As Americans chase yield due to Federal Reserve artificially suppressing interest rates, main street is piling into the stock market while insiders dump.
U.S Treasury Yields
3 Month = 0.11%
6 Month = 0.12%
12 Month = 0.13%
2 Year = 0.15%
5 Year = 0.27%
10 Year = 0.60%
30 Year = 1.29%
Inflation Mandate: 2%
— Gold Telegraph ✪ (@GoldTelegraph_) July 23, 2020
Millions of Americans are beginning to enter the stock market to cash in on this mind-blowing rally these last few weeks.
It was reported that investors over at E-Trade Financial opened roughly 260,500 retail accounts in March, more than any full year on record. The company’s rival Robinhood, a widely popular trading app, reported a record of three million new accounts in the first quarter.
This is all happening as we have seen over 3,600 corporations file for bankruptcy protection since early March. Representing a 26% jump from a year ago. Some of the companies that have filed bankruptcy are:
Some companies that have filed for bankruptcy this year:
Dean & Deluca
Le Pain Quotidien
Modell’s Sporting Goods
Who’s next? 🤔
— Gold Telegraph ✪ (@GoldTelegraph_) July 2, 2020
According to Reuters, one of the most bizarre things about these bankruptcy filings is that a large number of the big companies that pursued bankruptcy protection awarded millions of dollars in bonuses to their executives within months before filing.
Their reporting shows that several companies, including J.C. Penney and Hertz, approved bonuses “as few as five days before seeking bankruptcy protection.” Meanwhile, millions of Americans remain laid off work due to the economic downturn triggered by the coronavirus in early March.
To make matters worse, company executives are now dumping stocks. The ratio of companies with insider buying compared to insider selling is at 0.27 in July, the lowest level since at least 2000, according to the Washington Service, a provider of insider trading and data analytics. The ratio has come down significantly since its 11-year high of 1.75, set in March.
Almost 1,000 corporate executives and officers have sold shares of their own companies this month.
One of the most notable sellers was BlackRock’s CEO Larry Fink. According to SEC filings, Mr. Fink sold more than 40,000 shares of the company’s stock worth about $24 million.
This is peculiar because the BlackRock was hired by the Federal Reserve in early March to oversee several debt-buying programs on behalf of the U.S. central bank. If Mr. Fink was confident in this “V” shape recovery, would he be selling his company’s equity? Hard to know. But on a fundamental basis, other than precious metal miners, most companies in a wide range of industries are preparing for horrible earnings.
In fact, second-quarter S&P 500 earnings are expected to decline by 43.5%, with revenues falling by 11.5%, the largest year-over-year drop since Q4 2008 (-69.1%).
With precious metals surging, silver and gold producers are expected to be the rare exception for having a fantastic Q2. It will be interesting to see if capital begins to rotate as the big producers begin to increase dividends and showcase significant increases in free cash flow as companies in other industries showcase their struggle to recover.