This strikes me as something that might be notable:
CEOs and corporate insiders have sold a record $69 billion in stock in 2021, as looming tax hikes and lofty share prices encourage many to take profits.
From Satya Nadella at Microsoft to Jeff Bezos and Elon Musk, CEOs, founders and insiders have been cashing in their stock at the highest pace on record. As of Monday, sales by insiders are up 30% from 2020 to $69 billion, and up 79% versus a 10-year average, according to InsiderScore/Verity, which excludes sales by large institutional holders.
The selling is likely to increase even more as December is often an active month for sales due to tax planning.
In particular, Microsoft CEO Satya Nadella just sold about $285 million worth of his stock in the company, which is about half of it. That seems like something that might be important.
Could these CEOs and insiders be preparing for a big market crash?
While some market watchers see insider selling as a warning sign and signal of a market top, many of the stocks sold by the insiders — including Tesla and Amazon — have continued to surge after the selling.
That doesn’t mean anything. The market could still crash in the future.
And most of the stocks were sold as part of prescheduled selling plans, known as 10b5-1 programs.
The question is, how long have these 10b5-1 stock sales been “prescheduled” for? A month? 6 months? A year? 2 years?
The bulk of this year’s sales have been highly concentrated among a few large sellers, including Musk and Bezos, who each sold around $10 billion in stock this year. Ben Silverman, director of research at InsiderScore/Verity said the top four “super sellers” — Musk, Bezos, the Waltons and Mark Zuckerberg — account for 37% of this year’s total.
It’s a little concerning that the richest people in the world are all cashing in on their stock.
Musk sold another $1.05 billion in Tesla stock last week as part of his options exercise and tax payments. His sales since his famous Twitter poll on Nov. 6 now total $9.85 billion, with about half for options-related taxes and the rest for a straight cash-out.
Jeff Bezos sold a total of $9.97 billion in Amazon stock this year. While his activity is roughly in line with his stock sales last year, they are four times larger than his sales in 2019 and far higher than his sales of $1 billion a year in earlier years. Filings with the Securities and Exchange Commission show the sales are part of a 10b5-1 plan.
There is defintiely something to the tax hike explanation:
….Nadella will also save on taxes by selling now rather than next year. Starting Jan. 1, the state of Washington will impose a 7% tax on capital gains over $250,000. Nadella could save up to $20 million in state taxes by selling ahead of the tax hike. Bezos could save up to $700 million in Washington state taxes because he sold before January.
Federal taxes are also likely to increase for high earners, leading some CEOs to cash in to avoid the hikes. The House has proposed a new 5% surtax on income over $10 million and 8% on income over $25 million.
“Potential tax rate and code changes at the federal and state level are likely a motivator for some sellers,” Silverman said.
But that’s not all that’s behind the selling.
Perhaps the biggest factor driving up the sales total, however, is high stock valuations. Adam Aron, the CEO of AMC Entertainment, which is up more than 1,500% this year, sold 625,000 shares of AMC stock last month for about $25 million. He plans to sell a total of 1.25 million shares as part of what he told investors on an earnings call was “prudent estate planning” given the “potentially soaring capital gains tax rates and significant changes to what can be passed on to one’s heirs.”
Stock valuations right now are at nearly all-time highs.
The Shiller P/E ratio has only ever been higher at the height of the Dot Com Bubble in late 1999.
Now, a lot of people would say that the difference between today and the early 2000s is that the Fed isn’t hiking interest rates. We still have 0% interest rates today, and normally the thing that pops stock market bubbles is rising interest rates.
Today, Yahoo Finance reported on Fed Chairman Jerome Powell’s recent remarks:
Hedge funds, which use borrowed money to amplify returns, have gone risk-off in a major way just as the S&P 500 endured its biggest two-day rout since October 2020. Net leverage, a measure of industry risk appetite that takes into account long versus short positions, fell to a one-year low this week, according to data compiled by Goldman Sachs Group Inc.’s prime brokerage.
