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TrimTabs Liquidity News - Latest
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Liquidity news is an edited version of TrimTabs Weekly Liquidity. It is published here at TrimTabs.com on a three week delay.
March 22, 2004
NEW OFFERING CALENDAR DISGORGES $5.9 BILLION, WITH $6+ BILLION MORE EXPECTED THIS WEEK. INDIVIDUALS NO LONGER FUNDING GAP BETWEEN CORPORATE BUYING AND CORPORATE SELLING.
Stock market liquidity continued to deteriorate during this past week even as the market recouped some of its recent losses. The TrimTabs market capitalization rose 1.2% to $15.41 trillion. The estimated net change in the trading float of shares (L1) was heavily bearish, rising $5.9 billion. Over the past four weeks, L1 has risen an average of $5.3 billion weekly, or $1.07 billion daily.
While corporate buying was practically non-existent, the new offering calendar remained active as corporate America sold another $5.9 billion in new shares. At the same time, U.S. equity funds suffered an $800 million outflow, the second straight weekly outflow. Once again, global funds managed a small inflow, attracting $300 million in fresh cash.
Corporate selling has swamped corporate buying by more than $1 billion daily during each of the past three weeks. Equally troublesome for the bulls, the “buy-the-dips” mentality that had provided support for the market until the end of February has vanished. With both corporate America and individuals selling, we expect the market to continue heading south.
CASH TAKEOVERS EASE TO $2.6 BILLION. STOCK BUYBACKS REMAIN EXTREMELY LIMITED.
New cash takeovers slowed to $2.6 billion (adding $350 million daily to current liquidity) from the previous week’s $3.6 billion weekly pace. Eight deals were announced, led by BankWest’s purchase of Community First Bankshares for $1.2 billion and General Electric’s purchase of InVision Technologies for $900 million. Not surprisingly, the largest takeover of this past week—Fisher Scientific International’s purchase of Apogent Technologies for $2.7 billion—was an all-stock transaction. Cash takeovers have averaged $1.9 billion weekly over the past four weeks, or $400 million daily before our 1/3 haircut in our L1 model.
Buyback activity remained extremely limited. Just twelve were announced for $1.2 billion ($250 million daily) during this past week, and a single $600 million buyback for Autozone accounted for half of the dollar amount. Over the past four weeks, buybacks have averaged $3.6 billion weekly. We estimate that actual buybacks have been $400 million daily, near the low-end of the range between $300 million and $900 million daily. Over the past two-years new buyback announcements have averaged $650 million. When the number of new buybacks is low, then we estimate that actual buying is at the low end of the range – and vice versa.
Since corporate buying averaged about $700 million daily during this past week, the house in the stock market casino—public companies and the insiders who run them—clearly does not see much value at today’s prices.
NEW OFFERING CALENDAR SLOWS SLIGHTLY DUE TO LAST WEEK-ENDS TERROR FEAR, BUT STILL TOPS $5 BILLION.
Just as we had expected, the new offering calendar initially slowed due to terror fears but eventually picked up steam. By the end of the week, new offerings managed to top $5 billion for the seventh straight week. Twenty-two deals for $5.9 billion ($1.2 billion daily) were announced, led by a $1.0 billion IPO for Semiconductor Manufacturing, a $900 million secondary for Peabody Energy, and a $900 million convertible for XL Capital.
Over the past four weeks, the new offering calendar has averaged a robust $6.8 billion weekly, or $1.4 billion daily. While this past week’s $1.2 billion daily pace was lighter than in recent weeks, we expect that the calendar should more than make up for this dip in the weeks ahead.
NEW OFFERING CALENDAR SHOULD PUMP OUT $6 TO $10 BILLION IN FRESH PAPER THIS WEEK.
Dealogic reports that no less than twenty deals for $4.4 billion are already scheduled on the calendar for this coming week (we have reduced the dollar amount on the calendar by $2.4 billion, since only half of the Belgacom and Eircom deals will be sold here in the U.S.). The dollar amount of new offerings should easily exceed $6 billion ($1.2 billion daily), since over the past four weeks only 45% of the actual dollar amount of new offerings has been confirmed on the calendar at the beginning of the week. If a few big overnights materialize, the weekly total could surpass $10 billion ($2 billion daily).
At the beginning of March, Dealogic reports that the backlog of new offerings was $21.9 billion, compared to $18.1 billion at the beginning of February and $12.0 billion January 2. Wall Street brokers earn most of their take home pay by selling new offerings. As long as the market decline is orderly, the “white shoe” crowd will be under enormous pressure to unload as many new shares as possible and suck the last available $ out of the market.
