Insider trading won't go away

STOCKTAKE:Wall Street is abuzz with chatter that SAC Capital, one of the most successful hedge funds ever, is facing fraud charges connected to insider trading in Elan.

SAC aside, a Wall Street Journal investigation examined 20,237 company executives who traded their own stock since 2004. Of these, 1,418 recorded double-digit gains within a week – almost double the number who suffered double-digit losses.

It also looked at insiders who made irregular stock purchases, dipping in and out, compared to those who stuck to a consistent yearly trading plan. Quick gains were much likelier to accrue to the former.

Executives can also cancel scheduled share sale plans. Nearly half of early terminations occur within 90 days of positive news being announced. Only 11 per cent of terminations precede negative news.

A soon-to-be-published study also finds that better investments are made by fund investors who meet company management most frequently.

Insider trading will never disappear from markets. That’s partly why news follows price, not the other way around.

Old’ world to strike back

2013:European Assets Strike Back, is the title of Société Générale's global investment outlook for next year.

Packed full of charts, its enthusiasm towards Europe is best captured in one which compares the valuations of 10 sectors – healthcare, technology, oil/gas, telecoms, consumer services, basic materials, utilities, industrials, consumer goods and financials – in the US and Europe. Which euro zone sectors are cheaper on a price-to-book value basis?

“All of them”, Soc Gen notes, with huge differentials ranging from 35 per cent (healthcare) to nearly 60 per cent (financials). It’s recommending that investors allocate 20 per cent of their portfolio to European and UK equities compared to just 10 per cent for the US.

Volatility low, uncertainty high

Last Wednesday, the Dow closed up more than 100 points (some 0.8 per cent) after being down by more than 100 points earlier that day – the first time this has happened in a 2012 that hasn’t seen much volatility.

Europe has also been sleepy. The VStoxx, Europe’s so-called fear index, fell below 17 last week – its lowest level of 2012, and way below its long-term average of 26.

Similarly, volatility in the currency markets has diminished, and monthly euro/dollar ranges are now close to their all-time lows in 2006, Bank of America Merrill Lynch noted last week. Paradoxically, this low volatility has been accompanied by high uncertainty. Unsurprisingly, given the major economic risks across multiple regions, investors are tracking policymakers. Breaking news then leads to “sudden and rapid moves” followed by range-trading.

Most wonderful time of the year

While most Asian markets have been flying of late – Japan’s Nikkei, for example, surged from 8,600 to 9,400 in a fortnight – China’s Shanghai Composite Index last week fell to its lowest level since January 2009. It is now below 2,000, a psychologically important level where many had expected government support.

December is here – historically the best month for US stocks. November, December and January have been the three best consecutive months of the year, notes Jeffrey Hirsch in his new book The Little Book of Stock Market Cycles. “If you were only to be invested for three months out of the year, these are the months.”

Sweden’s stock exchange had to be closed last Wednesday after a computer error led to an attempted purchase of 4.2 billion futures contracts. The buy order had a theoretical value of approximately €53 trillion.