US shows two negative indicators

Corporate insiders, apparently bullish no less than a month ago, have been selling nearly seven shares of their company’s stock for each share they are buying. When there is a major rally from summertime lows, you can typically observe the public starting to unload. But insiders seem better than average at buying their own stock on highs and lows. Recently, during the 2012 November lows, they were selling only three shares for every two shares they bought. During the summer lows, the ratio was 2:1.

This rate of selling is high above the long-term average, and close to relatively highs. This suggests that the market is coming up on a correction.

Meanwhile, another report brings grim tidings: The United States’ current account continues to shrink — imports are falling fast.

According to the data, imports are now down two months in a row having fallen 8.4% in the third quarter and 2% in the prior quarter.  This is a rare event and has definitely raises the recessionary “red flag,” according to Robert Brusca, chief economist at FAO Economics. When the economy weakens, imports weaken rather quickly, Brusca notes.

The last time imports declined for two quarters was in 2009, the end of a four-quarter slide in imports during the Great Recession.

Fewer imports is a sign that domestic demand is faltering. A recession is “a real risk,” Brusca said.

Note that the first indicator is probably aggravated due to the fiscal cliff, the second indicator is not.

When the US enters a recession and joins almost every other major economy, Canada will be quick to follow.

Don’t count on flood of cap-ex for 2013

There seems to exist a collective hope among financial professionals that there will be a flood of capital expenditures from cash-rich firms when (if?) the “fiscal cliff” is resolved in the US. Unfortunately, there is not always a positive market correlation with increased capital expenditure. Even if there were, Mr. Parker from Morgan Stanley suggests there is no reason to believe this is coming.

  1. Capital expenditures expected to decline in 2013, from near average levels in 2013. Therefore, upside not expected.
  2. Overall manufacturing utilization is still below long term average. Current trends indicate slowing utilization.
  3. Historical analysis suggests pent-up spending in some sectors, yet fundamental analysis suggests otherwise.
  4. Global inventory-to-sales has been flat for 10 years, there is no evidence suggesting a big capacity surge is forthcoming.

Rather than big cap-ex, 2013 will see mostly lay-offs.

— View the charts and read the analysis —

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