This page has been archived and commenting is disabled.
"We're Living In A Make-Believe World" Biderman Warns "A Global Recession Is Inevitable"
Submitted by Christoph Gisiger via Finanz und Wirtschaft,
Charles Biderman, founder of the research firm TrimTabs spots a warning sign in the drop of the commodity prices and mistrusts the paper money of the centrals banks.
In every market supply and demand are determining the price. Charles Biderman uses this simple logic as the foundation for his investment philosophy. The outspoken founder of the research firm TrimTabs is convinced that stock prices are a function of liquidity—the amount of shares available to buy and the amount of money available to buy them—rather than fundamental value. Therefore, he carefully tracks the announced actions of companies. In his view they are among the biggest players in the stock market and the driving force behind today’s bull market. For now, Biderman thinks that this trend will push stock prices even higher. For the medium term though, he cautions that the financial markets are poised for a severe crash. He spots the first signs of a global recession in the drop of the commodity prices and warns of the moment when people don’t trust the paper money of the central banks anymore.
* * *
Mr. Biderman, once again the economy is not doing well. Nevertheless, the stock market in the United States seems to be in record setting mood. What’s behind the rally?
What’s present in the stock market in the moment are companies, their transactions, buyers and sellers of stock. That’s all what happens in the market. So if you count the number of shares available and how much money is available you might get a sense of what’s going to happen. Since 2011, the amount of shares in the market has been declining every year. Even though individuals are taking money out of the market, companies have spent around $1.6 Trillion in cash on takeovers and stock buybacks.
And what does that mean for stock prices?
The efficient-market hypothesis states that all information about the market is already reflected in today’s share prices. Therefore, the only way you can invest successfully is to broadly diversify at very low cost. But one important fact is being overlooked: In every market the house has an edge or else the market wouldn’t exist. In the stock market the house is the public companies which have an undeclared edge. Top insiders at a firm know more about its fundamentals than the general public, and these insiders can influence the price of their employer’s shares by timing equity issuance and stock buybacks to their advantage. So what we have discovered quantitatively is that when companies, in aggregate or individually, are reducing their share count and there is more money chasing fewer shares, prices must go up.
Is that the only indicator you pay attention to? What about standard instruments for valuing stocks like the P/E ratio? Don’t they matter in your view?
Most fundamental investment approaches, such as the discounted cash flow method, attempt to calculate a company’s intrinsic value. That may work when you compare two companies with each other. But it’s irrelevant for the market as a whole, since earnings have never predicted future market prices for the market as a whole. Therefore, instead of guessing about intrinsic value, I contend that in the short term the prices of stocks, like the prices of other tradable goods, are set by the underlying conditions of supply and demand. And that’s what we track. The fact that the P/E ratio might be high or low is more a function of supply and demand than a determining indicator on its own.
Thus fundamentals aren’t important at all?
Some people say in the long term it’s all about earnings. But in the long term we’re all dead. So even if you’re right you could go broke by the time the long term happens.
So when should investors be careful?
During the few times when the supply of shares was greater than demand the market usually went down. But there was an exception in 2009 when all the money form the government started going into the market. So despite that companies were huge sellers of stock and the supply of stocks rose, prices went up. I had a very bad year in 2009 because I didn’t see that the first time ever in the history of the markets the government made the difference. I was among the first to say publicly on TV that the Federal Reserve was the reason the market was going up. But at that time it was shrugged off as conspiracy theory.
Today, investors are obsessed with monetary policy. How do you cope with that?
Historically, the money in the market has come from income. But today, companies are not growing very fast and we’ve had low income growth since 2011. However, the market has tripled. The only reason for that is that companies are taking excess cash which is earning zero interest and reducing share count instead of spending it to build capacity for future demand growth. So it could keep going like that for another few years. That’s why in the short term I’m bullish.
But what will happen if the Federal Reserve is going to raise interest rates later this year?
Everybody looks at what the Fed says, what the ECB says, and what the IMF says. But if you go back the last four years they’ve said over and over that the economy is going to be growing sustainably soon. They say that year in year out. Also, all the economists have said they expect interest rates to raise because the economy is going to be growing. And they’ve all been wrong. But nobody ever points to that. As long as the stock market keeps going up it doesn’t matter that they’re wrong.
When do you think the Fed will raise interest rates?
Based upon the current economic data they’re not going to raise interest rates anytime soon. They might decide to raise rates just to see what happens. But if the Fed is data dependent, as Chair Yellen says, I can’t see them raising rates anytime soon.
On the other hand, Fed chief Yellen affirmed that she still expects to raise interest rates this year.
Our macroeconomic indicators basically suggest that growth has been flat for the last six months, sequentially. So I just don’t see where the growth would come from. For instance, autos are one of the sectors doing best in the US economy. But the growth there is coming from the amount of junk auto loans that have been issued. They’re leveraging up auto buyers. And you know what’s going to happen. We saw that movie before with the subprime crisis in the housing market. And then there is a $100 Billion. of additional student loans every year which people are living on. There’s no way that those loans are going to be repaid.
