Stock Take

INSIDER INFO: A new report from research firm TrimTabs has found that US firms spent $124 billion (€86 billion) in stock buybacks in the last quarter. So executives are positive? Maybe not – directors spent less than $2 billion of their own money on company stock.

With a ratio of more than 70:1, “there has never been such a sharp contrast between what insiders are doing with their own money and what they’re doing with the money of the companies they manage”, says TrimTabs chief executive Charles Biderman.

It gets worse. The 30 firms that announced the biggest buybacks this year spent $168 billion doing so. Insider buying occurred at just six of these companies, and amounted to less than $10 million – a ratio of 16,800:1. “While insiders are willing to use corporate cash to try to support the value of their stock-based compensation, they don’t seem to think their stocks are attractively priced,” sniffed Biderman.

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LAW MATTERS: Bankers wildly applauded JP Morgan chief executive Jamie Dimon after he confronted Federal Reserve chairman Ben Bernanke at a recent press conference.

Regulations demanding higher capital requirements were damaging the economy, he warned, asking if anyone has researched the “cumulative effect of all these regulations”.

As it happens, they have. Last year, a study by the Bank for International Settlements found that the effects of higher capital requirements on bank lending “will not be large”. A study by the Brookings Institution agreed that lending changes would be “trivial”, with the author scoffing that bankers’ warnings were “significantly exaggerated”.

A Harvard University study examining data going back to 1840 found there to be no statistical correlation between bank capital levels and loans.

Regulations may hurt bank profits, it seems, but they won’t damage the global economy.

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OPTIMISTIC ANALYSTS: Analysts, those perennial optimists, continue to raise earnings estimates, even as poor economic data persuades market strategists to do the opposite.

Analysts focus on individual companies; strategists focus more on macroeconomic developments.

Currently, the gap between analyst and strategist earnings estimates is 5.6 percentage points, the widest disparity in three years.

Market strategist and blogger Barry Ritholtz this week said analysts “almost never see the storm coming until it is too late”.

Analysing earnings is insufficient; by the time broad macro conditions are seen in earnings, a cyclical downturn is already under way, he warns.

No fan of forecasting, Ritholtz agrees with JK Galbraith that economists exist to make astrologers look respectable. And analysts? They exist to make economists look respectable.