From Trimtabs..
LIQUIDITY UP DATE Monday, June 18, 2001
On Friday, Liquidity was $2.3 billion.
In Liquidity TrimTabs published today, Charles Biderman wrote:
NEGATIVE LIQUIDITY RECORD AS NEW OFFERINGS DROWN MARKET - $57 BILLION LAST
7 WEEKS. MAY INSIDER SELLING UP. FEW NEW CASH TAKEOVERS & BUYBACKS TO
COUNTER SUPPLY FLOOD.
Stock market liquidity was the most negative ever last week, at negative
13.4 billion, easily surpassing the prior low of negative $11.2 billion set
the week ended March 15, 2001. A record new offering calendar was the key.
The $14.4 billion in new offerings over the five days ended last Thursday
was a tad below the $15.2 billion sold the week ended November 12, 1999.
However, the five days ended Wednesday, June 13, had $15.5 billion in new
offerings which was a five day record. The $57 billion sold the last seven
weeks is also a record.
Last week's negative number was much more bearish going forward than the
March data. The reason, back in March mutual fund investors redeemed $8.9
billion shares from US equity funds, while corporate investors were only
slightly bearish. Whenever fund investors bail big time, the market is
usually ripe for a major rebound. Within two weeks of March 15, the US
stock market began a major rally that only now is reversing.
BEARISH CORPORATE INVESTORS BEST LEADING INDICATOR
This go around the record new offering pace is combined with a slump in new
cash takeovers and stock buyback announcements. That's worse for the market
going forward because historically corporate investors are the best leading
indicator of future market activity. Until cash takeovers and stock
buybacks pick up while new offerings slow, this market is not going much
higher any time soon.
More bearish news comes from Thomson First Call's insider selling guru Paul
Elliot, who tells us that #144 sales in May blossomed to $11.2 billion from
$6.9 billion in April. Much of the insider selling is occurring at former
tech high flyers. Paul says that insider buying is still a small fraction
of the selling, although up a bit from the extremely low buying activity
during the 1Q.
For the record: #144 sales are where corporate executives sell either
shares or converted options. Typically, non-officer sales are covered by a
corporate plan and do not require separate filings. Last year we estimated
that #144 transactions equaled 40% of all insider selling. This year we
estimate the % has risen to 50%. Why? Last year option sales at high
tech-land by all employees were enormous; as were share sales at unlocked
IPOs. This year, as the typical high tech-land stock is down by well over
50%, so are employee option conversions.
NEUTRAL FLOWS SHOULD BECOME HEFTY REDEMPTIONS THIS WEEK. JUNK LOSING FANS.
Equity funds had estimated redemptions of $500 million over the five days
ended Thursday. US funds attracted a small inflow at least at the 468 US
equity funds with $509 billion in total assets that we track daily. Global
funds continue to do worse than US, even though global markets are doing
slightly less better in terms of net asset value performance.
For the first time this year, junk bond funds have started to lose flow, as
an estimated $484 million left High Yield funds last week. Junk funds we
track have $28 billion in assets vs. $97 billion for all High Yield.
We are tired of hearing ignorant types refer to the $2 trillion in retail
and institutional money funds as "sideline cash waiting to go into the
stock market."
The reality is that whatever money is in institutional money funds has
nothing to do with potential stock market investment. Further, most of the
cash in retail money funds is being used as a new age checking account. So
far this year, $40.4 billion has flowed into retail money funds, vs. $37.7
billion over the same time last year. That does not indicate a huge amount
of sideline cash waiting to buy stocks.
In fact, our guess is that sideline cash at equity mutual and pension funds
has been dropping steadily, although the ICI will not report end of May
cash levels until the last week of June.
CORPORATE INCOME DOWN ADJ. 20% FEB. MAY WHILE INDIVIDUAL UP ADJ. 6.5% - 7.5%.
Withheld income and employment taxes collected over the five days ended
Thursday, June 14, 2001 are not comparable with the amount collected over
the five days ended Thursday, June 15, 2000. The reason, those paid twice
per month usually receive their checks on the 1st and 15th of each month.
Therefore, after next week's numbers are in, we will compare the
fortnightly and four week results.
However, over the first four days of last week, the year over year growth
rate was the same steady 4+% in withholding plus employment taxes that had
been experienced between February through May. To repeat what we have been
saying many times before but is still crucial to understanding the US
economy income growth is being understated by about 2% to 3% due to the
collapse of option conversions this year vs. early 2000.
June 15 is also important because both corporate and estimated individual
taxes are due. Corporate income tax payments are down an understated 10%
over the four months February to May. Understated because while last year's
spike in option conversions created higher individual withholding payments,
the corporate employer got an equivalent size tax deduction. Therefore,
without option conversions this year, corporate payments should be about
10% higher than last year. Thus, the real decline in corporate income tax
payments is 20%. Individual Savings Wasted When They Become Unneeded
Corporate Capital Expenditures.
Since income tax collections are a direct correlate to income, the
dichotomy between rising individual and plunging corporate income is
astounding. What that points to a lessening in importance of corporate
America and the resurgence of individual initiative. The big surge in
corporate restructurings in the mid 1990's created a huge pool of well
educated individuals who started working for themselves utilizing the
developing internet world to make a living and pay their bills. Today, the
vast majority of US income is being earned not by those employed at public
companies, but rather those who do not.
Therefore we can have a corporate recession and growing individual income
at the same time. Indeed, at some point the world will realize that the
extra savings of individuals being invested in corporate America is being
wasted in excess capital expenditures that are attempts to justify the
leveraged market caps.
BOTTOM LINE: WE REMAIN BEARISH. UNTIL NEW OFFERINGS SLOW & CASH M&A'S AND
BUYBACKS SPIKE, LASTING RALLY UNLIKELY.
We stay bearish. CommScan says $6 billion in new offerings are already
scheduled for next week, with none bigger than $1 billion. We doubt any
where near that total can get done in a market where the highly regarded,
though inflated, Kraft $8.7 billion deal broke syndicate bid the second day.
A stagnant cash M&A biz and less than the two year weekly average of stock
buy back announcements does not engender any belief that a sustained rally
is in sight. If the market does rally early in the week, we would advise
hitting those bids aggressively. |