At least, the labor market seem to be doing better. Since the beginning of 2014 there are 240,000 new jobs every month on average.
But that’s the only good number. So instead of questioning all the other numbers why don’t we question that number? It’s a bad number and you have to understand where it comes from: The government surveys around 160,000 employers including all government agencies and a lot of big business. They claim that they also track smaller companies. But in reality that’s very difficult. So they get maybe a 100,000 responses and that’s just a survey of a small minority of all the millions of employers in the United States. What’s amazing to me is that everybody reports that number as a fact and nobody looks at how they come up with it. Every other number is bad. But no one seems to care.
So how bad does it really look like?
I think a global recession is inevitable. How do you know we’re going into a global recession? The first sign is a collapse in commodity prices. The initial drop in interest rates and China deciding that they want to build millions of homes that no one is going to live in have created a pickup in economic activity. And because there was a pickup in demand oil prices went over $100 a barrel and iron ore and all kinds of commodities went up in price. Subsequently, the supply of all commodities grew because it didn’t cost anything to build new plants, new mines or new oil wells. But now that demand doesn’t grow we have excess capacity.
What are the ramifications of that?
Right now, we’re living in a make believe world. Debt can’t be the main source of growth. Without a pick-up in final demand a lot of bad debts are out there. As long as you have excess capacity in the commodity production you have bad loans throughout the system. That means you have governments who can’t repay their debt without selling new loans and all their bad loans are funded by the central banks. For example, if you look at all the money that Chinese banks have invested in real estate, there’s no way that they are going to be repaid. China is bankrupt.
But after all, in Europe things are starting to look somewhat better, since the ECB launched its stimulus program.
Sure, we have a little bit of activity in Europe. But where would Europe be if it wasn’t for lower oil prices and the lower Euro? You just can’t devalue your way to prosperity.
Is there no way out of this dilemma?
Almost all governments are bankrupt. Supposedly, with the economic contraction we had you would think the world would deleverage. But there’s a lot more debt globally now than even at the peak of 2007. In the United States for example, the present value of all future liabilities is something like $70 Trillion. if you add up all the future payments to Medicare, Medicaid, Social security and government pensions. That’s more than the net worth of the United States. So there’s no way that money can get repaid. You would need something like 10% growth in income every year. And that’s just not going to happen. That’s why we are going to have a bad time when we realize that the emperor is naked: All the money that the central banks have created is worth nothing.
When do you think that’s going to happen?
Nobody knows until afterwards. And then, of course, after it happens everybody will know why it should have happened. But it’s all hindsight. As long as the number of shares keeps declining, stock prices are going to go up and nobody cares. That’s why I’m saying in the short term I’m bullish even though in the long term there has to be a major correction.
* * *
- 35440 reads
- Printer-friendly version
- Send to friend
- advertisements -


If you wonder why the price of oil has been going UP, while all producers keep pumping more (with the number of rigs at the record lows and the inventories “magically” dropping), here’s the answer – Strategic Petroleum Reserve.
The total number is supposed to be 691 Million Barrels. However, DOE’s own website shows that as of May 15 it was 1,400 Mbbls, and the projected number for June 15 is 1,797.5 Mbbls.
What a great way to perpetuate the ‘recovery” myth by quietly doubling the SPR and blaming the falling inventories on the “increased demand”.
Now, where are my tin foil hat, tin foil gloves, and tin foil glasses? ;-)
Looney
http://www.spr.doe.gov/dir/dir.html
Probably trying to protect some oil indusry jobs, save ND/TX, help the small producers as the impact of the OPEC decision was more crippling than expected. Plus fill the reserves when it's on sale.
poor beiderman an expert on all the facts in the time in history when facts mean nothing.
They could have wrote this 5 years ago........
That’s what Krugman doesn’t seem to understand, debt taken on by fools who cannot repay is never a zero sum game as he would like us all to believe. If the debtor can’t repay, then it is not a liability and again if the debtor can’t repay the bond is not an asset. Krugman’s logic that one person’s debt is another’s asset falls apart in this light.
Nice catch, Looney. Thanks for posting that.
We are preparing for a major war... everyone is stockpiling... signs of a world war are everywhere.
Somebody's getting ready for war.
I obviously don't mean us personally...
What the hell is with all these yokels speaking the truth lately?!? Jeez, get with the program!
So you stay in the markets making moar and moar as long as debt keeps flowing but in the end you discover when you cash it out, the cash is useless?
EVERYTHING IS BULLSHIT!! 80% of all Americans are STUPID and don't have a freaking clue what's going on around them. The remaining 20% are fully aware of all the lies and manipulations. So - WHO IN THE HELL ARE THEY TRYING TO CONVINCE?!?!
