ASLE - CDT Insider Sentiment Ratio August 2023: Normal-High Risk

2023-09-08 07:30:00 ET

Summary

• Our quantitative framework is observing an expensive market against an attractive fixed income environment; a marked increase in unemployment and a normal/low insider sentiment.
• For now, we continue to see the value of prudent risk management, at least until there is a meaningful reset in market valuations, a big drop in interest rates, or better yet, both.
• Insider activity picked up nicely in August, but sentiment simply got off the mat from year-to-date lows and continues to undulate between the low-to-normal sentiment line. We continue to exercise caution.

Remain Seated

Exiting August, we continue to exercise caution. Our quantitative framework is observing an expensive market against an attractive fixed income environment; a marked increase in unemployment (although at low levels, we believe that it is the rates of change that matter most for this datapoint) and a normal/low insider sentiment. Therefore, for now, we continue to see the value of prudent risk management, at least until there is a meaningful reset in market valuations, a big drop in interest rates, or better yet, both. As noted above, insider activity picked up nicely in August, but to be sure, we are saying that sentiment simply got off the mat from year-to-date lows and continues to undulate between the low-to-normal sentiment line. Furthermore, outside the bounds of our quantitative framework, we believe that some upcoming developments will put further pressure on the economy; namely, student loan payments are resuming this month (the equivalent to raising taxes on a large portion of the population) - if you are not aware, these payments were suspended as a COVID-related economic relief measure; at the same time, interest rates are at recent history highs and oil prices are headed back toward $100 per barrel (but hopefully will not get there). On their own, any one of these developments could sedate economic activity, but together they represent the economy’s first true post-pandemic challenge. This cocktail of foul headwinds could be the reason why we have not yet observed a more pronounced and sustained rebound in insider activity. Regarding the less-than-sanguine set-up, the National Retail Federation, typically an optimistic bunch, noted in their August update that, "the current framework clearly increases the chance of a slower economy." While Macy’s ( M ) management, in the their most recent quarterly report , noted, "In light of ongoing macroeconomic pressures and uncertainty on when those will abate, the company continues to take a cautious approach on the consumer." Throw on the threat of yet another drama brought to you by the folks in Washington D.C. and we note that a conservative allocation approach as suggested by our quantitative models is clearly warranted.

Expect some turbulence ahead.

How it Works

Objective:

Predictive model that measures the historical relationship between insider sentiment and the future probability of downside volatility (risk).

Insider Trading Activity:

Purchase activity of an insider’s own stock filtered by proprietary parameters to scrub noisy data.

Insight:

Executive-level insider sentiment is an indicator of near-term financial market risk.

- Low executive sentiment suggests a high level of risk

- High executive sentiment suggests a low level of risk

Scale: A ratio of current insider trading activity in relation to historical patterns

- (0 to ?) with a historical median measure of 1

- Below 1 implies an above normal level of risk

- Above 1 implies a below normal level of risk

Frequency:

The measure is updated daily and historically been subject to swift and possibly extreme shifts.

*This webpage is updated monthly and provides just a snapshot of the most recent month-end.

Disclosures

This presentation does not constitute investment advice or a recommendation. The publisher of this report, CDT Capital Management, LLC (“CDT”) is not a registered investment advisor. Additionally, the presentation does not constitute an offer to sell nor the solicitation of an offer to buy interests in CDT’s advised fund, CDT Capital VNAV, LLC (“The Fund”) or related entities and may not be relied upon in connection with the purchase or sale of any security. Any offer or solicitation of an offer to buy an interest in the Fund or related entities will only be made by means of delivery of a detailed Term Sheet, Amended and Restated Limited Liability Company Agreement and Subscription Agreement, which collectively contain a description of the material terms (including, without limitation, risk factors, conflicts of interest and fees and charges) relating to such investment and only in those jurisdictions where permitted by applicable law. You are cautioned against using this information as the basis for making a decision to purchase any security.

Certain information, opinions and statistical data relating to the industry and general market trends and conditions contained in this presentation were obtained or derived from third-party sources believed to be reliable, but CDT or related entities make any representation that such information is accurate or complete. You should not rely on this presentation as the basis upon which to make any investment decision. To the extent that you rely on this presentation in connection with any investment decision, you do so at your own risk. This presentation does not purport to be complete on any topic addressed. The information in this presentation is provided to you as of the date(s) indicated, and CDT intends to update the information after its distribution, even in the event that the information becomes materially inaccurate. Certain information contained in this presentation includes calculations or figures that have been prepared internally and have not been audited or verified by a third party. Use of different methods for preparing, calculating or presenting information may lead to different results, and such differences may be material.

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