Investors everywhere are convinced that the dividend asset stocks and bonds are safe and highly stable. Therefore, they have piled into them at an all-time record pace. Whenever there is a bubble for anything, regardless of whether it’s internet shares or residential housing prices or high-dividend assets, there are zero implications for the economy other than the obvious one. The bubble must collapse and cause massive losses for those who are participating in it.
Currently, speculators specifically, are fully invested in developed-market stocks, high-dividend assets, the U.S. dollar, U.S. Treasuries and bonds of all kinds. The financial media have almost entirely focused on the subject of “how high the Dow Jones Industrial Average and the S&P 500 index will go.”
However, one of our leading indicators, “the insider buying and selling,” is telling a different story. They are doing absolutely the opposite.
Insiders have been busy buying emerging-market equities, the shares of commodity producers notably gold companies. The heaviest activity is the ratio of insider buying to selling in gold company shares (10 to 1). The gold stock insider buying ratio is higher now than November 2008. Smart money actually is betting on the US dollar index going down. The insiders are diligently avoiding high-yielding assets. In fact, the insiders of high-yielding assets like REITs, utilities and consumer staples have sold heavily earlier in the year, which is when we cashed out of all our broad market equity ETFs such as SPY, IWM and EFA.
The ETFs that we are still holding in position are the ones that are heavily commodity based, specifically EWZ and XIU.
So heads up: the insiders are confirming our belief that gold, raw materials and energy assets are the most unappreciated sectors of the market these days.