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Bonds Are Sending a Message: Inflation Is Coming
The stock market has been the path to wealth for generations of American families. That’s even though only about half of them have shares; in fact, the richest 1% of U.S. households account for more than half of the equities ownership, according to Federal Reserve data. In most cases, the route that has been taken is to buy shares in companies. But for a few, the way has been to sell out.
Take the Koss family, which controls the eponymously named Koss Corp. (ticker: KOSS), best known for popularizing stereo headphones back when boomers were young. Since then, its offerings largely have been left behind by the likes of Sennheiser and Sony (SNE) models favored by audio professionals, and the ubiquitous AirPods from Apple (AAPL) and noise-cancelling models from Bose popular with those who value convenience over ultimate sound quality.
But the Koss clan, plus other company insiders, last week were cashing in on the jump in the price of their microcap company’s shares, which were caught up in the frenzy led by the now-notorious GameStop (GME) surge that’s moved all the way from financial news to Saturday Night Live.
As that frenetic action sent Koss shares as high as $127.45 from around three bucks at the turn of the year, various insiders took the money and ran. As the Milwaukee Journal Sentinel reported, the Kosses and Koss Corp. executives made more than $45 million selling shares—a sum exceeding the company’s stock-market value at the end of 2020.
Securities and Exchange Commission filings show they missed the very top tick, selling mostly at $20 to $60 a share. But that still was better than Friday’s close of $19.98—more than two-thirds below where the stock had ended a week earlier.
This isn’t meant as a criticism of these opportunistic sellers. Nothing could be more rational than to hit a crazy bid. The irony is that much of the frenzied buying of stocks of seemingly limited value was done through the Robinhood brokerage. Who would have thought that an outfit with that moniker might be a party to giving to the rich, who sold wisely and well, and taking from the poor buyers who didn’t?
The comedown in stocks that had been driven to crazy heights was entirely predictable. As I wrote here a week ago, inflated quotes invariably attract sellers. An old saying in the commodities markets is that the cure for high prices is high prices. Its wisdom was driven home after a short-lived spike in silver this past week, based on the misguided notion (which quickly faded) that a short squeeze could be engineered in the metal.
In any case, the stock market closed out another winning week, with the major averages posting their best showing since November. The S&P 500, the Nasdaq Composite, and the Russell 2000 index of smaller stocks ended at records. As some “meme stocks” hurtled back to earth, the Cboe Volatility Index, aka the VIX, receded from above the 30 level that reflected the surge in risk, to the low-20 range that had prevailed before the market and the rest of the world took notice of the likes of GameStop.
