With the Fed cutting interest rates and tax refund checks all but in the mail, one might suspect that investors would be comforted. Not in Los Angeles.
A look at several economic indicators reveals that a large and increasing number of local investors and business owners are cashing in their chips, or at least large portions of them. Among the higher-profile examples, billionaire Gary Winnick last week unloaded some 10 million shares of his Global Crossing Ltd., and fellow billionaire Alfred Mann unloaded his 17-year-old company MiniMed Inc. and a related privately held research firm. The lion's share of the $3.7 billion sale price was in cold, hard cash.
But the cash-out craze is hardly limited to billionaires. Recent data from Standard & Poor's indicates that the number of insider sell transactions at Los Angeles-based public companies has risen dramatically.
In the past three months, the insider sell-to-buy ratio has increased to 4.83, up from 3.33 for the prior three-month period. At the same time, the number of shares sold by local insiders skyrocketed to 42.6 million in the last three months, up 123 percent from the prior three-month period.
"I think people have seen with their own eyes how wealth in concentrated stock positions can evaporate," said Greg Range, managing partner at Duff & Phelps, an investment banking and financial advisory firm. "They're taking chips off the table even if they're still optimistic about the company they're invested in."
Korn/Ferry International Inc., the Century City-based executive recruitment firm, is a prime example. The most recent 36 insider transactions at that company have been sells, totaling more than 150,000 shares.
So where is all this cash going? A few different places.
For Winnick and other wealthy, savvy investors, much of the cash is being used to buy up distressed companies on the cheap, an increasing common practice these days. For others, the cash is being squirreled away in the relative safety of money market funds and mutual funds invested in large, value companies.
Of course, not everyone looking to cash out is succeeding in doing so. Many wannabe-sellers are being stymied by lenders' increasing unwillingness to provide financing to potential buyers. That trend is evident from statistics on local home sales and mergers-and-acquisitions activity.
Home sales volume has been slowing, as buyers and lenders balk at stubbornly high asking prices and hopeful sellers refuse to acknowledge that the market is softening.
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