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Want a Real View of the Economy? Talk to a CEO

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by Andy Summers
Phoenix Capital Research
Posted October 15, 2010

WELL, WE’VE REACHED THE POINT AT WHICH THE MAINSTREAM MEDIA IS FINALLY BEGINNING to understand that the US recovery of 2009 was actually an accounting fiction and that the “green shoots” were just a stupid metaphor. Indeed, just this morning, Fed Chairman Ben Bernanke all but guaranteed he will introduce a large QE 2 program sometime in the near future… which essentially proves not only that QE 1 failed, but that the US economy is on the ropes (why else would we need more emergency policies?).

Let’s put this in perspective…

The US Fed is already buying between $8-12 billion in US debt per week as courtesy of its QE lite program. Moreover, the Fed has been juicing the market on 12 of the last 13 options expiration weeks. So QE 1, for all intensive purposes, NEVER ended. And now, our illustrious Fed Chairman is talking about introducing even MORE QE? Just how awful have things gotten that we’ve got ONE QE program occurring and they’re already talking about introducing a second LARGER one at the same time? Well, according to US CEOs things are flat out awful… as in May 2009 BAD. According to Bloomberg:

Confidence among chief executive officers in the U.S. sank in October to the lowest level since May 2009, when the world’s largest economy was still in a recession, according to a survey from the Business Council… The group’s gauge of expectations for the economy six months from now fell to 51.7, the lowest since February 2009.

If you’ll recall, February 2009 was when everyone thought the whole world was ending. The US economy was literally falling off a cliff with initial jobless claims clearing 600,000 (a 26 year high) while the S&P 500 was collapsing on its way to the March lows of 666.

And US CEOs’ expectations for the next six months are as BLEAK as they were back then… BEFORE the Fed even introduced QE 1?

Lest you think this is merely idle talk, consider that insiders have been unloading their shares by the truckload in the last few weeks. For the week of October 4th 2010, the insider selling to buying ratio was 2,341 to 1 with insiders DROPPING $400+ million in stock and only buying a measly $170,000. This comes on the heels of September 27’s equally insanely bearish ratio of 1,411 to 1 (which by the way was preceded by weeks with ratios of 250 to 1 and 650 to 1).

In plain terms, corporate insiders, the folks who know their business and its prospects better than anyone are dumping shares as fast as humanly possible. They are literally putting their money where their mouths are when they say the US economy is AWFUL and business prospects are on par with those of February 2009 (before Bernanke even thought up that stupid “green shoots” nonsense).

All of this is going to end horribly when the rest of the world realizes what corporate CEOs have already figured out: that the US economy is a full-scale disaster and nothing the Fed has done has improved the situation. This is very much akin to what happened in 2008 when everyone thought that the “worst was over” and kept banking that the Fed would stave off any collapse (just as it did for the Bear Stearns Crisis)… right up until the entire system imploded in late September.

Sometime, and I cannot tell you when, the financial markets will have a similar “wake up call” as they did in 2008. We’ve already got the same set up in place: US banks are being hit from losses related to garbage mortgage securities, commodities are soaring, and the US Dollar is collapsing with everyone shouting that it’s doomed.

This is almost identical to where we were in the summer of 2008. And we all know how that turned out. In plain terms, you should take this rally for what it is: a gift from the market Gods to cash out some profits and prepare for what’s to come.


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