africa between
1975 and 1995 might soon be confined to history. Growth across the
continent averaged a heady 5.6% in 2007, with a similar figure
projected for 2008.

Funds managed out of Europe and the US poured into Africa's 21 stock
markets, pushing up prices. Francis Beddington, co-founder of Insparo
Asset Management, said at the time: "Not investing in Africa today is
like not investing in emerging markets in the 1990s, South East Asia
in the 1970s or Japan in the 1950s."

Fast forward a year and the picture looks different. The commodity
boom has abated, crushed by plunging global demand. Government and
household incomes have been dented, while stock markets across the
continent have fallen by 50% on average.

In a report published last month, the International Monetary Fund
slashed its 2009 growth estimate for sub-Saharan Africa to 3.25% from
6.7% a year ago. Andrew Brudenell, a fund manager with Halbis, an
active management group within HSBC Global Asset Management, said:
"Inevitably, things have changed since last summer. African nations
have been negatively impacted by a fall in demand from their main
export partners. Risk aversion has reduced liquidity in Africa's
financial systems, as local and international investors pull out
money."

Exporters of metals and oil have been hit particularly hard as prices
plunged. Other commodities, such as coffee, cocoa and cotton, have
been impacted. Non-export industries have also suffered. Tourists are
staying away and lower fiscal revenues mean infrastructure projects
have been shelved.

Martyn Davies, chief executive of Johannesburg-based research firm
Frontier Advisory, said: "The past three months have seen scores of
Chinese mining companies pull out of Zambia and the Democratic
Republic of the Congo. Several factories in the Congo and Guinea have
also been closed with little expectation of them being reopened any
time in the near future."

The financial sector also looks vulnerable. Lower incomes have reduced
borrowers' ability to service their debts, particularly those that
were invested in equity markets. Foreign banks might withdraw funds
from local subsidiaries as they address their own financial issues.
Brudenell said: "Banks are struggling a little bit. There was very
high growth in private sector credit, and that has slowed. Risk
aversion has increased."

Remittances from Africans living in developed nations are falling as
their host economies struggle. Aid flows, which tend to be
pro-cyclical, could also suffer. Despite this, many fund managers
remain bullish on Africa's prospects. After all, the latest IMF
numbers show the continent's economy is still expanding, which is more
than can be said for many other markets. Brudenell said: "The good
news is these economies are not in the same state as developed
markets. This is a slowdown, not a recession."

Africa's proponents cite six reasons for optimism.

· Uncorrelated markets

African banks are not integrated into the global financial system and
have therefore sidestepped the systemic crisis that has humbled their
western peers. According to Brudenell, banks in Africa did not hold
toxic assets. Beddington added: "We haven't seen an African bank
bailout. Corporate lending is still growing, retail banking remains
solid and is expanding, and there are some interesting new entrants,
such as M-Pesa, a Kenyan mobile phone-based bank."

Consumer and corporate debts are also more manageable than those in
developed nations. Ayo Salami, whose Duet Group recently bought New
Star's Heart of Africa Fund, said: "Demand destruction in Europe
results from high debt levels, but African companies and consumers
were not over-leveraged."

· Less dependence on commodities

Commodities contribute less to Africa's economy than headline figures
might suggest. Salami said: "Commodities account for a large
proportion of African countries' export earnings, but a small share of
gross domestic product. For instance, oil makes up 90% of Nigeria's
exports and 80% of government revenues, but only 20% of GDP.
Approximately two million jobs are directly linked to oil, out of a
population of 140 million, so large numbers of people are not being
laid off."

· Thriving domestic demand

Corporate earnings remain robust, driven by demand from an emerging
middle class. Salami said: "Domestic demand makes up 25% of GDP.
Industries aimed at this market, such as brewing, telecommunications
and food companies, are chalking up annual growth rates of 10% to
15%."

Beddington said: "A lot of growth is baked in as earlier reforms
continue to boost domestic demand. A rising middle class is driving
investment in real estate and infrastructure, especially in
electricity and telecommunications." The diffusion of technology in
the region has also provided business opportunities. Nigeria, with
just two million fixed telephone lines, currently has 46 million
mobile subscribers and solid growth rates.

Beddington added: "Nigeria now has a telecommunications system. I
recently had an hour-long discussion that only cut out once, which was
previously unheard of. The lack of communications used to restrict the
number of meetings a businessman could have a day to two, but now I
can fit in up to six. People are also using mobile banking networks to
text money to rural areas from urban areas."

· Improved transparency

Government policy has improved in recent years. Brudenell said:
"Transparency and governance have improved since 2000. Government
seems to be more stable and is looking at longer-term targets.
Elections seem to be more democratic and governments are sticking to
their pledges." Beddington said: "The Ghanaian election went
peacefully, the result was close and there was a transition of power.
Zambia also had a close election that went through peacefully."

Some countries, such as Morocco and Tunisia, have introduced economic
targets and measures aimed at diversifying their economies. Nigeria
has launched a development plan known as Vision 2020, while Kenya has
detailed economic goals to be achieved by 2030. Corruption is also
becoming less widespread, allowing governments to react more adroitly
to the crisis than they would have in the past, according to
Brudenell.

· Access to funding

The G20 this month agreed to triple funding for the IMF to $750m
(€565m), which will enable it to provide more help to Africa. A
separate decision to crack down on tax havens should also help reduce
corruption, because embezzled funds tend to be taken abroad.

· Foreign investment

Trade with China, which grew by an average of 30% per year over the
past decade to reach $106.8bn in 2008, is set to grow further, as the
emerging market looks to secure resources to underpin its future
growth. Davies said: "A trend that may emerge in 2009 could be the
counter-cyclical practice of Chinese mining firms to make acquisitions
in Africa's mining sector. Ignoring suppressed commodity prices and
taking a longer-term view of investment in the sector, Chinese mining
firms backed by sovereign wealth fund capital may be more bullish to
acquire African mining assets in the coming year."

Observers say other foreign investment is also proving resilient.
Beddington said: "Bric investment is still largely in place, although
Russia has pulled back, and more traditional sources of foreign
investment continue, with France Telecom buying into Egypt."

Nonetheless, problems persist. Brudenell said: "Business is a bit of a
risk. You cannot always forecast how things will pan out." One example
is Virgin Nigeria, an airline in which British billionaire Richard
Branson's Virgin Atlantic holds a 49% stake. Launched in 2005 in an
effort to improve the nation's dismal air safety record, the owners
are engaged in a dispute with the new Nigerian President over the
terms of the agreement, with reports local authorities allegedly sent
in heavies to smash up the Virgin lounge with sledgehammers. Brudenell
said: "Africa has a higher risk profile than, for instance, Latin
America. Africa's risk profile is much more touchy-feely, for
political reasons."

Politics is not the only hazard. Sustainable growth is threatened by
persistent weakness of economic fundamentals such as savings,
investment, productivity and export diversification, according to the
World Bank. Corruption, too, remains widespread. Some countries, such
as Botswana and Zambia, are fighting back with zero-tolerance
policies, but others lag behind, according to Stephane Bwakira, a fund
manager with Standard Africa. However, "corruption is not uniquely
African," insists Beddington.

Another problem is that African markets remain hard to access. Alka
Banerjee, vice-president of Standard & Poor's Index Services, wrote in
a report last year: "Most markets are still relatively shallow, with
the number of listings typically only running into double digits.
Market capitalisation and volumes are also relatively small. Most
global investors don't have direct custody and settlement facilities
established in all African countries, causing them to hesitate before
taking expensive bets on investments in this region."

Tom Fairless
Financial News
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