Sell Signal?

by Addison Wiggin

  • Bulls beware… one bearish signal that flashed a big red sign last month

  • “Playing with fire”… Dan Amoss on what could go wrong after the Fed announcement tomorrow

  • Saudi oil minister describes his “comfortable zone” … yet another indicator of higher oil prices to come

  • Checking in with real-world economic indicators: What’s up with truck and train traffic?

  • “You amaze me”… readers vent on our suggestion that voting “encourages” the wrong people…

On a morning where broadcast airwaves and Internet bandwidth alike are clogged with sound and fury, signifying nothing, we choose to pause… take a breath… step back… and try to gain some useful perspective.

Today, while most pundits are perusing exit polls, we see extreme selling.

“The ratio of insider sales to insider buys is over 30 times,” says Chris Mayer. “Normally, a ratio of over 20-to-1 is seen as a bearish sign. A ratio of under 12-to-1 is bullish.

“Last time we had an insider sales ratio of over 30 times was in April, just before the markets went kaput for awhile. The so-called ‘Flash Crash.’ Then the ratio went under 12 for long stretches during June through September. During this time, the market has generally been rising.

“In October, we had a spike in insider selling. This indicates that at least as far as insiders go, stocks look fully priced.”

So… beware. Or at least be wary of what you buy.

At McDonald’s, six insiders sold $40 million worth of stock. At Netflix, five insiders dumped $36 million worth of stock. Other big sellers include two at AutoZone ditching $35 million, three at Safeway selling $27 million and five at EMC letting $24 million go.

“I don’t know how investors can feel good about these names,” Chris wonders aloud, “with so many insiders selling with such gusto.”

Still, there’s always some degree of insider buying… which is one of the things Chris likes to look for when surveying his watch list. All 10 of his recommendations this year in Capital & Crisis are up. Last year, only one of his 10 picks went down — by 4.8% — while five of them doubled. Here’s where you can find out what Chris likes right now.

After a failed run at its April high yesterday, the Dow is huffing and puffing to get there again today.

Doesn’t hurt that the greenback is down big-time; the dollar index has cracked 77 and is close to the lows set two weeks ago — despite new worries in the eurozone.

The euro is up slightly this morning to $1.404, with traders unconcerned about the latest rumblings from Ireland. The yield on a 10-year Irish bond shot past 7.1% today, and the spread over comparable German bonds has hit a record.

For the second day running, a leading Irish economist has warned that bond traders will be looking over the country’s new budget with a fine-tooth comb when the finance minister submits it to parliament. It’s due Dec. 7.

Gold is holding firm at $1,358.

“The Fed is playing with fire,” says our stock market vigilante Dan Amoss as Fed governors begin their fateful two-day meeting this morning.

At its conclusion, tomorrow at 2:15 p.m. EDT, they will emerge from their cloister and issue their pronouncement. The Street is counting on $500 billion in straight-up bond purchases.

“It was one thing,” says Dan, “to open the ‘liquidity’ floodgates in 2008 when everyone wanted to dash to cash, no matter how cheap the assets they had been holding. It’s another thing entirely to try to use monetary policy to lower unemployment.”

“This notion is so ridiculous that only an academic in an ivory tower could dream it up. It’s very likely to fail, and when it does, the financial markets won’t like it. The bond market could start looking more like it did in the late 1970s than in did in the 1930s.”

“I think a 20% decline in the dollar is possible” over the next several years, says PIMCO’s Bill Gross, extending the thought.

“When a central bank prints trillions of dollars of checks, which is not necessarily what [a second round of quantitative easing] will do in terms of the amount, but if it gets into that territory — that is a debasement of the dollar in terms of the supply of dollars on a global basis.”

Last week, Gross labeled the coming round of quantitative easing a “Ponzi scheme.”

“What PIMCO does matters,” says Dan. “It is the largest bond manager in the world.

“Gross is essentially saying that PIMCO will look to hit the Fed’s bid for the Treasuries currently sitting in PIMCO’s inventory. Then PIMCO is likely to sit on its hands in the Treasury market until yields are much higher.