We know this is a debt driven global economy and it cannot last. What we don't know is the consequences and time, but they are coming. Things will likely be beyond nasty.
The US Dollar is backed by the ignorance of the 99%. If the 99% actually took the time to learn the basics of this economic system they would understand that they are the ones perpetuationg the massive fiat money fraud. They scrimp and fight for what they 'think' is money. The 99% should be tied down and forced to watch what this video
https://hiddensecretsofmoney.com/videos/episode-4?utm_source=May26Newsle...
And unfortunately, if there's one thing you really CAN count on, it's the ignorance of the 99%. (Seen that vid before - it is pretty good.)
Thanks FOster
More like 97%. The 3% who actually know what's going on are...
The Special 2%, Oligarchs, ZHers, and Colluding Elite Beneficiaries (in the Deep State) of the Usurpers.
Every comPany should buyback all shares except ONE. What would S&P be then !!!!
It would mean that the wealthy own all companies and everyone else's 401K is tied to that one remaining share and they still would collect fees to mangage it.
I've had acid trips that made more sense than reality these days. Speaking of which, when does this reality end and get replaced by the next one? Some of my shit has a shelf life you know.
Man, that was like 30-years ago, but that was some of the best $4-5.00 one could spend!!! Cheaper than boozing-it-up, and a lot more fun-- I couldn't stop smiling!
Dunno if I could handle acid these days-- life unadulterated is seriously weird enough. But maybe in the larger context it'd be a really good thing if this legal weed thing catches on, especially in D.C.-- "Bomb 'em? Fuck it, Dude, just pass the chips!"
Fuck it. As long as the make-believe world gives me my flat screen tv, netflix and fast food, keep the party going!
The Earth will also be hit by a comet at some point in the next 500 million years. After it happens, everyone will know why it happened.
Probably because the big round earthy looking planet was in the way of the comet, a little like those damn Russians moving their country closer to our military bases but on a cosmic scale.
"in 2009 when all the money form the government started going into the market"
Biderman needs to prove this
Dow went from 6500 in march to 9000 in june of 2009 ... almost in a straight line up. I CLEARLY recall ZH that spring posting screen shots of a bloomberg terminal showing DAILY Goldman Sachs and JPM buying large blocks of S&P futures driving the market upward.
i've always had a problem with folks claiming fedgov buying stock (who the eff gets the profit?) ... much better for wall street the way things worked out ... borrow unlimited $$s from FR at close to 0% ... all the while have Treasury Secretary (geitner) proclaim at every opportunity that no large banks will fail ... with that set up ... ABSOLUTELY NO WAY WALL STREET LOSES ... they keep the profit and not fedgov (egad, have to give it to THE TAXPAYER??)
its not recession,its a partial but Major Colapse, and i`m working on it, alright? Gadzooks!!!!
" So it could keep going like that for another few years. That’s why in the short term I’m bullish."
Good luck, Charles
US entering/entered recession. "Short term" a lot shorter than that.
make-believe?
i see so many slaves getting their $12/hour.....whats make-believe abot that?
All those houses in China will be occupied. When the SHTF they plan to come out on top and as a reward to all the people, new homes will be waiting. Look at their cities - brand sparkling new. Now building islands in the S China Sea and going on a military spending binge like nobody's business. Buying up gold like there's no tomorrow. There's a yellow tidal wave coming. A golden Chinese tidal wave.
Love it,. fuck the USA
The only thing you ever achieved in life is that you once splooged in your own mouth, using a gravity assisted position.
The USA must die.
Have a nice day.
China to go the way of Japan
I remember one time we were all 'Turning Japanese,i think im turning Japanese, I really think so....'
What! consequences, who is this mad man, surely we can just keep hitting print until they all go away.
Balamore news rag has turned into a police blotter. The days of owning a police scanner. We can still listen to your encrypted channels.
Simple solution: Find a nice piece of land. Build a still. Grow corn. Buy some sugar. Pick up some seeds, cows, goats and a few chickens. Tractor might help. Lots of guns and rifles with required ammunition. Gold and silver for reserve needs. Creek will be helpful.
Plant a garden. Drink moonshine. Pick up chicken eggs. Drink moonshine. Let the goats keep the area clear and breed. Eat the small ones. They taste better. Drink moonshine. Milk your cow and let the bull get his groove on. Have some tender veal. Drink moonshine. Shoot the first cock sucker that steps foot on your land without permission.
Welcome to Tennessee.
Learn to malt your corn. If supply chains break, you'll be getting no sugar for the fermentation process;)
Nah, dollar is strong, sugar is cheap. Buy lots of it. Same for flour, rice, beans.
It's fresh veggies & fruit (when out of season) that's expensive. Same for big-game protein (Beef).
