Here's some cold water for a red-hot stock market: Executives are rushing to sell their companies' shares at a pace not seen since 2001.
More than $3.1 billion in shares was sold in May by corporate insiders, the most such selling in 24 months. By comparison, monthly stock sales by insiders failed to exceed $1.4 billion during each of the previous five months, and just $630 million of sales took place in January, according to research firm Thomson Financial.
The moves are a concern because insider buying and selling -- by people who presumably are the most knowledgeable about their companies' prospects -- have been good predictors of the market's direction. For example, many executives sold their holdings in early 2000, just before a bear market in stocks began. Now, many again are locking in profits -- especially in health care, technology and finance stocks -- on the heels of the market's recent gains.
Shareholders Will Pick Up the Bill This Time, Too
by GRETCHEN MORGENSON
SHAREHOLDERS who had been both bloodied and bowed by revelations of improper accounting at Xerox during the late 1990's took another hit on Thursday. That's when the company said its shareholders would pay most of the $22 million in penalties levied by the Securities and Exchange Commission against six former executives in settling the case.
Only $3 million of the penalties, classified by regulators as a fine, would be paid by the executives named in the case. Xerox also disclosed that its long-suffering shareholders would pay the legal fees of the individuals who had settled the case without admitting or denying guilt.
The $19 million and undisclosed legal fees may be chump change compared with the billions in losses that Xerox shareholders have incurred since reports appeared of accounting irregularities at the company. But requiring shareholders to pay regulators' penalties certainly adds insult to injury. It illuminates yet another failing in corporate governance, one that shareholders must pick up their pitchforks to correct.
Unfortunately, Xerox shareholders are not alone in being required to pay such a bill. Because of so-called indemnification provisions in most companies' bylaws, shareholders almost always end up paying the penalties to which company officials agree when they settle with regulators. But the provisions can also mean that shareholders cover these costs when companies choose to litigate such cases rather than settle without admitting or denying guilt...http://www.nytimes.com/2003/06/08/business/yourmoney/08WATC.html
The trouble for the Fed, though, is that when it cuts rates, the money doesn't necessarily flow to the parts of the economy where it can do the most good. Despite all the money that the central bank has pumped out, industrial companies remain gun-shy about taking on new debt to finance investment. Commercial and industrial loans at banks have actually shrunk over the past year, by $75 billion according to the Fed.
Even though lending rates are extraordinarily low, chief executives in the goods-producing sector are reluctant to borrow for fear that, with prices falling and demand lackluster, they will have a hard time repaying loans. In essence, manufacturers are mired in a localized deflation and low interest rates make very little difference to them. Adjusted for expected deflation in the price of goods they sell, real interest rates for those firms "have been going up," says Wachovia Corp. economist Mark Vitner.
Fed officials say that Corporate America is also holding back on borrowing and investment because company execs are still skittish in the wake of recent accounting scandals. Rather than focusing on ways to expand their businesses, corporate execs are focused on minimizing risk and keeping their jobs.