It was the night before Christmas Eve, and CNBC trucked out TrimTabs’ Charles Biderman to a de minimisaudience, knowing full well that a man with his understanding of moneyflows would very likely repeat his statement from last year, that thereis no real, valid explanation for the inexorable move in stocks higher,as equity money flows in 2010 were decidedly negative, and anyexplanation of the upward melt up would need to account for Fedintervention (and no-volume HFT offer-lifting feedback loops but that isa story for another day). A year after the first scandalous reportwas published, TrimTabs is sticking with its story: “If themoney to boost stock prices by almost $9 trillion from the March 2009lows did not come from the traditional players, it had to have comefrom somewhere else. We believe that place is the Fed. Byfunneling trillions of dollars in cash to the primary dealers inexchange for debt, the Fed has given Wall Street lots of firepower toramp up the prices of risk assets, including equities.” And, wisely,Biderman, just like Zero Hedge, asks what happens when the buying oneday, some day, ends: “…stock prices will be higher by the timeQE2 ends, but economic growth will not be sustainable without massivegovernment support. Then even more QE will be needed, and stockprices 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 earlierthat Bernanke has at best +/- 150 days to assuage the market’s fearthat QE2 is ending (not to mention that we have a huge economicrecovery, right Jan Hatzius? We don’t need no stinking QE…). Thereforethe best Bernanke can hope for is to buy some additional time. At theend of the day, the biggest problem is that the massive slack in theeconomy means that LSAP will have to continue for a long, long time,before the virtuous circle of self-sustaining growth can even hope totake over. By then bond yields may very well be high enough that RonPaul will demand someone finally bring Paul Volcker out of the fridge.
Tyler Durden @zerohedge Jan2,2010
From TrimTabs:
What Source of Money Is Pushing U.S. Stock Prices Higher? Market Cap Rises $2 Trillion in 2010 as Buying by Companies andForeigners Offsets Selling by Pension Funds and Retail Investors.However All of Gain and Then Some, $2.4 Trillion, Since QE2 Announcedat End of August.
At the end of 2009, we published a report entitled, “Are Federal Reserve and U.S. Government Rigging Stock Market?” We questioned whether the Fed or the Treasury were pushing up stockprices because we could not identify the source of the money thatpushed the market cap up by nearly $7 trillion from mid-March 2009through December 2009.
At the time we released our report, many people thought it was crazy to suggest that the Fed or the government would manipulate the stockmarket. Yet Ben Bernanke, Alan Greenspan, and Brian Sack have all butadmitted publicly this year that the Fed attempts to prop up stockprices.
The market cap of all U.S. stocks increased $2 trillion in 2010. All of the gain and then some, $2.4 trillion, occurred since the end ofAugust after QE2 was announced. Once again, most of the money to pushthe market cap higher does not seem to have come from the traditionalplayers that provided money in the past:
Companies and foreign investors were net buyers:
· Companies. Corporate America was the biggest net buyers of shares, although all the float shrink occurred betweenJanuary and August. The float of shares decreased $150 billion in2010, mostly because new stock buybacks nearly tripled from thedepressed levels of 2009. However, between September and year-end thefloat did not shrink but instead grew by $14 billion.
· Foreign investors. Foreigners provided some buying power in the U.S. stock market, purchasing a net $89 billion in U.S.equities from January through October.
But the buying of companies and foreigners was offset by selling elsewhere:
· Pension funds. Pension funds were apparently huge net sellers of U.S. equities. Based on Informa Investment Solution’sPlan Sponsor Network data, we estimate that managers of separateaccounts pulled $169 billion from U.S. equities from January throughSeptember. Pension funds account for about 60% of the assets inseparate accounts.
· Retail investor funds. Retail investors were net sellers of U.S. stocks. U.S. equity funds and ETFs redeemed $38 billionin 2010 even as a whopping $273 billion poured into bond funds andETFs.
· Retail investor direct purchases. We doubt retail investors were big direct buyers of U.S. stocks when they were netsellers of U.S. equity funds and retail investor sentiment wasrelatively cautious until late this year.
· Hedge funds. We have no way to track in real time what hedge funds do, but we doubt they were big net buyers of U.S.equities. While hedge funds posted an inflow of $60 billion fromJanuary through November, the most popular strategies were Event Driven($14 billion), Fixed Income ($9 billion), and Emerging Markets ($7billion). Equity Long Bias, Equity Long Only, and Equity Long-Shortreceived a total of only $12 billion.
U.S. Stock Market in Trouble Once Fed Interventions Stop. No Amount of Bond Buying Will Keep Stock Market Bubble from BurstingEventually.
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 tohave come from somewhere else. We believe that place is the Fed. Byfunneling trillions of dollars in cash to the primary dealers inexchange for debt, the Fed has given Wall Street lots of firepower toramp up the prices of risk assets, including equities.
But what will happen when the Fed stops buying assets? If QE2 works and the wealth effect of higher asset prices creates a sustainableeconomic recovery, we think the Fed will stop its QE activities. TheFed is legally mandated to manage the economy, not the stock market,and we think the Fed will sacrifice the stock market to its legalmandate. If that happens, stock prices are likely to plunge to wellbelow fair value.
A more likely outcome is that stock prices will be higher by the time QE2 ends, but economic growth will not be sustainable withoutmassive government support. Then even more QE will be needed, andstock prices could keep rising for a while. In our opinion, however,no amount of QE will be able to keep the current stock market bubblefrom bursting eventually.
Mutual Fund and Exchange-Traded Fund Flows Not Dramatically Different in 2010 Than in 2009. Bond Funds Post Big Inflows, GlobalEquity Funds Post Moderate Inflows, and U.S. Equity Funds SufferRedemptions.
Mutual fund and exchange-traded fund flows in 2010 were not greatly different than they were in 2009. Bond funds—references to “funds” inthis section include both mutual funds and ETFs—continued to rake inhuge amounts of money, although inflows subsided to $273 billion in2010 from a record $416 billion in 2009.
Equity fund flows were mixed. Global equity funds posted a respectable inflow of $87 billion in 2010, up modestly from $62 billionin 2009. Nevertheless, global equity fund inflows were nowhere nearthe peak of $182 billion in 2007. U.S. equity funds posted their thirdconsecutive outflow, losing $38 billion in 2010, little changed fromthe outflows of $42 billion in 2008 and $47 billion in 2009.
Flows shifted dramatically in late 2010 as the municipal bond market tanked and bond yields backed up. Bond funds lost $1.0 billion inNovember and $16 billion in December, the first monthly outflows sincelate 2008. If this selling persists, the exodus from bond funds couldput more upward pressure on bond yields.
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