Plenty of Toiletries (personal and feminine hygiene) is key. Potentially of greater currency than Precious, depending on Supply/Demand.
Solar chargers for GPS, phone and laptops is the difference between the 18th and 20th century. As are Meds. Personally, I'm partial to 1900s lifestyle, not 1870s.
"stock prices are a function of liquidity"
serious ?: one of (if not THE) first things they teach you in microecon is that supply & demand are actually curves where price is one axis & quantity is the other. the most recent price theoretically (in an efficient, unrigged market) merely represents the equilibrium point between the two curves at a given quantity supplied/demanded. given this (or at least given it's literally among the 1st thing they teach undergrads in econ 101) how is market cap, which by definition is nothing more than the product of multplying a given equiglruim price of a given quantity supplied/demanded at a point in time by the upper bound of the supply theoretically available, a meaningful # in any rational sense?
At this point in time, stock prices are determined by central bank injection, and stock buybacks. Until the Fed decides it will get it and it's buddies out, so they can make a killing on a market crash,
Ok so we won't guillotine this cunt only hang him.
How much silver will it take to get me a flight out of America once things collapse?
By then it won't be legal to fly out of the country so.... you better hope you can pay off the Orwellian Emigration Patrol... which will probably be TSA so... you better hope Shiquanda is having some serious trouble feeding her kids...
More than you have.
Only Milo Minderbender can save us now
Wow! Biderman has been persona non grata around here for a long time. Welcome back.
Beedermon was shown the door here for his bad calls. The guy has little credibility left.
Not a bad article, he hit on more than a few things.
I should read trends more often. I'd like to be more informed. Wonder...
- US Energy Policy & Industry don't make major moves to reduce use of oil or create cheaper energy source
-- So SA decides to reduce price as market demand is lower in Global Recession in order to shake out Industry
-- US Oil Refiners and Producers take the same Strategy at the same time, but no one calls them on it
- US Corporate Strategy has no place for Reducing Production, the only strategy is to open new markets & Cut Costs: use cheaper labor, open new manufacturing in low regulation & low Tax Jurisdiction, use reorganizations to layoff expensive labor & substitute with cheaper labor, reduce Inventories, warehousing & shipping costs, and Increase Productivity with Automation & robots
-- So Long term Contract Agreement find place in shipping industry and other places
-- Vertical & Horizontal Integration is expanded, partly in Off Shoring & Free Trade Agreements
The Trend is for continued Production & Expansion of Trading Empire. Diversifying into Conglomerate Holdings and into bigger Mega Corporation Cartels seems Obvious.
This could lead to Deflation as ZHers keep pointing out.
The Global Consumption outside of China maybe collectively lower and going lower. All I know is Petroleum Supply and Refinery Production have both being going up in the USA since near the time of the 2008 Financial Crisis.
China Global Stimulus, US Fiscal Stimulus, US Monetary Stimulus... don't seem to be enough for Velocity. Even with Chinese Ghost Cities and building military navy and Island Facilities.
US Trend for part time jobs and lower paying jobs is Systemic and likely permanent since Robots & Automation are due any day now... Probably from Google. Again High Supply of US Labor of all kinds... Deflating Labor Rate.
Power Opposing Free Trade & Globalism?
Requirement for Governmental Intervention:
- Federal Debt overhang
- USD Fiat Expansion has no Regulator or Detailed Info about how much Private Banks & Shadow Banks Create
- High household Debt
- 13 Years of US Credit Bubble
- Free market Interest Rates Controlled for 6 Years, but really have been low since 1999, so 16 Years
- US Consumer Market is no longer Growing without Dangerous Debt Levels, Sub-prime Debt replaces Healthy Debt
- Free Trade Agreements steal Sovereignty & are unconstitutional
- Other Countries are better Run that the USA
- The Free Press no longer Protects the People from bad Government and Reckless Federal Govt Growth
- US has no mechanism to Rate Financial Instruments or Organizations which is not tainted by corruption (systemic)
- Administrative Costs of Organizations for Perks, Benefits, and Compensation for Private Executives have no Limited even though this hurts Investors, hurts the Profits which are taxed, and sanctions greed while promoting Treasonous Sentiment and Attitudes toward the nation and it's workers
- The concepts of Corporations, Foreign Policy, Foundations, and Lobbying and gift giving to Politicians in Washington DC, along with term Limits, and reducing the damage done by Lawyers & Wealthy Powers in our Court Systems... NEED TO BE CLARIFIED, Examined, Simplified, and put in context of the Future of our People & Country and Total, Systemic, Permanent Damage
Wish we had a video so we could see Biderman's telephone pole.
Proof of vintage ZH affiliation: But in the long term we’re all dead
This guy has been saying this since 2010.
Fuck it... I call do over! Back to the beginning... the earth is flat!
https://youtu.be/p8eIuT-nSAs