TrimTabs
trimtabs.com
Sept 15th, 2003
NEW OFFERING CALENDAR HAS STARTED SUCKING $1+ BILLION DAILY OUT OF STOCKS. MARKET SELL-OFF LIKELY UNLESS HUGE UNTAPPED CASH POOL WILLING TO BE GREATER FOOL.
L1, the estimated net change in the trading float of shares, soared by $4.7 billion over the five days ended last Thursday, September 11. The new offering calendar popped to $3.5 billion the week after Labor Day, with over $1.5 billion of new shares priced last Thursday night for sale Friday. Insider selling was at least $2 billion.
What was missing last week was corporate buying. There were just four new stock buybacks announced. The last time there were less was when there were just two announced the week ended June 19, 2003. On June 18, 2003 the NDX topped 1250; and then sold down to 1188 two weeks later. However, what also happened the 2H of June was that the bond market crashed and the billions of equity money parked in bonds started returning to equities by the end of June. Thus, a market crack was averted when a “Greater Fool” – bond money – showed up.
There were just two new cash takeovers announced last week, both where the cash component was less than $100 million. There are over 10,000 public companies with a market cap of less than $100 million. Many of those companies probably went public during the bubble. Most are now “orphans” and likely to go private over time.
LAST MONTH INSIDERS SOLD AT 30% OF 4,363 COMPANIES WITH MARKET CAP OVER $100 MILLION.
Lon Gerber of Thomson Financial tells us that of the 4,363 firms with a market cap of greater than $100 million there has been insider selling at least at 1,295 firms, or 30%, over the past 30 days. Quite amazing!
We had reported last week that insiders at over 700 companies sold shares over the holiday-shortened Labor Day week. Remember we are talking about those insiders required to file Form 4s when they sell – top executives and major shareholders. Since most other insiders are not required to file either Form 4 or Form 144, we have to believe that there was insider selling at more than 30% of all public companies with a $100+ million market cap.
For the record, we double Form 144 filings when estimating total insider selling.
$6 - $7 BILLION OF NEW OFFERINGS LIKELY THIS WEEK.
Dealogic reports that there are 19 new offerings already on the calendar this week for $2.3 billion – including the 15% “green shoe.” Dealogic also reports that over the last four weeks, deals on the calendar were only 1/3 the eventual total. If that relationship between fully marketed and overnight deals continues this week, the new offering calendar will reach $7 billion.
Given the huge number of offerings recently registered with the SEC and the fact that new offerings were on hold the two-three weeks surrounding Labor Day, we would be more surprised if the new offering calendar was less than $6 billion, than over $7 billion.
CONVENTIONAL WISDOM SAYS MARKET SHOULD RISE AS ECONOMY REBOUNDS – WRONG!
The conventional market paradigm – that it’s all about earnings – encourages portfolio managers to be fully invested when the economy starts to rebound; since earnings growth is most rapid at the start of an economic rebound. Since the US economy is indeed improving – the only question is the rate – followers of the conventional paradigm should be fully invested here.
If that’s so, then where’s the next cash pool or next “Greater Fool” going to come from to bail out the PMs?
WHO KNOWS MORE: 2,000 PUBLIC COMPANIES SELLING OR 10,000 PMS BUYING?
Companies are sellers and portfolio managers are buyers. Who is the smart and who is the dumb money? There are 10,000 portfolio managers managing Other Peoples Money (OPM) – including hedge, mutual, pension funds and private asset. We will not discuss the obvious fact that less than 5% of all portfolio managers are capable of outperforming by being good stock pickers when managing over $100 million.
There are 4,363 public companies with a market cap over $100 million. Probably close to half are sellers here at the same time as the 10,000 PMs are mostly 100+% long. Which group knows more about the stock market?
WAGES & SALARIES GROWTH SLOWED LAST FORTNIGHT. 9/15 PAYMENTS DUE THIS WEEK.
Wages and salaries subject to withholding rose 2.9% over the past fortnight, after adjusting withholding collections by the 4% cut in tax rates. That rate of growth is less than the 4% of the prior month or so. The past two weeks surround Labor Day and last year’s 9/11 memorials, so there could be some statistical noise in the data.
The September 15 estimated payments by all individuals not on salary, and by all corporations is this week. Our guess is that both “other” and corporate collections will rise year over year.
BUSH THE BIG SPENDER CLINTON WASN’T. NON-MILITARY EXPENDITURES UP 7%, RECEIPTS DOWN 4%.
The US deficit should top $40 billion monthly this coming fiscal year according to the Congressional Budget Office. That’s a huge drain on the global capital markets. What’s interesting is that the main reason for the pop is not lower revenues and not Iraq. The reason is that non-military spending grew 7% this year and at least 6% next.
When Clinton was president, he kept his deal to limit spending growth to 3% per year. When revenues grew by high single digits, we soon had a surplus. Now that Bush Jr., just like his dad, has started spending big time, the US economy could again suffer from high interest rates. This coming fiscal year, tax collections should grow by $50 billion, more than the $45 billion budgeted increase in military spending. However, non-military spending is already scheduled to grow 6% or $100 billion. That 6% growth will likely be much higher this election year.
BOTTOM LINE: WE TURN AGGRESSIVELY BEARISH. NO CORPORATE BUYING & $2+ BILLION DAILY OF CORPORATE SELLING HAS MARKET VULNERABLE.
We turn aggressively bearish from bearish. The reason is the resurgence in the new offering calendar and the continuing dearth of corporate buying. The risk is if there is a new pool of $100 billion or so of cash to keep stock prices from selling off.
Between new offerings and insider selling, we expect that companies will be draining the checking accounts of stock market players by close to $2 billion daily. For the players to keep buying hot new offerings, they have to either sell other stocks, or not buy.
In our model portfolio we short 4 Dec. S&P 500s.
-Charles Biderman |
