WEEKLY LIQUIDITY UP DATE
Monday, January 16, 2001
LIQUIDITY TRIM TABS reported that for the week ending last Thursday, January 11, liquidity was strongly bullish for the fifth straight week, even though the TrimTabs Market Cap index is up only 1.3% over that time frame. There were $22 billion US equity fund inflow from January 2 to January 11. The combination of hefty net inflows into equity funds and few new offerings typical of year ends says there is lots of sideline cash waiting to be put to work.
RECENT EQUITY FLOWS INDICATE BIG POTENTIAL IF MARKETS BEHAVE. JUNK DOING
WELL.
An estimated $5.7 billion flowed into US equity funds over the five days ended last
Thursday. At the current rate January equity inflows will top $30 billion and end up
ahead of last Januaryís $24 billion.
Interestingly, the trend of flows has dramatically shifted as Growth and Income funds at
the current pace will end up with more new cash, $14.1 billion, than Aggressive
Growth, $12.9 billion, for the first time since August 1999.
Yes, bond funds are getting an inflow, estimated at $1.1 billion over the past two weeks.
However, $850 million of that has gone into high yields. A simple answer why, big
upside performance: Recipient of hot money flows, since the Fed cut short-term rates.
When interest rates drop suddenly, money market funds having average maturities of 30
to 60 days out yield other credit market offerings for 30 to 60 days. When interest rates
rise, as they did during most of 2000, money market funds under perform.
This year, the expected new offering calendar will be much less than in past years.
CommScan tells us that two broadband outfits, Williams and Adelphia, want to sell a
combined $2 billion of stock and converts. Other than those, there are just $1 billion of
new shares expected to be sold the rest of this month. However, if the market continues
to rebound, then itís likely that some big secondaries currently on the shelf could get
sold.
CORPORATE INVESTORS WILDLY BULLISH IF BUYBACKS SURGE DURING EARNINGS
SEASON AND CASH TAKEOVERS RESUME.
Earnings season always brings with it new stock buyback announcements. Therefore,
we expect a flood of big stock buy back announcements to start this week. Insider
selling will be lots less than during the 1Q of 2000 when $billions of former new
offerings were unlocking and option conversions at the NASDAQ 100ís were huge. If
the Ralston buy is indicative of corporate types willing to use cash to reduce the trading
float of shares going forward, then all the corporate liquidity indicators will be very
bullish.
HOW LOW DID MARGIN DEBT DROP AT THE END OF DECEMBER? WE'LL FIND OUT THIS
WEEK.
Early this week, the NYSE is expected to report margin debt at the end of December
on all stocks at member firms. Over the past few months we had been expecting margin
debt to drop faster than it has. If margin debt has finally dropped well below $200
billion, maybe the huge sell-off in the NASDAQ could be over. Given that the
NASDAQ closed higher for the week for the first time in a while, perhaps that is so.
WITHHOLDING FOR DECEMBER & JANUARY UP 6.8% Y/O/Y. STILL NO SLOWDOWN IN
SIGHT.
A recession to Wall Streeters occurs when theyíre losing money in their own portfolios.
We keep hearing that we are in a recession. The only hard evidence is a slowdown in
the industrial sector and a drop in stock prices. Well, we havenít seen a negative wealth
effect on incomes -- yet. Given the calendar confusion, adding January to December
says that withholding taxes are still growing by a healthy 6.8% year over year pace.
Capital gains taxes are included in the Other Income category. January is a big expected
payment month. Yes there is a slowdown in this category. However, the drop so far
over the past two months is just $1.3 billion. The CBO estimates that capital gains taxes
paid in 200 were about $105 billion. Even if that drops 20% this year, thatís just 1.1%
the $1.8 trillion collected in personal income tax during 2000.
REAL SAVINGS GROWTH STRONG WHILE DEBT GAINS DROPPING DUE TO MARGIN
CALLS.
The Department of Commerce Bureau of Economic Analysis says we have a negative
savings rate. Of course, that disappears when the BEAís too low Wages and Salaries
number is bumped up to reality.
Given that withholding taxes paid by employers has grown by about 8.5% each of the
past three years, it should be no surprise that trackable investment flows have grown by
about $500 billion yearly. Add about $200 billion annually (a wild a.. guess) for direct
investment into equities. Subtract about $200 annually for borrowings. The result: real
savings as measured by the increase in assets affected by savings -- appears to be
growing by $500 billion annually.
PRODUCTIVITY GAINS FROM INTERNET GENERATING GROWTH IN ASSETS.
Given that Wages and Salaries are about $5 trillion annually now, up from $4.3 trillion in
1998, thatís a huge amount of fresh cash being generated. The only logical source other
than if drug addicts equal 20% of the population has to be the productivity gains as a
result of the shift to an on-line based way of life.
Those outsized gains in assets will continue, in our opinion, until broadband technology is
widely available. At that point we could have a major correction in asset values since the
rate of gain in asset growth will likely drop dramatically. Unless of course some other
new technology becomes available offering productivity gains equal to what happened
when we shifted to the internet.
BOTTOM LINE: WE TURN UP OUR BULLISHNESS. BOTH CORPORATE & INDIVIDUALS
BULLISH.
We escalate our bullish posture to wildly bullish. Of course that assumes that margin
debt at the end of December did drop well below $200 billion and that the forced sales
of NASDAQ shares is over. If thatís so, and portfolio managers, en masse, have
liquidated a high percentage of their NASDAQ holdings, we will shift our long position
from the MidCap futures to be long the S&P 500 and the NASDAQ 100.
Everything looks good from a liquidity point of view, unless we are missing something
very big. |
