TrimTabs Overnight Liquidity Update – August 10, 2006
Companies Get Greedy While Investors Are Fearful: New Cash Takeovers and New Stock Buybacks Total Astonishing $172 Billion First Four Weeks of Earnings Season.
The bears cite all sorts of reasons—high energy prices, a slowing housing market, the prospect of additional Fed rate hikes, decelerating economic growth, inflation, conflict in the Middle East, terrorism—to sell this market and brace for a recession. But these issues are not keeping corporate America from loading up on its shares at an unprecedented rate. During the first four weeks of earnings season, a whopping $171.8 billion in float shrink through cash mergers and share repurchases was announced—that’s $8.6 billion per day. Prior to July and August, the four-week record for announced corporate buying was $107.0 billion from October 27, 2005 through November 17, 2005.
Throughout this summer, companies have been greedy while portfolio managers and individual investors have been fearful. There is no doubt in our mind who will be proven correct.
Announced Corporate Buying Tops $20 Billion for Fourth Consecutive Week: 15 New Cash Takeovers for $10.6 Billion and 32 New Stock Buybacks for $14.0 Billion Announced This Week.
Top corporate insiders see this market as one tremendous buying opportunity. Just today, Thursday, IBM announced it is buying FileNet for $1.5 billion in cash, and ten buybacks for $6.9 billion were announced, led by a $5.0 billion buyback for Target. During this past week, fifteen New Cash Takeovers for $10.6 billion were announced, the highest number of cash mergers we have ever recorded in a single week. Also, 32 New Stock Buybacks for $14.0 billion were announced, the fourth consecutive week the number of announcements topped thirty and the dollar amount topped $10 billion.
During the first four weeks of earnings season, New Stock Buybacks averaged 7.8 for $6.4 billion daily. Both of these figures are higher than in any of the four previous post-earnings periods. Thus, we estimate Actual Stock Buybacks are $2.0 billion daily, which exceeds the $1.5 billion daily Standard & Poor’s estimates S&P 500 companies bought back in Q2 2006.
Pressure Keeps Building for Big Move Higher for U.S. Stocks: Announced Corporate Buying 4.8 Times Higher Than Corporate Selling So Far in August and 4.4 Times Higher Than Corporate Selling since May.
Pressure continues to build for the U.S. stock market to explode higher. As the graph below shows, announced corporate buying has been 4.8 times higher than corporate selling so far in August and 4.4 times higher than corporate selling since May (we assume $750 million in New Offerings will be priced tonight including the “green shoe”).
U.S. Economic Growth in Sweet Spot: Take-Home Pay Rises 6.7% Year-over-Year Last Two Weeks and Four Days.
The growth of the U.S. economy is currently in a sweet spot—it is neither too fast nor too slow. Based on data from the Daily Treasury Statement, we estimate that the take-home pay of all U.S. taxpayers subject to withholding rose 6.7% year-over-year over the past two weeks and four days (Friday, July 21 through Wednesday, August 9). Despite Wall Street’s fears of economic stagnation, take-home pay is rising slightly faster now than it did during all of 2005, when it rose 6.3% year-over-year.
Dealogic Reports $650 Million Scheduled to Price Thursday Night, Lifting New Offerings This Week to $4.5 Billion. New Offering Calendar Likely to Snooze from Now through Labor Day.
Last night, we noted that New Offerings did not appear to be spiking before the new offering calendar’s late summer siesta. Obviously we were wrong. A hefty $2.7 billion in fresh paper was priced on Wednesday night, led by a $950 million overnight secondary for NRG Energy, which may explain why the market sold off late on Wednesday. As for Thursday night, Dealogic reports that $650 million—not including the 15% “green shoe”—is scheduled to price. Unless more big overnights get done, New Offerings should total about $4.5 billion this week, which is slightly lower than our upfront estimate of $5.0 billion.
New Offerings have averaged only $650 million daily since Memorial Day, and the pace share selling should ease further over the next three weeks because the new offering calendar tends to slow to a crawl from the third week of August until Labor Day. Only $3.6 billion priced during that period in 2005, and only $5.5 billion priced during that period in 2004.
Buyers’ Strike: U.S. Equity Funds Post Inflow of Only $93 Million First Six Days of August. AAII Bearish Sentiment Tops 40% for Fourth Consecutive Week.
Negativity is rampant among individual investors, which is what invariably occurs at major market lows. We estimate that all U.S. equity funds posted outflows totaling $727 on Monday and Tuesday, reducing the inflow during the first six trading days of August to a mere $93 million. Also, the American Association of Individual Investors reports that 41.5% of respondents to its investor sentiment survey are bearish, and bearish sentiment has topped 40% for the past four weeks.
We Plan to Remain Leveraged Bullish (200% Long) in Our Model Portfolio This Weekend as Next Week’s Upfront New Offering Calendar Under $1 Billion.
Corporate liquidity has been more bullish in this earnings season than at any time since we began tracking it in 1995. During the past four weeks, announced corporate buying averaged $8.6 billion daily, while corporate selling averaged $1.1 billion daily. Since Dealogic reports next week’s upfront new offering calendar is below $1 billion, we plan to remain leveraged bullish (200% long) in our model portfolio this weekend.
ESTIMATED MUTUAL FUND FLOWS FOR August 09, 2006
ALL EQUITY MUTUAL FUNDS: OUTFLOW $102 MILLION; NAV DOWN 0.2%
US EQUITY FUNDS
FLOW: OUTFLOW $267.8 MILLION
BREADTH: NEGATIVE 35 OUT VERSUS 10 IN
NAV: DOWN 0.4%
INTERNATIONAL EQUITY FUNDS
FLOW: INFLOW $166 MILLION
BREADTH: POSITIVE 8 IN VERSUS 6 OUT
NAV: UP 0.3%
BONDS & HYBRID:
FLOW: INFLOW $182.7 MILLION
NAV: FLAT -0%
L1: NET FLOAT $257 MILLION
NEW ANNOUNCED CASH TAKEOVERS: $1,084 MILLION
COMPLETED CASH TAKEOVERS: $53 MILLION
NEW STOCK BUYBACKS $2,161 MILLION
NEW OFFERINGS: $2,658 MILLION
INSIDER SELLING $500 MILLION
L2: US EQUITY FUND FLOW -$268 MILLION
Charles Biderman
Chief Executive Officer
TrimTabs Investment Research
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