“This may represent a prudent course of action for the PIMCOs of the world, but what of other Treasury bond holders — banks, insurance companies and foreign central banks? What if they look for the exits? If so, the Fed would have to print much more money than it expects in order to ‘cap’ or ‘target’ long-term Treasury yields.

“Savers and investors could choose to implement their own monetary policy. It’s pretty certain that more and more people with capital will shift a percentage of their assets to gold, as insurance against a bonfire of fiat currencies.”

Meanwhile, those with a more speculative mindset might consider betting on the fall of vulnerable companies — which is right up Dan’s alley. If that’s something you’ve never considered before, learn how Dan does it here.

Oil is approaching $84 a barrel this morning… which suits the world’s number-one producer just fine.

“We are in a very comfortable zone,” says Saudi Arabia’s oil minister Ali Naimi — meaning a range between $70 and $90. That’s a big change, since the upper end of his “comfortable zone” has been $80 ever since OPEC cut its production quotas during the economic gloom of early 2009.

“I hope this will continue,” Naimi said. OPEC’s next scheduled meeting is in December.

The data gods have nothing to move markets today, so we turn to some real-world economic data that can’t be fudged by government statisticians.

The nation’s fleet of 18-wheelers saw a 1.7% increase in tonnage from August to September, according to the American Trucking Associations. Sounds nice, but it doesn’t make up for a precipitous 2.8% drop the month before.

Indeed, at 108.7, the ATA’s index of truck tonnage remains below levels two years ago as the Panic of 2008 was setting in — to say nothing of pre-recession levels. “This is a reflection of an economy that is barely growing,” says ATA chief economist Bob Costello.

Meanwhile, rail traffic appears to be leveling off, too.

Rail volumes as measured by Atlantic Systems Inc. are down 5% compared to October 2008. Digging into the internals is pretty interesting. Compared to two years ago, grain shipments are up 10%. Shipments of food and chemicals are essentially flat. Coal, metals and auto shipments are down 10%… and lumber shipments down 20%.

And while we’re on the subject of moving stuff from Point A to Point B, here’s what might be the most telling indicator of all: UPS is jacking up both its ground and air freight rates by 4.9% come the New Year.

FedEx announced its own 3.9% rate increase a little over a month ago, also effective in January.

The real question is… how readily will UPS and FedEx customers be able to pass along these cost increases to their customers?

“It is very irresponsible for you to suggest that people don’t exercise their important right to vote,” kicking off a flurry of e-mails in response to yesterday’s support of P.J. O’Rourke’s latest book title. “You should encourage your readers to pull their heads out of the sand so they know why and what they’re voting for.

“If we had a higher voter turnout, our citizens would show the government that we do care about the job they do and how they manage our affairs. The 5 Min. Forecast is doing a disservice to this country with this kind of editorial.”

The 5: Perhaps if there were someone whose head was also out of the sand running for office, we would. We haven’t faced that conundrum yet. And wait a minute… what about the disservice those we “send” to Washington are doing? You’re calling us irresponsible… jeez. Shoot the messenger.

“You amaze me,” writes another, more, um, forcefully. “I can only guess that you arrive at your lofty pinnacle of superiority and omniscience by way of your wealth. How can you tell people not to vote? We need people like you in this country like we need Obama in the White House.

“If you don’t like America, get your ass out of here. [Heh. I always like this one… so much for it being a “free country,” eh? The Wiggin family has been sticking in someone’s craw in America since 1630. Sorry, but you don’t get to choose.]

“You really affect change by sitting at home. You see what your attitude got us the last election. [Umm… the first African American president? That election?]

“The greatest county ever founded elected a Marxist/Socialist to the highest, most powerful office in the world. Just like when 98% of the people ‘voted’ Hitler into office. The last electorate had about as much knowledge of who Obama is as most people know about the Shah of Iran. This election is to try and get some Americans into office. [The Shah… deposed puppet of the United States… that Shah? Just trying to follow you here.]

