I remain cautiously bearish on US stocks despite the market being up around 2% since we first turned negative at the end of January. The Biderman Market Theory says that the house, the public companies, have an advantage in the stock market casino over all the players. (Yes, I am guilty of shameless self promotion.) Meanwhile, what the house in the stock market casino has been doing has been buying since all the players we know of, US equity mutual funds, pension and hedge funds, all have been big sellers ever since the market bottomed early October.
Despite the players selling, the market is up over 20% from the early October low. How can the market go up if all the players in the casino are selling? The reason is that the house is buying. The house has been buying much more than the players have been selling up until quite recently. The major seller of US equities have been US equity mutual funds, with outflows of $56 billion, or about $900 million daily, translating into forced selling of US stocks.
So, if the house knows more than the players, what did the house know that made them buyers when all the players reportedly were sellers? In my opinion what they knew was that their companies are doing well and have come back from the recession flush with a record amount of balance cash created by the Fed’s printing press policy.
What is more, with wages and salaries currently not growing net of inflation, why should the house use their balance sheet cash to grow their businesses in a slow growth at best world? Add to an iffy economy zero earnings power for balance sheet cash, then why not use that cash to shrink the float? So they did. To the tune of $140 billion, or $1.9 billion daily.
That’s right, we estimate that companies spent $140 billion since October shrinking the trading float of shares. If house buying swamps player selling, the market has to go up. That’s why prices are up about 20% since early October. More money chasing fewer shares. What happens then should be obvious.
It also should be obvious that if the houses buying slows and what is worse, turns into the house selling of shares, maybe there is a problem ahead of stock market. So far this February the house buying net of selling is down to $600 million daily, more than two thirds below the $1.9 billion daily buying pace from October through January. The reason, new stock buyback announcements are at the lowest rate since late 2010. If new offerings jump from an average of $500 million daily so far this month to $2 billion daily, then the house would be a net seller for the first time in quite a while.
More not bullish news from the house, insider selling has zoomed to over 15 times insider buying in February and that compares to a five times insider selling to insider buying ratio in January.
On the other hand, the Federal Reserve is committed to its printing press and is willing to create billions of no cost to the borrower dollars. At some point, the printing press money will be exposed for what it really is. At that point, look out below. Until then, we are cautiously bearish.
Charles Biderman
President & CEO TrimTabs Investment Reasearch
Portfolio Manager TrimTabs Float Shrink ETF (TTFS)
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Charles Biderman is the Chief Executive Officer of
