Liquidity Update - November 25th, 2003 - trimtabs.com
Today the ICI reported October fund flows. U.S. equity funds received $19.4 billion versus our $15.2 billion estimate. Global funds received $6.1 billion versus our estimate of $5.3 billion. Bonds and hybrids received $2.6 billion versus our estimate of $4.6 billion. Given the massive amount of asset shifting in October as billions left the 'scandalized' fund families, the October flow data is probably atypical. Weguess that the actual inflow of new money was higher than $19.4 billion,since the average U.S. equity fund rose 5.8 percent in October. By contrast, a $16.6 billion inflow occurred in September even as the average U.S. equity fund net asset value fell about 1 percent. The bulk of the billions in state pension money that left Putnam and other families probably flowed into straight pension funds rather than mutual funds. This money masked inflows because it registered as outflows even though no cash left the equity market. So far in November, flows into the 595 equity funds with $445 billion in assets that we track daily‹15 percent of the 3,782 U.S. equity funds with $2.97 trillion in assets‹are running ahead of October¹s pace. Regardless of whether funds are receiving $20 billion or $25 billion of fresh cash, the pace of inflows is still strong. Cash in U.S. equity funds rose to $130.2 billion at the end of October from $121.8 billion at the end of September. Apparently U.S. equity fund managers invested about half the new flows. The cash buildup could be due in part to concerns about the unfolding 'scandal'.
Today the TrimTabs Macro Economic Update reported that M2 rose during the week ended November 10, the most recent week reported by the Federal Reserve. A close look at the data reveals a major spike in bank savings, but assets in small CDs and retail money market funds continued to decline. Could all of this money be flowing into the stock market? Perhaps it is the new money the economy is generating, rather than old money in savings, that is being directed mainly into equities. If the normal run-off from savings is not being replaced by new savings, the numbers would appear just as they do. Tonight brings the last pricings of new offerings until next Monday night at the earliest. We expect that new offerings in December could approach $20 billion. The December record of $24 billion in new offerings was set in December 2001, when we turned aggressively bearish. Next month's new offerings could top this record. Even if they do, though, enough new cash is flowing into the stock market to absorb those new shares without bursting the bubble.
Insider selling usually slumps in December for obvious tax reasons, which will help the bubble survive somewhat longer. Insider selling is also slow during January, since it is an earnings reporting month. By February, we expect insider selling to blossom big time, to at least $20 billion monthly, and we expect that the new offering calendar will average $30 billion monthly. $30 billion monthly in new offerings added to $20 billion monthly in insider selling is serious money. If $50 billion monthly leaves the stock beginning in February, by March or April it will only take something deemed bad news to pummel stocks, end inflows, and prick the bubble. April 2004 could be a bad month for the stock market. We guess that as much as $50 billion in stock will need to be sold to pay taxes that month. Currently the U.S. stock market capitalization has gained $3 trillion since March 2003. If $200 billion in capital gains were produced this year, it would mean that $40 billion in taxes will be due. If $200 billion in trading gains were generated this year, it would mean that $60 billion in taxes will be due. If half of these taxes are paid in April 2004, $50 billion in taxes will be paid. Remember, in a bear market, people sell stock to pay taxes well before April 15, fearing that stock prices may fall further if they hold stocks longer. During bubbles, people try to wait until the last minute before selling stock, believing that stock prices will continue to rise.
Yes, our $50 billion estimate is a W.A.G. Do you have a better one?
MUTUAL FUND FLOWS FOR November 24, 2003:
ALL EQUITY MUTUAL FUNDS: INFLOW $1736.3 MILLION; NAV UP 1.8%
US EQUITY FUNDS
FLOW: INFLOW $1112 MILLION
BREADTH: NEGATIVE 26 OUT VERSUS 26 IN
NAV: UP 1.8%
INTERNATIONAL EQUITY FUNDS
FLOW: INFLOW $624.3 MILLION
BREADTH: POSITIVE 15 IN VERSUS 6 OUT
NAV: UP 1.4%
BONDS & HYBRID: FLOW: OUTFLOW $12.5 MILLION; NAV: DOWN 0.1%
L1 - NET FLOAT: $888 MILLION
NEW ANNOUNCED CASH TAKEOVERS: $853 MILLION
COMPLETED CASH TAKEOVERS: $0 MILLION
NEW STOCK BUYBACKS: $245 MILLION
NEW OFFERINGS: $1,302 MILLION
INSIDER SELLING: $400 MILLION
L2 - US EQUITY FUND FLOW: $1,112 MILLION |
