TrimTabs

Last week the S&P 500 experienced its first weekly decline in eight weeks. On January 19th the index fell by more than 1%, something it hasn’t done in 37 trading days. The technology heavy Nasdaq was down 2.4% as AAPL was a big drag, falling 6% on the week. Smaller stocks, captured by Russell 2000, underperformed large caps in their second weekly decline since mid-November, down 4.26%. Further, transportation index diverged from the Dow, sometimes a harbinger of less than optimistic technicals of sorts. Earnings per share reports that beat estimates are coming in at 68%, below the past four quarter average of 74% and risk premiums are too low as VIX indicates complacency which can be seen by the routing in financial stocks last week. In each of the past three years, the stock market has weathered serious January selloff and has never experienced four down Januaries in a row. Pending on the outcome for this week, we will learn if this precedent upheld.

Some good charts ...

During today's little CNBC circlejerk shindig, Ben Bernanke, in defense of his disastrous, and now deadly policies, once again confirmed that the (one and only) benefit from QE2 has been to boost stock prices. Oddly enough, there was no mention of surging energy, food and commodity prices. Nor did Liesman ask the Chairman about 43.2 million Americans on foodstamps, just as he did not ask the dictator of the centralized ponzi for his comments on why at last count 50 people in Tunisia were dead protesting, among other, record food prices and cost of living.

When we looked at the changing composition in the US work force one month ago, we discovered, to our dismay, that since the start of the Depression, the US labor pool has transformed substantially from a full-time time to an increasingly more part-time dominated one. Specifically we found that "America has lost 10.5 million full time jobs, offset by a 2.8 million increase in part time jobs" and that "the US not only lost 478k seasonally adjusted full time workers in November but has lost full time jobs for 6 months in a row, for a total of 1.6 million job losses!" In an attempt to further refine this number, we present some TrimTabs data which proves beyond a shadow of a doubt, that the Fed's QE (1, Lite, and 2) efforts, when expressed in labor force "pick up" has been an abysmal failure. To wit: "In 2010, the BLS reports that the economy added 1.12 million jobs.  Almost 60% of these jobs are in one of three relatively low-paying areas—temporary employment (308,000), leisure & hospitality (240,000), and retail trade (116,000)." In other words, of the 1.1 million private jobs gained in the last year, 650,000 or 60% are jobs that have absolutely no real wealth creation capacity, nor do they provide any real benefits. In fact, the retail jobs are becoming increasingly distressed, as more Americans shop online, leading to a job pickup... in Chinese warehousing and QC plants, and the irretrievable loss of even the lowest paying US jobs. Perhaps this is another question to add to the increasing list of lies to be justified by Ben Bernanke at earliest convenience. And the next time the teleprompter claims to have added millions in jobs, and that very inappropriately named Fed "Dove" Janet Yellen says the Fed's QE has been a tremendous job creation success, someone please ask them to break down the actual types of jobs "created."

In her weekly HF positional analysis, BofA' Mary Ann Bartels (whose recent technical predictions did not quite pan out) finds that Long Short hedge fund exposure has declined from 25% to 18% as of January 10, well below the 40% average, market neutrals are -3% net short (explaining the ongoing bloodbath in the space), and that macro HFs are long commodities and short US equities and 10 year Treasuries. All in all, exposure continues to be below average bullish levels, yet the market continues to go up. Cue in TrimTabs...

It was the night before Christmas Eve, and CNBC trucked out TrimTabs' Charles Biderman to a de minimis audience, knowing full well that a man with his understanding of money flows would very likely repeat his statement from last year, that there is no real, valid explanation for the inexorable move in stocks higher, as equity money flows in 2010 were decidedly negative, and any explanation of the upward melt up would need to account for Fed intervention (and no-volume HFT offer-lifting feedback loops but that is a story for another day). A year after the first scandalous report was published, TrimTabs is sticking with its story: "If the money to boost stock prices by almost $9 trillion from the March
2009 lows did not come from the traditional players, it had to have come
from somewhere else.  We believe that place is the Fed.  By funneling
trillions of dollars in cash to the primary dealers in exchange for
debt, the Fed has given Wall Street lots of firepower to ramp up the
prices of risk assets, including equities." And, wisely, Biderman, just like Zero Hedge, asks what happens when the buying one day, some day, ends: "...stock prices will be higher by the time
QE2 ends, but economic growth will not be sustainable without massive
government support.  Then even more QE will be needed, and stock prices
could keep rising for a while.  In our opinion, however, no amount of QE
will be able to keep the current stock market bubble from bursting
eventually." Ergo our call earlier that Bernanke has at best +/- 150 days to assuage the market's fear that QE2 is ending (not to mention that we have a huge economic recovery, right Jan Hatzius? We don't need no stinking QE...). Therefore the best Bernanke can hope for is to buy some additional time. At the end of the day, the biggest problem is that the massive slack in the economy means that LSAP will have to continue for a long, long time, before the virtuous circle of self-sustaining growth can even hope to take over. By then bond yields may very well be high enough that Ron Paul will demands someone finally bring Paul Volcker out of the fridge.

