Ardent basketball fans, caught up in the excitement of games, often chant “De-fense, De-fense.” There are several reasons why they do, but all boil down to supporting the home team and discouraging the opposing team. “De-fense” also can be important to Wall Streeters. Has the time come for investors to become defensive?
Actually, under all circumstances you can make a good argument to be defensive with your investments, but that’s true now even more than usual. The following are just a few of the reasons that make a very convincing case for this. Check these out!
*The Kobeissi Letter, an investment publication that comments on equities, commodities and bonds, recently reported that senior executives are dumping stocks at the fastest pace in at least 10 years. At the same time, the percentage of firms whose executives and directors are purchasing shares has dropped to approximately 15% – that’s way below the 10-year average of 26%.
*Squawk On The Street,” a business show that broadcasts from the NYSE, notes that a growing number of billionaires and CEOs are not only unloading their stocks but doing so at an accelerated pace.
The CEO of Snapchat, for example, has a long record of selling his company’s shares without ever making even a single purchase. And he’s far from the only one bailing out of their company’s shares; others include Jeff Bezos, Leon Black, Mark Zuckerberg, Jamie Dimon, Elon Musk, and the Walton family among many others. And in recent months, Warren Buffett has sold tens of billions of stock, a fact revealed through forms he has filed with the government.
Last weekend, news came that Buffett unloaded nearly half of Berkshire’s stake in Apple, surprising by virtue of the magnitude of the sale and also because not long ago he said Apple was and would remain Berkshire’s largest investment. The sale rises its stash of cash to at least $227 billion.
*A growing number of CEOs are resigning. Challenger, Gray & Christmas (CGC), a firm that provides outplacement and related services for executives, said a record number of CEOs left their positions in 2023, and that trend has continued into this year.
In fact, the total who left in March 2024 was the highest for that month since CGC began tracking CEO exits in 2002. And in the first quarter of 2024, 622 CEOs resigned, the highest quarterly number to do so on record. In a separate but somewhat related matter, it’s not only CEOs selling their shares; insiders in many companies also are selling their shares very heavily. So why are so many senior executives giving up their lucrative and prestigious positions? As a group what could they be worried about?
Within Six Months
We could learn the answer soon enough because a clearer picture will emerge and more pieces of this puzzle will be revealed. Meanwhile, various theories have been floated and the following is just one of them. “In the next three to six months in this country, things are going to get absolutely out of control,” says market commentator John Williams. “A lot of people in high positions want to lock in their gains now so they can buy again (at much lower prices) after the dirt hits the fan. That’s what we’re walking into.”
Heavy insider selling always raises a red flag, and it should now, too. However, in Williams’ view, many commentators are not talking about one of the serious problems confronting the market and that’s the most recent personal consumption expenditures data (PCE).
The June report was 2.5%, which was in line with expectations and therefore possibly setting the stage for the Fed to cut rates. So far so good, but there’s more to this story.
Many economists believe the Fed uses the PCE data as their main gauge of inflation and, in this case, it’s running slightly above the Fed’s 2% long range target. They also speculate that the Fed may not take strong measures to get inflation under tighter control now. Instead, they’ll continue to kick the can down the road even if that means the economy will gradually worsen along the way.
Williams is much more bearish about the outlook for both the economy and the market than many others. “Things are going to go from bad to worse almost overnight,” he warns, “because banks have made massive loans and at the same time consumers are in very big trouble. Will those loans be repaid?”
He thinks many will not be, and as a result, “We’re going to see banks contract on lending, a lot of commercial real estate go completely bust and a lot of people will get completely wiped out. People across the board are in really big trouble.”
“It’s Only Just Begun”
Fortune quoted Fed Chair Powell saying that commercial real estate (CRE) is a “problem we’ll be working on for years.” Powell added that the “impact from CRE has just begun.” Just days ago, Harvard Business Review echoed that view when it said “U.S. commercial real estate is headed toward a crisis.” In other words, going forward, there’s good reason investors should be concerned and be defensive with their investments.
Banks know all about borrowers that default on their loans; it happens often enough and comes with the territory. But in the current situation, the problem is not your garden variety loans that don’t get paid. Some basic statistics explain this point better than words can.
In the next two years, over $1 trillion in commercial real estate loans will come due, according to The Conference Board. And over the next three years, that number jumps to nearly $2.2 trillion. And possible defaults on some of these is not the only concern.
Research done by the Wall Street firm Morgan Stanley found that 70% of CRE loans were made by regional banks, which means those regional banks could potentially face very significant losses if the CRE loans they made are not repaid. CRE loans aside, many banks have other problems because they are sitting on huge unrealized losses on their investments, caused by rising interest rates that drove their investments much lower.
In Chinese, the word for “crisis” is written using two different characters. Put together, one means “danger,” and the other “opportunity.” If a crisis drives stocks down as sharply as some fear, hopefully we’ll have taken defensive positions and be prepared for that. We should also get ready to take advantage of any opportunities that arise. People say a lot of things about the market these days, but no one can say it’s boring.
Sources: bloomberg.com; yahoofinance.com; zerohedge.com; YouTube: This Is John Williams: Insiders Selling Everything And Stepping Down
Gerald Harris is a financial and feature writer. Gerald can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
