From enrique at anise.ee.cornell.edu Thu Jan 13 16:31:49 2000
http://www.trimtabs.com/dects.shtml
This guys make almost the same analysis Jordan Hayes makes
of the Greenspan Bubble: it's simply a supply-demand
imbalance.
My outlook is more complicated than that: I also factor in tax policy to the demand side of the equation. They don't seem to mention that anywhere, they are just interested in the actual float. I think even if the float was flat, the demand will continue to grow. In fact, the float would have to expand mightily just to approach stasis.
However, they say that the unbalance is about to turn the
other way. Corporate insiders have helped themselves to
so many shares and will be dumping them so fast, that
buybacks, cash takeovers, foreigners trading goods for US
paper and individuals putting stocks on their Visa will
not be able to absorbe them plus the torrent of new IPOs
coming up.
I guess. I'm not sure how to "check their math" but it seems like just a few large mergers can wipe out a whole slew of IPOs and groups of insiders coming off their lockup periods. There's a whole group of people who think that watching what insiders do is important. I'm not part of that group, except on the buy side: there are all kinds of reasons to sell stock; there's only one good reason to buy it.
What do you think, Jordan?
I think that insiders who are able to sell aren't going to dump everything anyway: it's bad for press (the higher up you are in an organization, the more important it is to be a holder), it's bad for their their remaining holdings (selling will drop their price), and it's bad for their own personal portfolios (okay, you sold a bunch, you have cash, now what?).
So why sell? Okay: buy a house, the new red Porsche[*] you've been eyeing, a big piece to Uncle Sam (all of which are positive for the economy in general, and diversification in the specific), then what? You have to do something with that money, and chances are you'll turn back to the stock market. So this process won't have as much impact on things as they think. Also, if anything, the tax policy driving new money into the market is accelerating (401(k) limits are up to $10.5k this year). And if they buy some bonds, they can help keep interest rates low :-)
[*] It occured to me the other day driving across the Bay Bridge and watching some 50's-something squished into a shiny new red Porsche that the intention ("I have enough money to buy this new car!") falls flat and comes off as "I don't have enough money to stop having to drive myself!" ... :-)
/jordan