The prevalence of crude is undeniable. You might dabble in green-think cultism or you might drive an obnoxious monolith of a Hummer (what I like to call an “overcompensation-mobile”), but neither philosophy of consumption dares to contradict that this world runs on oil. Petroleum is used in the manufacture or shipping of almost every industrial product on the planet, and even many agricultural goods. Therefore, it behooves the public to seriously consider the ramifications of oil price and its underlying effect on the entirety of our economy. Even minor increases holding over an extended period of time cause economic reverberations that can be felt for years afterwards. Financial and social adjustments to commodity inflation can sometimes take decades if the event is historically unprecedented. Petroleum is a foundation ingredient, it is energy itself; the higher its cost, the greater the cost of every other product we use, and the worse off our financial structure is. Period. There is no scenario yet experienced by any nation in which oil inflation actually benefited the masses or the overall economy, even in countries that sell oil! Americans have had a small taste of the tensions involved in an oil crisis, during the 1979-1980 Iranian snafu, and the massive gas spike of 2008, but these events are nothing compared to the steamrolling inflation we are soon to see at the pump in the next couple of years. Let’s examine why…

Update: Charles Biderman sends us an addendum to his earlier CNBC appearance...

A year after Charles Biderman's provocative post first appeared on Zero Hedge, in which he asked just who is doing all the buying of stocks as the money was obviously not coming from retail investors (and came up with one very notable suggestion), today Maria Bartiromo invited the TrimTabs head once again (conveniently in CNBC's lowest rated show, during Christmas Eve eve, at a time when perhaps 5 people would be watching) in an interview which disclosed that after more than a year of searching, Biderman still has no idea who actually buying. In response to Bartiromo's question if the retail investor, who left after the flash crash (thank you SEC), Biderman responds what every Zero Hedger has known for 33 weeks: "Retail investors are not coming back to the US. Those investors that are investing are buying global equities and are buying commodities. We are seeing lots money going into commodity ETF funds: gold, silver..." and the even more unpleasant summation: "individuals have been selling, companies are net selling, insider selling and new offerings are swamping any  buyback and any cash M&A activity since QE 2 was announced. Pension funds and hedge funds don't really have that much cash to invest. So what nobody's asking is what happens when QE 2 stops: if the only buyer is the Fed, and the Fed stops buying, I don't know what is going to happen...When I was on your show a year ago I was saying the same thing: we can't figure out who is doing the buying it has to be the government, and people said I was nuts. Now the government is admitting it is rigging the market." Cue Bartiromo jaw dropping.

First mutual funds, then ETFs, now Hedge Funds. Bloomberg reports that the smartest of the smart money have posted an outflow of $2.9 billion in July, or 0.2% of total assets: the most since January, based on TrimTabs research. "July's number follows an outflow of $2.7 billion in June. The industry has dropped 4 percent since April 2010, according to Trimtabs, which attributed the decline mostly to negative returns in May and June. Flows have now been negative five of the last eight months (see chart, this page), the worst eight-month stretch since the September 2008 to April 2009 period." And for those wondering why hedge funds are counting down each of the remaining 17 trading days with increasing dread, is the following reason from TrimTabs: "Redemptions should resume in September; historically one of the worst months for hedge fund flows. For the year, flows toward hedge funds stand at $1 billion, following redemptions of $172 billion in 2009 and $150 billion in 2008. We believe it is safe to assume this “lost” $320 billion will not come back to the industry any time soon." As is now well known, the July rally was broadly missed by hedge funds which are now underperforming the general market according to the Bloomberg BAIF Hedge Fund Index. The only open question is how many managed to lever into the rally of the first week of September and pull the cord at the very top.

