THE BLOG
06/17/2013 11:37 am ET Updated Aug 15, 2013

No, What?

If there were a media outlet that covered verbal ticks the way ESPN covered Brett Favre there would be breathless reports on the rise of the phrase 'You know what?' It has supplanted 'Um' and 'Well' as the most frequent lead-in to any sentence, and has even displaced 'Like' as the most popular place holder in conversational American English. It can be used to express condescension or appreciation, annoyance or excitement, or just to help the speaker keep the floor until he thinks of something to say. If you haven't noticed friends, talk show guests, or even yourself saying it yet, you will now.

There were two articles in Thursdays's WSJ involving insider trading of a sort, and, you know what? I found both of them lacking. The first article dissected the issue of LuLu Lemon's chairman Dennis Wilson selling $50mm of company stock in the weeks and months ahead of a 17% one-day plunge in the shares. The article goes on to say that Wilson's sales were part of what's known as a 10b5-1 plan, wherein an insider at a company pre-arranges a schedule of share sales. These plans allow insiders to sell company stock without fear of insider trading charges because the plan stipulates well in advance when shares will be sold, in effect eliminating the ability of an executive to decide to sell his shares ahead of bad news. That was the gist of the Journal article, that Wilson did nothing suspicious, which makes one wonder why bother publishing the article. But you know what? The Journal missed a key point. While 10b5-1 plans prevent executives from selling ahead of bad news, the plans don't keep executives from holding bad news until after their sales, which is the same thing. The 17% drop in LuLu wasn't the result of bad earnings. On the contrary that day the company posted better than expected earnings, but the successful CEO Christine Day unexpectedly resigned, sending the shares tumbling. Everyone who covers the company wondered why she would resign, and further why she would chose to announce it on the day the company reported excellent results. The WSJ article quoted her as saying the 'time was right' for her to announce she was stepping down. You know what? I don't know if the time was right for Ms Day, but the time was certainly right for Mr Wilson.

The other item in the Journal concerned the fact that the monthly consumer confidence numbers that are generated by a University of Michigan survey are released two seconds early to those willing to pay for the privilege. Thomson Reuters paid $1.2mm per year for those rights, and they in turn charge clients extra for access to the early data. The WSJ seems to smell a rat in such arrangements even though the WSJ noted in the piece that they themselves pre-release some articles to higher paying subscribers. While insider trading is an insidious problem that should be enemy of any organization that has an interest in a healthy US economy (including the WSJ which has inexplicably published op eds that argue insider trading is a victimless crime and I've pointed out the error of their ways ), this consumer sentiment issue is actually a tempest in a teapot.

First, the data itself is not unknown information, and therefore can't be considered 'inside'. There is an enormous correlation between last month's stock price movement and this month's consumer confidence, so the Michigan number is not new news. And second, if you still believe consumer confidence is new information, and you are aware, as you are now, that someone has the data two seconds before you do, don't trade in that two second window. In fact, just to be safe don't trade in the two second window ahead of any data release. It may be hard for traders to keep their trigger finger quiet for two seconds a day , but you know what? Years of yoga practice should have given them the serenity to do it by now.