NEW YORK, NY A few years ago Spike Lee directed a movie called the "Inside Man" which had a somewhat involved, but compelling, plot line. The acting was good from Denzel Washington but Clive Owen was his usual arrogant and self-righteous self and I never knew how his character knew the secret that some big-time banker had kept a secret for decades. Be that as it may, one thing has always been clear, the inside man knows the (real) deal and if you can follow him you'll have a great shot at finding the end of the rainbow. In fact, take a look at some of the biggest winners in 2009; for the most part they all have a ton of insider purchases. (The other key characteristic has been large short positions on stocks already down big-time. This is the danger of too much greed and the resulting negative karma that comes from trying to totally decimate a stock.)

So, buying with the insiders has been wonderful. But what about when the insiders are selling stock or not buying? Hmmm, I bet you've been wondering about this. Insider selling isn't always nefarious or a red flag, but it is always a yellow flag. When there are large sales or numerous sales by the guys and gals in the know I become very nervous. If there are orderly sales I don't fret as much especially if it's coming after a big run. If insiders begin selling after the stock has slumped, that action could be construed as a white flag of surrender. Of course, the captain is supposed to go down with the ship, but I haven't seen that kind of honor in a long time. These things are important. And, then, there is Angelo Mozilo.

I must say that Mr. Mozilo could have been one of the greatest businessmen ever. He began a small business in 1969, and eventually wrote damn near all the home mortgages in the nation. Along the way millions of people got their piece of the American dream and thousands of employees sent their children to college. Mr. Mozilo was generous and gregarious. But, it looks like he forgot his Bronx-born roots as the collateral damage from maintaining a perpetual tan may have rattled his brain. Then again, if he is guilty of charges announced against him last night it was just plain old greed. His American success story is morphing into an American tragedy in a story that has become all too common since 1999.

Authorities charge Mozilo with civil fraud and illegal insider trading. When a CEO says that we are doing great yet is dumping boat loads of his stock at the same time, listen to the sales and turn off the volume on your television or radio. To be honest, at this stage of the game I'm shocked there wasn't a criminal charge. Moreover, I have to believe that this is something that could expand to others in the industry. Angelo Mozilo wasn't the only insider that knew the deal. Of course, not everyone made $140.0 million in illicit profits alleged by the Feds. The moral of the story is that wholesale dumping by the CEO is a red flag and shouldn't be ignored. It doesn't mean you automatically dump your stock but it means you look at all the news with a fair degree of skepticism.

There is also a time to wonder about insider inactivity. When a stock has a sexy story but the insiders aren't buying. They aren't necessarily selling either but for sure they aren't buying. If it's a start up then I understand why insiders wouldn't have the funds, but there are times when the story seems so intriguing that even the insiders should be scooping up stock.

The Black Swan

A couple of months ago I was sitting around the greenroom at Fox when I began chatting with a woman who was with the CEO of Odyssey Marine Exploration (OMEX). The company, which is renowned for its deep ocean finds from historic shipwrecks, just made the find of the century. In 1804, the Spanish ship "Nuestra Senora de las Mercedes" was sunk off the coast of Gibraltar by British gunboats. The ship was carrying 600,000 gold and silver coins being brought back from Peru. That is exciting stuff. I was told that the company would get the majority of the salvage. Others in the room became giddy, and I'm sure a couple of camera people bought the stock. Obviously, my interest was piqued, too.

I immediately looked up the stock and a couple of things bothered me. The stock was in a long- term downtrend, and even though it popped a little on the "Black Swan" find the series of lower highs was still intact. But, there was something else that bugged me. I asked the woman if this was so great how come there were no insider buys? It was a cheap stock and this find was worth $500.0 million. I'm not saying the company knew there would be bad news but yesterday a magistrate judge ruled the treasure should be returned to Spain within 10-days. His ruling isn't binding, but the case will be heard by an appeals judge who might be influenced.

The stock got hit 42% after the news. Maybe the company will get some of the treasure, or all of it (they have physical possession), but I wouldn't be a buyer until the insiders picked up some shares. BTW, if there was real justice Peru would get the biggest cut.

Economic Data

Non-Farm Payrolls

The employment data out this morning could be one that sends this market far higher, and that's because non-farm employment was recorded with a drop of 345,000, while the consensus estimate was calling for a drop of 525,000. As it turns out, maybe all of that stabilization talk throughout the past couple of months is sincere. In particular, the sectors that surprised us were construction, which gave up 59,000 jobs as opposed to 108,000 jobs in April, and trade/transport which gave up 54,000 jobs versus 115,000 in April. We are inclined to chalk up this surprise to the $787.0 billion stimulus plan turning its gears and the inventory adjustments we have opined about over the past couple of months, which are reducing the need to lay off employees.

Before we get too ahead of ourselves, we have to point out the potential drawback of the report. First and foremost, let's remember that by no means is the economy increasing. 345,000 jobs lost, although a smaller loss than last month, is nothing to sneeze at and represents ongoing contraction in the economy. Secondly, the unemployment rate rose to 9.4% from 8.9%; the Street was looking for a rate of 9.2%. If job losses were smaller than expected, you might ask, then why did the unemployment rate go up? As it turns out, 350,000 people entered the labor force (those employed or looking for jobs) during the month. This could be a function of people who had previously given up their job searches putting their names out. As a result, the number of unemployed persons increased by 787,000 during the month to 14.5 million, the highest number on record going back to 1948.

Morning Trade

The fishy part of the jobs data is evident in the unemployment rate...remember there are two separate surveys and the broader survey of households points to a less sanguine situation. This is why the Dow Jones Industrial Average isn't 300-points higher this morning, but as the session goes on and there is upward pressure look for panic buying and people to write-off the unemployment rate.