With just one month left in the quarter, most hedge funds continue to underperform the market, not to mention that the vast majority continues to be under their high water mark (most notably Citadel). And with fickle LPs, unbound by lock ups courtesy of the 2008 crash, knowing all too well they can now move their money with the facility of a HFT frontrunner churning AMZN one thousand times a second, threatening redemptions unless something changes in the last month of the quarter, hedge funds are, for lack of a better word, panicking. Yet as we have long been demonstrating, the vicious loop of high correlations and mutual fund withdrawals means that alpha generation is gone the way of the dodo. Which means that HFs will now seek to actively lever up into the market to chase the beta wave over September like never before. This is indeed confirmed by TrimTabs latest Hedge Fund Flow Report, which finds that the percentage of HF managers expecting to raise their leverage exiting August is 21.2%, the highest in 4 months, and possibly all of 2010, and triple the 7.7% responding affirmatively in May. And as riding a leveraged beta wave is nothing but a coin toss on the market with dire consequences if wrong, look for market volatility in September to hit multi-month highs, especially if macro economic conditions continue to deteriorate and investors are forced to buy against the grain.

It's not a bull or bear market, it's a "wolf" market, and it's scaring retail investors away. How long before the "wolves" end up cannibalizing each other and we end up paying a high price for their reckless greed?

TrimTabs does a simple yet elegant analysis that seeks to explain why US final demand is not only sluggish but declining, and is ultimately the reason why the US government needs to consistently pump more and more capital in the economy to keep GDP at best flat. TrimTabs focuses on the "consumer spendables" indicator - It consists of the sum of three components: 1. After-tax income from wages and salaries; 2. After-tax income from non-wage sources, such as capital gains, dividends, and interest; 3. Cash harvested from home equity when mortgages are refinanced. As TrimTabs shows, and this should come as a surprise to nobody, "much of the economic growth in the middle of the previous decade was fueled by an explosion of consumer debt. Consumers treated their homes like automatic teller machines—cash-out refinancings topped out at $804 billion in the four quarters ended in Q2 2006—and they borrowed freely on low-rate auto loans and credit cards given to almost anyone who could fog a mirror. Now that the era of easy consumer credit is over, the economy is resetting to a lower level of activity. We believe the interventions of the Fed and the government to try to head off this adjustment will do more harm in the long run than the adjustment itself." In other words the ongoing debate on whether the US is undergoing inflation or deflation is moot - the primary driver continues to be deleveraging, as Rick Santelli likes to shout on occasion. And all the other monetary phenomena are merely a side-effect. Alas, as long as deleveraging is the primary driver in the economy, nothing else matters: it has long been our contention that deleveraging must run its course. However, the Fed will not let that happen, and in doing so, it will attempt the last thing in its arsenal - in essence, suicide the economy, by destroying all faith in the actual medium of monetary exchange. At that point inflation, deflation and/or stagflation will be the last thing on anyone's mind.

When TrimTabs Charles Biderman questioned the source of the money that propelled stocks 65% from the March 2009 lows, he got beaten with the idiot stick so badly that he actually turned bullish in April 2010. Lost in the ensuing choke-out was the fact that no one ever actually answered his question, unless scoffing and muttering “dark pools and stuff,” under your breath counts (and he’s the one who should be wearing the tin-foil hat?). Here we go again.

Yesterday, I sat through a conference sponsored by Andrew Schneider’s Hedgeco.net on starting and marketing hedge funds. As I sat through the various presentations focusing on transparency, performance results, etc., I though to myself, ” You know Reg, you probably rank in the top echelon of these guys in terms of absolute performance, and in terms of transparency you actually publish what you do on the web for all to see.

Lars Schall of MMNews Germany has recently interviewed many outspoken critics of the inner workings of our global financial system including former Federal Housing Commissioner and Solari Inc. President Catherine Austin Fitts and Associate Professor of Economics and Law at the University of Missouri,Kansas City (UMKC) William K. Black. Below is my recent interview with Mr. Schall.