Three week delayed TrimTabs:
TrimTabs Liquidity News - Latest
Liquidity news is an edited version of TrimTabs Weekly Liquidity Research. It is published here at TrimTabs.com on a three week delay.
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Oct 27th, 2003
L1 GROWTH REMAINS MODEST AT $2.6 BILLION. SLUMP IN NEW OFFERINGS SUPPORTS STOCKS. WHILE NEW BUYBACKS INCREASE, CASH TAKEOVERS REMAIN MORIBUND. EQUITY INFLOWS SPIKE.
The estimated net change in the trading float of shares (L1) grew a modest $2.6 billion over the five days ended Thursday, October 23. This growth was somewhat higher than the roughly $1.5 billion growth each week during the prior fortnight. A lack of new offerings has hurt L1 growth. At $1.7 billion, the new offering calendar last week was the slowest since Labor Day week. As we have reported, massive layoffs of corporate finance types between the September 11 attacks and early 2003 have hindered the supply of new offerings.
Apparently the large companies that have sought to sell shares to support their balance sheets have been able to do so by now. By this time during prior market rallies, many an IPO would already have sucked big bucks out of the checking accounts of stock market intermediaries. Instead, nary an IPO has appeared so far this season.
This situation should change by next month at the earliest and by spring at the latest. We have contacted several investment bankers who believe that the new offering calendar should be booming by spring. The largest IPO in many seasons, Google, likely will set the stage for an explosion of new offerings.
DEALOGIC REPORTS 18 NEW OFFERINGS FOR $2.3 BILLION ALREADY SCHEDULED FOR THIS WEEK.
We expect that it will be until at least December before the new offering calendar begins averaging at least $1 billion daily – the minimum amount that we believe necessary to suck enough cash out of this market to pop the current bubble. According to Dealogic, so far this week eighteen deals are already scheduled to raise $2.3 billion, which includes the 15% “green shoe” over-allotment. Since many companies have fresh financials now, the total new offering calendar could top the $5 billion mark this week if overnight deals return to life. We will wait until the new offering calendar resumes at a weekly rate of greater than $5 billion before we resume a bearish stance.
19 NEW BUYBACKS FOR $1.6 BILLION, GREATEST NUMBER SINCE 23 IN WEEK ENDED MAY 15.
Nineteen new stock buybacks for $1.6 billion were announced last week. The dollar amount of new buybacks was the same as the prior week, when only nine buybacks were announced. Yet not since the week ended May 15, when 23 new buybacks were reported, have so many new buybacks been announced. Since last week was the mid-point of earnings release season, we are reluctant to make too much of the rise in buyback announcements.
CASH TAKEOVERS AVERAGED $100 MILLION LAST FIVE WEEKS – LEAST SINCE FEBRUARY 2002.
Cash takeovers, the other part of the corporate buying equation, remain moribund. All of two microcap takeovers for $148 million were announced last week. Not since the week ended September 18 have more than $1 billion in new cash takeovers been announced. Backing out the attempted takeover of Taubman Centers by the Simon Group reduced new cash takeovers to an average of $100 million weekly over the past five weeks, the smallest amount weekly since $80 million during February 2002. Remember, at that time the market collapsed 30% during the next five months.
The almost complete absence of cash takeovers means that companies see few reasons to buy other companies, whether to increase their market share or to take advantage of companies available at attractive prices.
FORM 4 INSIDER SALES SURGE TO $1.3 BILLION.
Based upon preliminary data, insiders required to file Form 4 with the SEC – only top executives and shareholders – sold $1.3 billion last week, the largest amount since before earnings season began. Insiders have resumed selling as much as they can as quickly they can while prices remain high.
WAGES AND SALARIES APPEAR TO BE GROWING AT 4% RECENTLY, UP FROM 2.75% RATE EARLIER.
Wages and salaries subject to withholding appear to have risen at a 4% year-over-year rate since early September, compared to an average growth rate of 2.75% from February 2003 through August 2003. Withheld income and employment taxes – the correlate to wages and salaries subject to withholding – have been flat since early September. Since withholding tax rates dropped an aggregate 4% beginning this past July, pre-tax wages and salaries have increased 4% if withholding has remained unchanged.
Undoubtedly this 4% growth rate is due at least in part to recent tax cuts and tax rebates. Is this growth rate sustainable now that tax rebates have been spent and cash-outs from mortgage refinancing appear to have stopped or at least substantially dropped from the $80 billion to $100 billion monthly rate that was reached before interest rates surged this summer? We guess that this growth rate will persist and that the overall U.S. economy will continue to recover at a somewhat faster pace. Obviously it will slow, however, if and when interest rates spike.
BOTTOM LINE: WE REMAIN NEUTRAL. WHEN NEW OFFERINGS SURGE, WE WILL TURN BEARISH.
We remain neutral. Obviously our model portfolio would have performed far better if we had waited another week before turning neutral. For now, though, we will wait until the new offering calendar begins to surge before we resume a bearish stance.
We remain neutral even though corporate buying, evidenced by cash takeovers, has reached a 20-month low and individual investor inflows may have reached all-time highs. While the market sold off during the past week, we doubt the downturn will persist given recent massive inflows. Thus, we wish to wait until the inflows begin to be sucked out of the market via a $1+ billion new offering calendar before we resume a bearish stance.
Remember, during periods of excess liquidity, the least liquid stocks surge. We hear that a Birinyi study reports that the 222 stocks of the S&P 1500 still selling for less than $10 per share have gained 64% so far this year, versus a 15.3% gain for stocks currently priced over $40. Moreover, 103 of these 222 companies produce no earnings. This situation is exactly what occurs when excess liquidity floods the market. When excess liquidity leaves through new offerings and insider selling, these illiquid stocks will plunge the most.
-Charles Biderman |
