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Mix-Ansicht- TrimTabs Liquidity News - Latest - ManfredZ, 08.02.2002, 15:00
TrimTabs Liquidity News - Latest
TrimTabs Liquidity News - Latest
This news is an edited version of our weekly liquidity research report published on Monday.
February 4th, 2001
CONVENTIONAL WISDOM SAYS RECESSION OVER & SUNNY SKIES AHEAD. CORPORATE INVESTORS AND KEY LIQUIDITY INDICATORS SAYS BIG STORM APPROACHING.
Corporate liquidity remained decidedly negative last week as there were very few new cash takeovers and stock buybacks. On the other side of the ledger, new offerings topped $5 billion for the second week in a row. Indeed, the only somewhat bullish data from last week was a one-day spike in US equity fund inflows - an estimated $6.2 billion on Thursday - that turned the entire month of January to slightly positive from negative.
Everybody now knows that the US economy is rebounding - at least according to the financial media. The two popular consumer confidence polls both report that Americans have high expectations for the future, although the current picture is still not that bright. Unfortunately for the bulls, corporate America - by their actions -- do not see much of a pickup. How do we know that? Corporate America is heavily selling shares and certainly not buying.
Yes, new offerings did not make a new record this January as"just" $20.3 billion sold vs. the January 2000 record of $22.5 billion. However, the offerings pipeline is big and getting bigger all the time.
NEGATIVE LIQUIDITY DRIVING STOCKS LOWER. LEAST STOCK BUYBACKS SINCE 8/00 MARKET PEAK.
The trading float of shares grew by an estimated $19 billion during January vs. a small revised decline in December. The January gain was the biggest one month rise since last June.
The float grew for one basic reason: corporate buying stopped. In December, new stock buybacks and cash takeovers totaled $31 billion - the most since last September's buyback splurge. In January, the combined buying was just $8 billion. That is the lowest combined total since we have been tracking.
Indeed, the last time newly announced stock buy backs was lower was during August 2000. By the way, the TrimTabs Market Cap index topped out at $19.1 trillion at the end of that August. New cash takeovers of under $600 million for one month is the least since we started tracking newly announced takeovers in 1996.
We remain hopeful of being able to report a four week moving average of insider #144 selling. The best data we have available says insider selling in December was at low levels. We expect that pace has picked up as the new year started, but we don't have what we consider reliable data yet.
AGGRESSIVE ACCOUNTING HURTS DURING NEGATIVE LIQUIDITY & HELPS DURING BULLISH TIMES.
It's fascinating watching the fools erupt all over themselves in discovering Enron's phony accounting. What a surprise to learn that Enron among others used whatever gimmicks they could, perhaps including outright fraud, to make their numbers. Enron and others were doing nothing different in 2001 than they did in 1998 and 1999. Yet, only now is there an outrage being voiced. Herb Greenberg, Jim Chanos, Bob Gabele among others long knew about Enron's aggressive accounting practices.
Back then nobody cared about accounting questions. Now everybody seemingly does. Some talking heads are even blaming the desertion of accounting challenged stocks for the recent market decline.
The reason why these stocks are plunging now is very simple. When liquidity is negative, meaning cash is leaving the stock market, those companies with pristine balance sheets, healthy free cash flow and managements that talk straight trade at a premium to those companies who have been using accounting gimmickry to spin a sow's ear into a silk purse. Those stocks where there's any uncertainty get sold.
When the trading float was shrinking, meaning there was more money chasing fewer shares, seemingly good ideas attracted lots of hot money. Creating yearly write-offs of operating expenses to increase profits; fudging the books of acquisitions to make the post takeover numbers look better; setting up off-balance sheet entities to hide debt and create earnings; and use of pro-forma numbers helped run up many a bubble play.
EVERY BULL RUN CREATES ITS OWN ENRON THAT GETS WIPED DURING THE FOLLOWING DOWNTURN.
The internet bubble itself was a creature of bullish liquidity. When more money is chasing fewer shares, current cash flow is not as important as the"future". Companies who created a rosier view of the future - whether true or not - got rewarded. Now that cash is leaving the equity markets, reality is more important.
The first Trim Tabs product, Market Trim Tabs, started in January 1990 to primarily uncover phony companies that were either selling the sizzle and had no meat or where a high flyer had a fatal flaw not known by the rest of the investment community.
We started Liquidity TrimTabs in January 1995 when we realized that the growing bullish liquidity patterns meant that short ideas, no matter how accurate, would not work unless there was a highly visible"smoking gun." During the 1995-1999 bull market, targeting the shorts became a fun game for many a hedge fund. During bear markets, any company creating reasonable doubts as to their legitimacy will be avoided.
A BIG THURSDAY INFLOW CREATES A POSITIVE WEEK AND MONTH. CASH LEAVING MONEY FUNDS.
