Analyst sees another March selloff Liquidity tracker takes note of $25 billion in new stock
By Thom Calandra, CBS.MarketWatch.com Last Update: 12:21 PM ET March 18, 2002
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 that fresh stock will come this week, with offerings from Travelers Property Casualty Corp., a Citigroup (C: news, chart,
profile) 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. (CH:001205604: news, chart, profile) 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, based in Santa Rosa, Calif., keeps an eagle eye on mutual funds. It tracks 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 their companies' buybacks, exercising options or selling stock as their
corporations buy 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 is 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 (INTC: news, chart, profile) 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 (CSCO: news,
chart, profile) 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." |
