Charles Biderman, CEO of TrimTabs was interviewed by Bloomberg on Aug. 28, 2009. Here’s what he had to say, "Investors who think the U.S. economy is recovering are going to get a big shock this fall," said Biderman. "Companies and corporate insiders are signaling that the economy is in much worse shape than conventional wisdom believes." His company, TrimTabs has reported that the actions of U.S. public companies have been bearish. In the past four months, companies have been net sellers of a record $105.2 billion in shares.He also said, "The best-informed market participants are sending a clear signal that the party on Wall Street is going to end soon. When corporate insiders are bailing, the shorts are covering and investors are borrowing to buy, it generally pays to be a seller rather than a buyer of stock."
Now 5 days later, we have witnessed a 4 day selloff, a sharp surge in the VIX and a tripling of the volume as the SPDR GOLD TRUST has gapped and ran. This move is occurring despite a lack of significant selling of the dollar.Gee, I wonder where all of that big “insider money” is going? What do they know that we don’t? Will there be a replay of last Fall? Is a major bank in trouble? FAZ anyone? How bout some GLD?
Hello Stephen,
ReplyDeleteYes, Trimtabs is bearish. In their liquidity review, they say “We turn partly leveraged bearish (150% short) from fully bearish (100% short) on U.S. equities.” It goes against the consensus which is bullish for now. There are many reasons for being bearish but all of them come from fundamental data. In my opinion, the two most important ones in the US are the fact that banks remain reluctant to lend and that they don’t adjust their balance sheets to the reality of the housing and commercial real estate, keeping overvalued assets. In China, many ones gamble with borrowed money generously distributed by the 4 national banks, turning the Shangaï index into a poker table.
Each day I take note of the first three sectors and the last three ones. I’m still surprised to see that the rotation is going on and that this rally continues to be driven by banking, insurance, automotive and metal and mining. However, although the last two days enabled the market to go back close to its open price of last week maintaining a shy pullback on the weeklies, banking didn’t participate in this revival this time and got the 29th position on 31 sectors in spite of a good news about the damned twins Freddy Mac and Fannie Mae. The defensive sectors Tobacco and Health services took the second and 3rd place behind the metal and mining. We notice that oil bugs have not been so enthusiastic this week putting the WTI crude oil in the 30th place. I have never understood the jerks of gold and this time again its movement is a mystery.
I also have three indicators showing an overbought condition on the weekly time frame.
As you say the USD holds its course. The couple AUD/USD dollars is drawing a divergence in phase C on the dailies. The AUD/JPY is showing a strong weakness of the weekly macd, saying that the appetite for risk through the carry trade could end soon.
Next week, I wouldn’t be surprised to see prices attempting to reach their latest highs. If they draw a false upside breakout then divergences of the daily macd will flow in our screens. However, I keep in mind that all these technical details have never jeopardized the weekly trend which remains intact. Would a pullback to the weekly sweet zone be an opportunity to buy?
Have a nice evening.
Didier,
ReplyDeleteGreat observations.
I agree with your last paragraph. If, however, we pull back to the weekly value zone what will the technical indicators show? The Force index will continue to negatively diverge with price, the MACD lines will have rolled over from a level that started the previous decline in July 2007. Then if it makes a feeble attempt to rebound, it could put in the right shoulder? There has to be some additional bullish fundamentals materialize to push this thing up and bring big money to the long side.
Thanks Didier,
Stephen M
A somewhat alternative view to that expressed by Biderman:
ReplyDeleteIt may not adequately encompass the influence of the "credit crunch" on the actions of CEO's and insiders.
Or the attempt on the part of "insiders" to shed any appearance of conflict of interest as they make tough decisions in trying to guide their companies through these very difficult times. Some of them may be selling their stock but receiving options en lieu of monetary compensation in tough times.
When the sharks are circling, and a CEO has a choice between offering more shares to raise capital, or increasing the power that a lending bank has over him/her, with rules of leverage that might change any time, what should he/she do? If they are an acquisition target, or are trying to avoid bankruptcy risk, it would make sense to take off the table the personal consequences they will face as they try to guide their company thru tough times. In war, people hide their valuables.
Also, the SEC is supposedly looking harder at conflicts of interest and -- for banks -- executive compensation.
Banks have companies and people in a very tight spot right now, and they are worried among themselves that they will fall prey to bigger banks if they fail to maintain their capital ratios.
Certainly U.S. public companies have to worry about protecting themsleves from the banks now.
Today on BBC radio, was a dramatic re-enactment of the events and meetings that weekend of September 2008 when Lehman was 'killed'. One element I hadn't been aware of before, was the degree of greed and jealousy toward Lehman as 4th largest investment bank, and also, the other decision-makers didn't appear to like Mr. Fuld.
Someone had to be the sacrificial lamb, including to help some major players at the Federal level overcome previous criticism for the way the Bear Stearns' case was handled. Also it appeared Fuld was selling Lehman to another country without the proper prior approvals. We would have had to celebrate every September for the rest of our lives,
a new holiday, Dependence Day, because Britain would have controlled us again. Think of the beaurocratic headache that would have been for George when he just wanted to go back home to Texas, where some people still liked him. That sort of back-room plotting to take out a major competitor must be happening over and over again on a much smaller scale. Banks are jerking people around about loan terms and credit limits and leverage, and it distorts things. They want to hurry and repay the TARP so they can run wild again. They have been sticking it to everybody since they saw what happened to Lehman last year, and why should they stop now. That's why companies are protecting themselves.
I encountered at Fidelity, an employee's view that shares are up because "when the cat's away, the mice will play" -- pointing to some doubt as to what will happen when the larger volume presumably comes back in September. It is too soon for anyone to point to a general economic recovery -- how could such a huge 'screw up' be gone in one year! But I don't think that means that our stock market will crash again. The more the Feds talk about limits on executive compensation at banks, the more Wall Street's trading departments will be under orders to show who really runs the world, and I would expect some pyrotechnics, but not uni-directional downward. Maybe a day-trader's paradise!
Some of the 3X ETF's may suffer in the more intense scrutiny, and that may not be a bad thing for the market as a whole.
What is a company called TrimTabs worried about, anyway: they will never run out of fat people in this country!