The move is in contrast to retail traders, who renewed their manic dip buying after Tuesday’s rout, pushing stocks higher by amost 2% earlier in Wednesday’s session. Then Jerome Powell reinforced his message that the Federal Reserve would keep inflation in check and officials confirmed the first case of the omicron variant in the U.S. That sparked an afternoon selloff that left the S&P 500 with its biggest reversal since April 2020.
The Omicron variant is a distraction. In no way, shape or form will it threaten the stock market rally. It’s a media scam.
But the Fed isn’t:
Few corners of the market were spared, as small caps gave up a 2.5% surge to end lower by more than 2%. Bitcoin dropped below $57,000, oil hit $65 a barrel and Treasuries rallied on demand for safety. The S&P 500 is now down 3.1% in two sessions and more than 4% from its last record on Nov. 18.
The reasons for the mass exodus are varied. Some managers pointed to tax-loss harvesting ahead of the end of the year, while others suggested investors were rushing to lock in gains that topped 20%. Front and center remains the change in tone from the Fed.
The market hangs on the Fed’s every word. If the Fed signals dovishness, it’s a green light to buy. But the moment the Fed starts talking about hiking rates or becoming more hawkish–in other words “taking away the punch bowl”–the market freaks out.
And the reason Powell is sounding more hawkish is because he is growing concerned about inflation. The Fed has a “dual mandate”: promote low unemployment levels, and keep inflation in check. The Fed’s target rate for inflation is about 2% per year, but we’re now up above 6%, and probably even higher than that if you go by different metrics.
“We’ve seen inflation be more persistent. We’ve seen the factors that are causing higher inflation to be more persistent,” Powell told lawmakers Wednesday after decommissioning the term transitory to describe higher prices a day earlier. The upshot has been a rush to reprice assets with the prospect of higher interest rates sooner than investors had been anticipating.
Remember when the Fed and the government said inflation would be “transitory”?
They’re not saying anymore. In fact, Powell explicitly said he would no longer be using the term “transitory” to describe the current inflation.
The inflation is no longer transitory. It’s “persistent” now.
Separate data on hedge fund positioning from Bank of America Corp. showed a similar trend of deleveraging. The firm’s hedge-fund clients dumped more than $2 billion of stocks last week, exiting the market at the fastest pace since April.
So it isn’t just a few uber-rich CEOs who are selling stock. A lot of wealthy people are selling stock.
No doubt part of it is to avoid higher taxes that will be in place next year.
But taxes aren’t the whole story.
The Houston Chronicle has more on Powell:
In a fresh sign of his growing concerns about inflation, Chair Jerome Powell said Wednesday that the Federal Reserve can’t be sure that price increases will slow in the second half of next year as many economists expect.
So they think inflation will continue running hot all the way through next year? Yikes.
In the past, Powell, who was nominated last week to a second four-year term by President Joe Biden, has frequently expressed his belief that these supply-and-demand imbalances should fade as the pandemic eases, which would reduce inflation. But on Wednesday, he said that while such an outcome is “likely,” it is only a forecast.
“The point is, we can’t act as if we’re sure of that,” he said. “We’re not at all sure of that. Inflation has been more persistent and higher than we’ve expected.”
So what’s causing all this inflation? Well, as you’d expect, there’s disagreement:
At the same hearing Wednesday, Treasury Secretary Janet Yellen clashed with many committee Republicans, who charged that excess spending by the Biden administration has been a major contributor to high inflation. The administration’s proposed $2 trillion social and environmental spending bill, they further argued, would further accelerate inflation.
“It is the multiple trillions of dollars that this Congress and this administration is spending that is putting jet fuel on the fires of this economy,” said Rep. Patrick McHenry from North Carolina, the senior Republican on the committee. “It is making things worse.”
Yellen countered that the new spending would occur over a decade and would be paid for, which would reduce its inflationary impact. She also argued that the administration’s proposals to spend more on child care subsidies, universal early child care education and the child tax credit would make it easier for many women to return to work after having children. Their return, Yellen said, would help address the labor shortages that are contributing to higher inflation.
