On Monday the stock market rallied. The chatter on the street was that it was because investors expected Romney to win the Presidential election. However, Sirius XM (SIRI) stumbled instead. In an article that I wrote that day, I said that it did not matter who won the election, the market would fall on Wednesday, because the losing team would think the opponent would be incapable of running the country. And that dip would provide investors with a chance to buy Sirius at a discounted price.
We now know that Romney lost, and Obama won. Investors on both sides are terrified of the fiscal cliff, and they sent Washington a message loud and clear on Wednesday. According to a recent article in the Wall Street Journal , many people are scared to death:
With economists forecasting a recession if Washington drives over the cliff and amid no obvious progress toward compromise, business anxiety seems to be growing. "I cannot talk to one of our customers in the U.S. that isn't scared to death-these are dirt guys, these are builders, these are coal miners-about [the economy in] 2013 coming off the tracks because we're already very fragile," says Douglas Oberhelman, CEO of Caterpillar.
Sirius did fall on Wednesday, along with the rest of the market. And it closed down all week long. But it began to make up a little ground on Friday, closing at $2.75:
As you can see Sirius was near its 52 week high of $2.97 on November 1, and then It fell as low as $2.66 a week later, after the election. However, the election, and fear of fiscal problems was not the only thing that caused the price to drop.
Several insiders, including CEO Mel Karmazin sold millions of shares at the same time. The Yahoo chart below shows the details. However the actual transaction dates were November 5th thru 7th according to the SEC filings. So this explains why the price was falling on Monday, while the rest of the market rallied:
|Nov 6,||HOLDEN JAMES PDirector||128,070||Direct||Option Exercise at $0.35 - $2.33 per share.||N/A|
|Nov 6,||HOLDEN JAMES PDirector||128,070||Direct||Sale at $2.70 per share.||345,789|
|Nov 6,||MEYER JAMES EOfficer||6,008,894||Direct||Option Exercise at $0.58 per share.||3,485,158|
|Nov 6,||MEYER JAMES EOfficer||6,008,894||Direct||Sale at $2.72 per share.||16,344,191|
|Nov 5,||GREENSTEIN SCOTT ANDREWOfficer||3,471,017||Direct||Option Exercise at $0.43 per share.||1,492,537|
|Nov 5,||GREENSTEIN SCOTT ANDREWOfficer||3,471,017||Direct||Sale at $2.83 per share.||9,822,978|
|Nov 5,||MEYER JAMES EOfficer||1,666,344||Direct||Option Exercise at $0.58 per share.||966,479|
|Nov 5,||MEYER JAMES EOfficer||1,666,344||Direct||Sale at $2.83 per share.||4,715,753|
|Nov 5,||KARMAZIN MELOfficer||3,000,000||Direct||Sale at $2.82 - $2.83 per share.||8,475,0002|
|Nov 4,||GREENSTEIN SCOTT ANDREWOfficer||3,471,017||Direct||Option Exercise at $0.43 per share.||1,492,537|
|Nov 4,||GREENSTEIN SCOTT ANDREWOfficer||3,471,017||Direct||Sale at $2.84 per share.||9,857,688|
|Nov 4,||MEYER JAMES EOfficer||1,405,000||Direct||Option Exercise at $0.58 - $0.67 per share.||878,0002|
|Nov 4,||MEYER JAMES EOfficer||1,705,000||Direct||Sale at $2.83 per share.||4,825,150|
|Nov 4,||KARMAZIN MELOfficer||5,500,000||Direct||Sale at $2.83 - $2.84 per share.||15,593,0002|
These insider sales are actually good news. This means that the shares not only withstood the negative effects of the election, but they held up through the insider selling that was going on at the same time. There will continue to be more insider selling at every company by those making over $250 thousand a year. We do not know what their capital gains taxes will be for 2013, but they probably will be significantly higher than 2012.
The President is now under tremendous pressure to come to an agreement with the Republican House. In an interesting move on Friday, he spoke to the American people and offered a deal to "save" the lower and middle income people from the "cliff". And he said that the Democratic Senate has already passed a solution to the problem. I do not think that the House can ignore something like this now. Not only are individuals from both parties calling their representatives, but now huge groups of powerful corporate CEOs are weighing in on the situation. And, according to the WSJ article mentioned above, congressmen are more likely to negotiate under this amount of pressure from U.S. companies.
Until we have concrete evidence that the cliff has been averted, the market will remain very volatile. When there is good news like there was Friday: that the two sides will work together, then the market will go up. But when the news quotes congressional leaders saying that they will not budge on any particular item, the market will respond negatively. And then there is all of the European gloom and doom. But smart investors will buy Sirius XM during these dips. As I said in a recent article, Sirius is about to have a Grand Slam of a 4th quarter. So what will the stock do when the market opens on Monday? No one can ever be 100% sure, but the fact that the stock held its ground amidst all of this uncertainty, shows me that the shares are headed straight back up.