Equity funds had an estimated $4.4 billion inflow over the five days ended last Thursday, Jan. 31. The reason: a whopping $8.3 billion Thursday inflow into all equity funds. The bulk of that cash, $6.2 billion went into US funds while $2.1 billion went global. Bond funds had a small inflow, even though the average bond fund's net asset value dropped a bit as bond prices have been slumping lately.
Thursday's big equity inflow turned our January preliminary estimate positive. We now estimate that all equity funds received $3.9 billion during January, with US getting $4.7 billion and global having a small outflow of $700 million. Money funds are losing assets, as they usually do when short rates have stopped dropping.
US EQUITY FUNDS % CASH PLUNGED BELOW 5% IN DECEMBER.
Cash at US equity funds dropped during December to $146.5 billion from $155 billion at the end of November, even though there was an overall $6.9 billion inflow. The reason, US equity funds bought more stocks than the amount of the inflow. Yet, the overall stock market was relatively unchanged for the month.
What that means is US equity fund managers believed that the stock market will rally this year after two years of negative returns. What's more, everybody knows that during January the stock market mostly goes up due to the inflow of fresh cash and the slump in new offerings. Except of course this year.
Cash as a % of US equity fund assets dropped to 4.91% at the end of December from 5.30% at the end of November. The last time % cash was this low was at the end of August 2000. Again, August 2000 was when the TrimTabs Market Cap made its historic $19 trillion peak.
WITHHOLDING PLUNGES DUE TO LAST THURS. BEING JAN 31 THIS YEAR AND FEB 1 A YEAR AGO.
Income and employment taxes withheld plunged during the five days ended last Thursday, January 31 when compared with the same five days ended Thursday, February 1, 2001. The reason for the plunge was that last Thursday a year ago was the start of the month - usually the biggest flow day of any month. Therefore, comparisons won't be realistic until this week's data is added back to last week.
JANUARY WITHHOLDING PLUNGES. DECEMBER-JANUARY COMBINED DOWN 2.1%.
January's income and employment taxes withheld from all salaried employees dropped 9.9% from last January's total. However, January's flow is understated due to some year-end calendar quirks. Add December and January together and the combined withholding is down by 2.1%.
We must admit that drop is less than we had thought likely. The reason why is that the US Treasury in the December Monthly Treasury Statement (MTS) boosted December's receipts by $3 billion from what was the total number for December 2001 in the Daily Treasury Statement (DTS).
Historically, the MTS reduces the amount reported in the DTS by $1 to $2.5 billion. For example, the December 2000 MTS reduced the December 2000 DTS total by $1.2 billion and the January 2001 DTS was shrunk by $2.5 billion in the MTS. If the December MTS did not boost the DTS by $3 billion, but instead shrunk it by $1 billion, the two month comparison would show a drop of 3.6%.
WITHHOLDING DOWN 0.7% LAST FOUR MONTHS.
We checked with official Washington sources and could not get anyone to answer why there was a $3 billion increase. One guess: The anthrax related mail problem reduced mail flow during October and November. Perhaps December's increase really belonged to October and November.
Therefore, adding January to the 4Q of 2001 equals a 0.7% year over year decline in withheld income and employment taxes. Given the 2.5% drop in withholding rates - which some employers have been slow to implement - February's withholding has be down by 2.5% to be equivalent to taxable income generated last February.
SAVINGS ACCOUNTS ONLY"BIG" M2 GROWTH AREA. EVERYTHING ELSE SHRINKING.
All consumer oriented monetary aggregates are shrinking with the sole exception of bank savings accounts. That could be due to banks offering a higher yield than either money market funds or Certificates of Deposit.
Indeed, we suspect that corporate types are parking extra cash in higher yielding savings accounts as well, thereby boosting our expanded M2 while shrinking M3. Our evidence, institutional money funds lost $22 billion in assets since December, according to the most recent Federal Reserve H6, while banks savings grew by $43.5 billion. Our guess is that at least half the savings increase is actually corporate parking of extra cash.
We add a new column to the above chart tracking the $ change in the TrimTabs Market Cap. Notice that as income gains shrunk starting in February 2001, the stock market sold off.
BOTTOM LINE: WE REMAIN BEARISH. OMINOUS LIQUIDITY COMPARISONS TO AUGUST 2000 + REDUCED INCOMES LOWERING M2.
We remain bearish. Several liquidity measures have not been this bearish since August 2000 - when the TrimTabs Market Cap index peaked at $19 trillion.
The last time new stock buybacks and % cash at US equity funds were this low was in August 2000. Add in a record low number of new cash takeovers, a record new offering pipeline, a drop in incomes and consumer savings activity; and the liquidity prospects for the US stock market have not looked this bleak in quite some time.
Sell side market strategists are saying the since the recession is obviously over, if it ever existed, that investors should be buying stocks here. The only problem with that is corporate investors - who have a better view of the US economy than Wall Street - are heavy sellers. But then again, the sell side makes most of its income from selling new shares to the public.
<ul> ~ http://www.trimtabs.com/news/liquidity/latest.htm</ul>
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