Numerous government banks and telecoms—mainly in China but also in Europe—are gearing up to privatize or be spun off and sell as many new shares as possible before the window of opportunity closes. Meanwhile, Wall Street frets about earnings and interest rates rather than all of the cash being withdrawn under its nose.
WE ESTIMATE THAT INSIDERS SOLD $3.8 BILLION WEEKLY, $750 MILLION DAILY, SINCE FEBRUARY 2004.
Based upon reports by Thomson Financial, we estimate that all insiders—not just the top executives, board members, and major holders required to file Form 144 with the Securities and Exchange Commission—sold $26.5 billion, or $3.8 billion weekly, during the first nine weeks of 2004. Insider selling may slow somewhat in the coming weeks, since the second quarter earnings reporting season occurs during the first three weeks of April.
CUSTOMERS’ MARGIN DEBT AT NYSE MEMBER FIRMS RISES $1.5 BILLION DURING FEBRUARY. SPECULATIVE JUICES FLOWING: 4.1% GAIN VS. 0.3% LOSS FOR NASDAQ-100 JAN.-FEB. 2004.
Customers’ margin debt at all NYSE member firms rose by $1.5 billion, or 0.9%, during February to $180.4 billion from $178.8 billion during January. During the first two months of 2004, customers’ margin debt rose 4.1%, while the TrimTabs market capitalization rose 3.1%, and the Nasdaq-100 declined 0.3%.
While margin debt (L3) has grown faster than the market capitalization, we are somewhat surprised that it has not risen even more rapidly. At major market tops, margin debt usually rises far faster than the market capitalization. During the fourth quarter of 1999, margin debt soared 27.4% to $228.5 billion from $179.3 billion, yet the overall market cap rose 20.2%. From the end of December 1999 through March 2000, margin debt soared another 22% to $278.5 billion, while the overall market capitalization rose just 7.1% to $18.1 trillion. Perhaps one reason why margin debt is not up so much is that individuals already borrowed the money going into equities via home mortgage refinancings. That might mean another round of extra cash could flow into stocks during April. However, this time corporate finance types are ready and able to print as many new shares as there is cash inflow.
NASDAQ BULLETIN BOARD VOLUME REACHES HIGHEST TWO-MONTH LEVEL EVER JANUARY & FEBRUARY, 2004.
Nasdaq bulletin board volume presents one of the clearest pictures of the formation of a bubble. Total share volume on the Nasdaq bulletin board reached 48.1 billion shares in February. While this volume was somewhat less than the all-time high of 57.4 billion shares traded in January, it was still the second-heaviest monthly volume ever recorded.
The graph below plots monthly Nasdaq bulletin board volume (bars) against the Russell 2000 Index (candlesticks). Note that growth in speculative activity lags market advances. The bulk of the Russell 2000’s advance over the past year occurred from March 2003 through August 2003, yet bulletin board volume did not surge until September 2003. Also, while bulletin board volume hit an all-time high in January, the Russell 2000 actually lost 0.2% in that month. As usual, the lemmings rush to trade the most speculative shares after most of the market’s gains have already occurred.
INDIVIDUAL INFLOWS NO LONGER FUNDING GAP BETWEEN CORPORATE BUYING AND CORPORATE SELLING.
U.S. equity funds are on course in March to post by far their lowest monthly inflow since the market bottomed in March 2003. During this past week, they had a net outflow of $800 million.
During this past week, corporate buying averaged just $700 million daily, while corporate selling averaged $2.0 billion daily, leaving an average $1.3 billion daily gap between corporate buying and corporate selling. At the same time, individuals pulled an average of $150 million daily from U.S. equity funds. Thus, net selling by individuals and corporate America surpassed $1.45 billion daily during this past week. If this kind of liquidity environment continues, the bubble’s days are numbered.
WE REVISE FEBRUARY U.S. EQUITY FUND INFLOW ESTIMATE TO $17.3 BILLION VS $32.6 BILLION IN JANUARY.
We are revising our February U.S. equity fund flow estimate to $17.3 billion from our earlier $10.7 billion estimate. Vanguard and Fidelity alone had an inflow of $7.2 billion into their U.S. equity funds, though down from $8.0 billion during January. Vanguard and Fidelity, as low cost fund families untainted by market timing, are obviously gaining significant market share. However, the reason we estimate flows slowed from January is that the funds we track daily had less flows and Schwab clients put $1.07 billion into US equity funds during February vs. $2.03 billion during January We are also upwardly revising our global fund flow estimate to $9.3 billion from $2.9 billion. Vanguard and Fidelity alone had an inflow of $1.1 billion into their global funds.