“We have nothing up there now but thugs, thieves, socialists and perverts.” [What about the previous group of thugs, thieves, socialists and perverts? Why all the fury now?]

“I fail to see the benefit of not voting,” writes another, getting our suggestion ass-backwards, “or moving to another country to escape the financial catastrophe to come. How do you think you’ll avoid it by ‘sitting this one out’? The economic world is global now, and the only answer is to stand our ground and demand better government.

“As President Reagan said, ‘If not us, then who? If not now, then when?’

The 5: “As it turned out,” we quote our friend Doug Casey referring to the Reaganites in yesterday’s Whiskey & Gunpowder, “it wasn’t them and it wasn’t then. The worst enemies of individual liberty are knaves that claim they’re for it but utterly betray it. And incompetents and ineffectual fools who say they’re trying to save freedom by increasing the size of the state.”

“Addison, for the last 20 years I have been working to hold up the right wing of the Republican Party as a volunteer. All of a sudden the Tea Party folks have discovered we have a problem with debt and our leaders have disregarded the protections afforded by our Constitution. They rail and carp against the ‘Republicans’ when in fact the Republican Party is made up of those who show up! Where have they been the last 20-plus years!

“You and I elect individuals that represent us, not political parties. If we elect more than half of the 535 Congressmen as solid conservatives, we will get conservative results. If we are one vote short of a majority, we get nothing but compromise. With Republicans in control of Congress, every item in the 1994 Contract With America was brought up for a vote as pledged, but there were not enough conservative votes and many items did not pass.

“It is not the Party that is stupid; it is the conservative voter who has neglected his civic duty that has brought us to the point of collapse! Political involvement is not all that fun, it takes time and money and there is conflict, but it has to be part of your life if you expect our society and economy to continue.”

The 5: Hmm… how about a political system whereby citizens — and now corporations, too — seek the greatest plunder in exchange for ‘votes’? Isn’t that kind of stupid, too? We’re witnessing the fruits of such a system day by day.

“Democracy is the worst form of government,” we’ll save you the trouble of quoting Winston Churchill, “except all those other forms.” Trust us, we’ve heard them all. Show me someone who takes their civic duty seriously — a true citizen representative — and I’ll cast my vote.

“An interesting idea I recently heard proposed,” suggests another reader. “We should include a vote for ‘None of the Above’ on the ballot. If no candidate listed gets more than 50% of the vote, all of the candidates are eliminated and a new election with new candidates is scheduled.

“At least we could stop holding our noses and voting for one of the candidates that seems only slightly better than the others but is still not a favored candidate. Of course, the real problem could become no one getting a majority vote to overcome the ‘None of the Above’ vote, making the election gone on forever.”

The 5: Voters in Nevada have had the option of voting for “None of These Candidates” for over 30 years. Somehow they managed to put Harry Reid in charge of the Senate for the last four. Good grief.

“The problem is that we can’t choose ‘None of the above‘,” our final reader responds on the 5 blog. “We’ve seen what the big picture looks like, and we’re sick of both parties. Now, voting takes work, but it’s our responsibility because the cost of failure is too great.” [Ed. note: Read the whole post here, it’s one of the few cogent pro-voting arguments of the day.]

The author of the book “None of the Above“, of course, begs to differ. In fact, Sy Leon “makes an elegant case that people should be free to mind their own business and not be set upon by politicians.” Would that the world be in such a state. Amen.

The author goes on to “challenge the view that government intervention is essential to keep society functioning and prevent chaos.” Indeed, it’s worth a read. Order your copy right here.

Cheers,

Addison Wiggin

The 5 Min. Forecast

P.S.: Other than that, relax. The election will be over tomorrow. We’ll be back to business as usual. And on our real beat… poking fun at the Fed!

P.P.S.: It’s not just “banks, insurance companies and foreign central banks” that stand to be hurt by the central bank’s latest machinations. How about your pension, which undoubtedly sits on a lot of Treasuries?

It’s one more reason to consider alternative sources of income, like the kind Jim Nelson digs up every month in Lifetime Income Report. Learn about his favorite idea right here.

rspertzel

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