Merrill Lynch

Mortgage Market News & Insider Selling Most Likely Connected

Merrill Lynch's (MER) top executives have been selling a lot of stock, according to Barron's Online. So far this month, the top three execs have grossed $29.7 million. Supposedly, this is the highest level of monthly selling since January 2001.

Yesterday, HSBC increased its reserves for the blow-up of its mortgage portfolio. New Century Financial also reported blow-up results. Both of these companies are in the higher risk part of the mortgage market, but that is where the trouble always starts.

Brokerage firm results have been utterly spectacular for the past five years. A lot of that success can be attributed to the fixed-income business. However, the flat yield curve is most likely going to start impacting results as steep-yield curve trades begin to expire and cannot be replaced in this flat-yield curve environment.

The old-line brokerage firms are too big to report the results they have been reporting for so long. The law of large numbers has to apply at some point. The insider selling is pointing to a tough time ahead for fixed income traders and the brokerage stocks.

February 9, 2007