FOREIGN BUYING OF U.S. STOCKS REACHES MULTI-YEAR HIGH IN DECEMBER AND JANUARY.
This week, the U.S. Treasury released its report on the monthly net change in foreign holdings of U.S. securities during January (http://www.treas.gov/tic/s1_99996.txt). While foreigners bought $323.4 billion of U.S. equities, they also sold $310.6 billion, for a net inflow of $12.8 billion. This inflow was only a slight decline from the $13.3 billion that foreigners purchased during December. Since most averages peaked in January, we are not surprised that foreign buying set a multi-year high in December and January.
GLOBAL FUNDS ATTRACT 38% OF ALL EQUITY FUND INFLOWS SO FAR IN MARCH.
Global funds once again fared better than U.S. equity funds. Despite the recent sell-off, global funds managed to post a modest net inflow for the second straight week. We estimate that 37.7% of all equity fund inflows entered global funds during the first thirteen days of March. If this trend continues, this month will see by far the highest proportion of inflows heading abroad since the market bottomed in March 2003. Strong recent interest in global investing suggests that the U.S. dollar may be in the process of bottoming, since individual investors in the U.S. tend to go global just when foreign assets become priciest for U.S. investors. The graph below plots global equity fund inflows as a percentage of all equity fund inflows from April 2003 through March 2004.
SELLING HITS SMALL- AND LARGE-CAPITALIZATION FUNDS ALIKE. HEAVY REAL ESTATE INFLOWS CONTINUE.
No capitalization category was spared selling during this past week. Both the large-cap funds and the small-cap funds that we track daily (growth, value, and blend funds combined) had outflows on four out of five days. The mid-cap funds that we track daily (growth, value, and blend funds combined) fared little better, with outflows on three out of five days.
Inflows into the real estate funds that we track daily had been relatively muted until Thursday, March 18, when a massive inflow equal to nearly 1.25% of the funds’ net assets occurred. Despite the recent stock market sell-off, the Morgan Stanley REIT Index reached a fresh all-time high during this past week. So far this year, the Morgan Stanley REIT Index has surged about 10%.
WAGES & SALARIES DATA NOW REPORTED IN TRIMTABS PERSONAL INCOME.
Wages and salaries data are now reported in TrimTabs Personal Income, which is transmitted every Tuesday.
BOTTOM LINE: WE REMAIN FULLY BEARISH. BUBBLE IN SERIOUS TROUBLE AS LONG AS NEW OFFERINGS AVERAGE $1+ BILLION DAILY.
We remain fully bearish from cautiously bearish. While the market recovered somewhat during this past week, the liquidity outlook worsened.
Tracking the cash moving into and out of the stock market on a daily basis reveals the vulnerability of the bubble. New cash takeovers have averaged $425 million daily over the past three weeks. Since arbitrageurs typically snap up two-thirds of the trading float of a new cash takeover within a week of a deal’s announcement, we include two-thirds of this amount, or $275 million daily, in current liquidity. Similarly, stock buybacks have averaged $400 million daily over the past three weeks. If these rates continue, corporate buying will total $675 million daily.
On the other side of the corporate liquidity ledger, we estimate that insiders have been selling about $800 million daily over the past three weeks. Given the supply in the pipeline and the amount of new offerings already scheduled on the calendar, we expect between $1.2 billion to $2.0 billion daily in new offerings this week, which means that corporate selling will total between $2.0 billion to $2.8 billion daily.
Thus, we expect a $1.3 billion to $2.1 billion daily gap between corporate buying and corporate selling during this coming week. We do not, however, expect individuals to fund it as they did earlier this year. U.S. equity fund inflows have averaged just $200 million daily during the first thirteen days of March. Moreover, virtually all of the $2.5 billion inflow into U.S. equity funds so far in March came on the first two days of the month, and U.S. equity funds had outflows on five of the following eleven days. Continued outflows would make the current liquidity environment even worse for the bulls.
Even if insider selling slows somewhat during the earnings reporting season in April and pension funds and individuals put some new money to work at the beginning of the quarter, the market is in serious trouble as long as the new offering calendar pumps out more than $1 billion daily.
-Charles Biderman |
