hey HJ, if I can't even find your island, how can I possibly know where the mkt is going? :-(
ANALYST SEES ANOTHER MARCH SELLOFF
SAN FRANCISCO (CBS.MW) -- Charles Biderman is decidedly negative about
the March stock market.
The president of liquidity researcher Trim Tabs Investment Research
says about $25 billion of new stock is coming to the U.S. market this
month, maybe more. Almost half of that fresh stock will come this week,
with offerings from Travelers Property Casualty Corp., a Citigroup (C)
unit that would like to separate $3.7 billion of cash from willing
investors; and Alcon Inc., an eye-care unit controlled by chocolate
company Nestle S.A. (001205604) that could raise $2.3 billion.
In March 2000, $38 billion of initial public offerings, secondaries and
convertible securities came to market, and the Nasdaq stock market
tumbled from its perch, Biderman noted. That was a record amount of
fresh stock for the month of March.
Biderman, sensing too much stock-market supply and not enough demand,
just took his Trim Tabs model portfolio and doubled its short position
on Nasdaq 100 stocks. The portfolio until last week had been split: long
the Dow Jones Industrial Average's blue chips and short Nasdaq.
"The best leading indicator of activity is what corporate market
players are doing," Biderman tells me from his California headquarters.
"Insider selling is up dramatically (in February), and there is no
buying. There are few stock buybacks and cash takeovers. So while
everyone is convinced the U.S. economy will hit the moon, the only
people who say it ain't going to happen are the corporations. They're
selling."
Trim Tabs (http://www.trimtabs.com/), based in Santa Rosa, Calif.,
keeps an eagle eye on mutual funds. They track daily flows of about 800
stock and bond mutual funds, which represent about 15 percent of the
nation's mutual fund industry.
Biderman, a former Barron's editor who started Trim Tabs in 1990, has
an admirable track record for gauging demand for corporate securities.
He saw the fast rebound the stock market executed in late September,
based in part on insider buying and company buybacks of their own
shares. Since then, insider buying has dried up. (Plus, some top
executives have taken advantage of some corporate buybacks, exercising
options or selling stock as their companies buy back shares.)
Lately, Biderman's view of the U.S. stock market has been colored by
the business models of America's largest brokerages, which reap their
greatest commissions (about 7 percent) when they sell new stock to a
gullible investing public.
"We have a new paradigm for looking at the market," he said Monday.
"The key to the market are the public companies, and right now, you
can't like what you see. The purpose of the stock market is to separate
players from their cash, just like a casino, yet leave them with a smile
so they will come back for more."
Biderman is fond of saying that liquidity theories about the stock
market boil down to this: "All there is in the market are shares of
stock and the money to buy them." The supply side of the equation, known
also as the "trading float" of common shares outstanding, is probably
the biggest factor determining the overall market's direction.
An example: In just one week this month, new stock offerings of $4.6
billion overwhelmed about $500 million of new cash takeovers and $235
million of stock buyback announcements, according to Trim Tabs.
Corporate insiders are "on the front lines and they see order books,"
Biderman says. "The CEO of Intel sees no sales pickup, and the stock is
still selling at 50 times earnings. How can that be? Well, everyone
wants a growth stock with falling sales. Cisco is another one. Go
figure."
Biderman says Trim Tabs' liquidity measures are at their weakest point
since August 2000. All of this points to "a rough end of March, with the
people who got into the market recently, before the economy turns,"
facing disappointment, he says.
He says the nation's 3,000 or so hedge funds, essentially aggressive
limited partnerships for wealthy investors, almost certainly will lead
the market into choppy trading. "You had as much money go into hedge
funds last year as went into mutual funds," he notes.
And so, he says, the odds are stacked against most stock pickers and
speculative traders, be they professional or individual. "There are
3,400 equity mutual funds and just under 3,000 companies listed on the
NYSE, and just over 3,000 on Nasdaq. Do we need more investment
vehicles? How many investment managers are there who can outperform the
mean, maybe 1,000? And let's face it," he adds. "There aren't 3,000
competent hedge fund managers."
Biderman criticizes Wall Street brokerages and their top strategists,
who regularly publish research linking the market's performance to the
amount of earnings generated by Standard & Poor's 500 companies. "The
morons say it is all about earnings, and they know which way the market
is going to go because future earnings will be this and the market is
discounting so many dollars of S&P earnings," he says. "But it never
works that way."
For most of the American public, the best formula for long-term gains
is to select an index fund or a security like the S&P trust (SPY), one
that mirrors the overall stock market, and buy some each month. Biderman
claims anyone who bought the S&P 500 stocks from December 1929 through
December 1939 would have achieved a 3 percent annualized return,
regardless of that era's red ink for stocks.
"People who trade lose money," says Biderman. "Fact." |
