The Credit Bubble has Popped. What can be done?
Pop! Sssssssss. Â
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That’s the sound of the credit bubble deflating. The Federal Reserve, acting as an enabler, has kept rates too low for too long allowing an obscene credit bubble to inflate. Now we are feeling the pain. This abnormal policy created a distortion in capital flows making credit nations with low propensities for consumption our “dealersâ€, by taking their excess savings in the form of capital and channeling right back into the US economy, essentially allowing us to spend their savings as if it were our own. This created the illusion of prosperity, allowing Americans to maintain their high standard of living despite Washington’s lush spending habits.Â
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An unintended outgrowth of this debt subsidy was the creation of an underground financial system in the form of sub-prime loans, SIVs, CDOs, etc, bringing capital to places it wouldn’t otherwise have reached. This helped perpetuate a housing boom with prices rising by more than 20% annum. Homeowners were thus able to tap into their newfound riches in the form of home equity loans, funneling the money back into the economy and fueling the economic boom. As is want to happen in any bubble, excess ultimately built up in the system.Â
Sphere: Related Content8 Stocks with Heavy Insider Buying
One of the best routes to success in the stock market is following the trends of insiders. When managers are bailing out of a stock in droves there they usually have pretty good reasons, reasons that aren’t always apparent to the public at large. Look at all the major bubbles of recent memory. Looking back, if only we had the foresight to follow the insiders as they jumped ship we could have been spared so much pain. The insiders were bailing out of mortgage and housing stocks last year and look what wound up happening. There is another side of the coin. Heavy insider buying is usually a great indicator that those in the know believe a companies assets are undervalued. By adhering to a discipline of purchasing quality companies with heavy insider ownership that is trending higher, you will do very well over the long haul. With the market getting beaten around so far this year, a sound strategy is imperative.
The insiders of the following 8 companies have been loading up on shares. If you are looking to throw some money into the market now that it is well off it’s highs, these could be very attractive candidates:
- Adobe Systems - Just initiated a $30 million share buyback. Taking shares out of circulation increases the value of those that remain. A bullish sign.
- UPS - Putting aside the incredible story that UPS is (Take a look at Tom Friedman’s Freakanomics and you will mortgage your house to buy UPS stock. That’s if you can get a mortgage, but that is another story.)  The company is currently buying back $10 billion worth of shares. Wow.
- NII Holdings - Currently buying back 6% of all outstanding shares.
- Blackstone Group - Currently buying back $500 million in shares.
- Hearst Argyle Group -Â The Hearst Family Trust bought more than 400,000 shares of the company in December between $21.31 and $22.37 a share.
- Lee Enterprises - recently announced a share buyback plan of up to $30 million, through cash.
- CKE Restaurants - last week said it increased its buyback program by $50 million, making the limit of its total repurchase program $400 million. The stock trades for 6.5x cash flow.
- Embarq Corp. - recently announced that its board has approved a 10% increase to its quarterly dividend and a $500 million share repurchase authorization.
