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March 30th, 2020 10:34 am
Some Potentially VERY Good Economic News
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Here’s some potentially VERY good economic news that was lost amid the weekend news flurry.  Those with “skin in the game,” and who likely possess the best perspective, are betting heavily on an upturn, as highlighted by Friday’s Wall Street Journal:

Corporate insiders are buying stock in their own companies at a pact not seen in years, a sign they are betting on a rebound after a coronavirus-induced rout.  More than 2,800 executives and directors have purchased nearly $1.19 billion in company stock since the beginning of March.  That’s the third-highest level on both an individual and dollar basis since 1988, according to the Washington Service, which provides data analytics about trading activity by insiders.”

Here’s why that’s important:

Because insiders typically know the most about their companies’ outlook, evidence of buying can signal corporate optimism and reassure investors, especially in times of turmoil.  ‘I’ve never seen a number like that before,’ Dr. Nejat Seyhun said, referring to the buy-to-sell ratio that he calculated for the energy sector.  Beyond Marathon Oil, insiders at companies including Exxon Mobil Corp., Sunoco LP and Continental Resources Inc. have also purchased shares.  He said the increased level of buying may signal that energy executives believe ‘the oil price war is not going ot last too long.’  Dr. Seyhun’s research over the years has found that insider activity can be a ‘solid’ predictor of future returns.  Stocks that insiders purchased during the 1987 stock market crash ‘bounced back,’ he said.”

We often malign insiders who dump stock before a downturn, so in this case we should welcome the signs of spring that insiders who tend to be most knowledgeable and possess actual skin in the game are heavily optimistic.  As we noted in our Liberty Update commentary last week, that may signal a closer similarity to 1987’s crash, which witnessed a return to normalcy and prosperity soon thereafter, as opposed to 1929 or 2008.  Staying the course on the lower-tax, less-regulatory environment that gave us the strongest economy in history when we entered this pandemic will help along the way.

 

 

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