The Treasury secretary also defended the administration’s $1.9 trillion financial relief package, approved last March, and said that “at most,” it was a “small contributor” to higher prices, which she said were mostly due to supply chain bottlenecks.
Is it possible inflation is being caused by both?
Or does only partisan politics matter here? These bozos on Capitol Hill don’t actually care about solving the problem. They’re the ones that created it in the first place.
The Republicans are focused on government spending, but that’s not the real driver of inflation. The real driver of inflation–in addition to supply chain “bottlenecks” (which themselves are largely being caused by Covid vaccine mandates)–is that the money supply has dramatically increased over the past two years: 35% of all US dollars that have ever been printed were printed in 2020.
When you print that much money, it’s got to go somewhere, right?
Certainly, a lot of it just goes right into the stock market, or the real estate market, and we see the price inflation occur in those places.
But now it’s happening in the “real world,” i.e. at the stores we shop at.
Again, I’m sure the supply chain issues have a lot to do with it as well. It can be both things.
The point of all this inflation talk is that inflation is the reason the Fed would hike rates. It is a time-honored tradition. When inflation gets “too hot,” the Fed hikes rates to cool the economy down, and then that’s usually when we go into recession and see a stock market crash.
Then, after essentially deliberately crashing the economy and the stock market, the Fed will cut interest rates to spur economic activity, and then the recovery will begin anew, lasting until inflation again starts running too hot, and then we do the whole thing all over again.
Powell’s latest remarks came a day after he signaled a sharp turn toward tightening credit more quickly than the Fed has previously indicated. The Fed chair said Tuesday that it would be “appropriate” for the central bank to consider accelerating the reduction of its bond purchases at its next meeting in mid-December. That step would pave the way to the Fed hiking its benchmark interest rate as early as next spring.
Step 1 is to “taper” the Fed’s bond purchasing, which is essentially how they print money.
The Fed “prints” money (in reality it’s all done on a computer), and then uses that newly “printed” money to purchase bonds from large banks, and the banks take all that newly “printed” money and inject it into the economy by lending it out.
This is a process known as “quantitative easing.” It was invented by the Japanese Central Bank in 2001, but became widely adopted around the world following the Financial Crisis of 2008.
The Fed can either increase the money supply (by buying bonds with newly-printed money ) or decrease the money supply (by selling bonds for money and thereby taking dollars out of circulation). We can track the Fed’s activities by looking at its balance sheet, which is available on the Fed’s website:
Anytime the balance sheet is increasing, it means the Fed is doing quantitative easing (QE).
As you can see, they’ve been doing a hell of a lot of QE since the start of Covid last year.
The point is, when that line stops going up, it means the Fed is no longer doing QE. And when the Fed tapers off QE, then rate hikes are around the corner.
This is what the market is afraid of:
Stock prices tumbled after Powell’s comments. Low interest rates have been a key driver of the stock market to record highs during the pandemic.
They’ve been a key driver of the bull market dating all the way back to 2009, as a matter of fact.
Powell also downplayed sharp wage gains this year as something that could boost inflation further, suggesting that he doesn’t yet see a wage-price spiral developing. In the 1970s, as prices rose steadily, workers were able to demand higher pay to keep up with greater costs. Yet businesses then raised prices further to cover the higher wages, extending the worst run of inflation since World War II.
“We like to see wages move up,” Powell said. “At this point, we don’t see them moving up at a troubling rate that would that would tend to spark higher inflation, but that’s something we’re watching very carefully.”
Famous last words.
Anyone want to bet they’ll “revisit” this assessment in the same way they had to revisit their “transitory” inflation outlook?
Powell also on Tuesday elevated inflation-fighting to a more urgent priority than supporting job growth by noting that higher prices themselves threaten the economic recovery. A long period of growth, he said, is needed to regain the “great labor market” that existed before the pandemic.
Translation: sacrifices will have to be made (by you) so that we can stop inflation from getting out of control.
It sounds like the Fed is gearing up to fight inflation by any means necessary, and that fight could have some collateral damage, namely the stock market and potentially the labor market.
No wonder the elites are selling stock right now.