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First with Financial Comment from Arabia

$1.6bn Cazenove sale signals a stock market top

with 5 comments

Cazenove-investment-bank--001When stock brokers decide to sell their business that is usually the best signal of a market top. Always watch what brokers do with their own money, not what they tell you to do.

So the news in today’s Sunday Times that blue-blooded City firm Cazenove is to sell the remaining 50 per cent of its shares to partner JP Morgan should be seen as a market sell signal.

Insiders sell out

Twas ever thus. Recall the sale of British estate agents Hamptons International to Emaar Properties of Dubai just before the UK housing market fell. Brokers are the market experts. They know when to buy and sell.

Cazenove is the stockbroker to Her Majesty the Queen and around 80 former partners are to share in the $1.6 billion sale of the firm. JP Morgan Cazenove as it has been since 2004 is on target to post record profits of around $800 million this year, almost three times last year’s total.

No great surprise there either: the partners are reluctantly selling up when the firm has achieved maximum potential valuation thanks to the volume of business over the past few years.

Could it be that over the next few years stock markets crash and then flat-line on low volume for a decade? Clearly JP Morgan in its infinite wisdom does not think so, and doubtless Cazenove is publicly declaring the need for a home with a bigger group to ensure the full realization of future profit potential.

Sell before a crash?

It is true that over half the 80 partners involved have already retired. Yet if the outlook for the firm were that good would they be selling out now? The dividends over the past few years have been considerable, why give it up?

No the obvious conclusion is that some of the wisest and best connected names in the City think that the game is over. Last autumn’s crash presumably came as a wake up call about market mortality and going for the exit door before the stampede is usually a good idea.

Will others take this cynical interpretation as a market indicator? Probably not, but when insiders sell that ought to mean something. And a sell out by Cazenove partners is surely the ultimate insider trade, at least in UK terms.

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Written by Peter Cooper

November 15, 2009 at 11:22 am

5 Responses

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  1. New investor, welcome to the language of Wall Street and the stock market. “The bulls on Wall Street charge and the bears take cover as the Dow rallies to all-time highs… sending its P-E ratio through the ceiling and its dividend yield south, as analysts anticipate a correction.” If you think this headline is about four-legged animals loose in the city, you need to read this real basic investor guide to stock market language.

    Market Maker Stock Indicator

    November 18, 2009 at 12:07 pm

  2. I think you will find here that globally governments are simply creating money and finding ingenious ways to get it into the hands of the banks who are trying very hard to find things to do with it.

    There’s only so many bonds they can buy. The rest of the money goes into jobbing stocks.

    There’s mad money flwoing in from many funds, privates etc who got shaken out during the fall they’re diving in now to catch some of the party.

    Gold being the price it is must surly be testament to the fact something is “up”.

    We live for now in a fiat money world and for now as money can be manipulated then surely so can any market.

    frank g

    November 17, 2009 at 2:18 am

  3. The invisible hand was surely visible at play in the US market today. Every time the market dipped and shorts bought the invisible hand entered to squeeze shorts out and lift market prices. I have never seen the market in the US to be so corrupt. They surely have taken lessons from out friends in Asia and the middle-east in market manipulations.

    UPRO is now at $150+ and SPXU has taken a bad beating to just over $37. How long this bubble will go on for remains a question but from how I see things after today is that we are headed to 12000 now.

    Andy

    November 16, 2009 at 11:29 pm

  4. From the ETF Profit Strategy Newsletter:

    Rising stock prices have, thus far, covered up even major cracks in the foundation – such as unemployment and bank losses on their mortgage portfolios.

    Ironically, it will probably be falling stock prices that will trigger the media’s renewed interest on what’s really going on.

    Over the short-term, stocks are about to reach major resistance based on its own trend channel, Fibonacci resistance and historical parallels.

    Over the long-term, stocks are still grossly overvalued. This will become all too obvious if you take a look at the levels P/E ratios, dividend yields, and mutual fund cash reserves have reached at major market tops.

    The November issue of the ETF Profit Strategy Newsletter plots the historic performance of the stock market against P/E ratios, dividend yields, and two other trusted indicators, along with target levels for the ultimate market bottom and the top of this rally.

    A picture paints a thousand words and those charts speak volumes about the market’s future. The fire keeps burning as long as there’s wood. Let’s enjoy the heat while we still have it, but be prepared for the cold.

    Peter Cooper

    November 16, 2009 at 10:14 am

  5. Perhaps the tone of this article is too prescriptive. Partners in such a firm go with instincts that defy rational analysis. But after many years in their business they do generally have a very good idea about how to protect their best interests. It is only sometime after the event that people look back and say how well they got their timing for an exit. But often the participants were pretty unsure at the time and a lucky accident happened. But these lucky accidents can be spotted around all key market turning points, and insider sales are one of the best guides to market movements.

    Peter Cooper

    November 16, 2009 at 9:46 am


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