Biderman’s Daily Rant for 11/15/2011: US companies are still the only buyers of US stocks

Nov
15

There has been and still is only one buyer of US stocks and that is the public companies themselves.

What’s more, US companies over the past month have increased their buying to $2.7 billion daily net of all share sales up from a $2 billion daily rate over the four months that started in July right after QE 2 ended.

Two reasons for the buying is public companies now have around $1 trillion in cash on balance sheets; and what they could earn on that cash is less than 50 basis points.

One problem with the buying and one of the reasons we are officially neutral on US stocks besides the de-leveraging developed economies, is that while companies are buying, insiders are selling and not buying.

Over the past month insider buying has averaged a meager $12 million daily and insiders have been selling $272 million daily, for a sell buy ratio of 23 to 1.

That compares to a sell-buy ratio of 10 to 1 and average insider buying of $30 million daily the first 10 months of 2011.

In other words, top execs are okaying their companies spending big bucks to buy back shares, but aren’t willing to use any of their cash to buy their own stock.

There is a significant disconnect between not only company buying and insider activity, but also what’s going on in the overall US economy.  Take home pay net of inflation has not been growing very fast sequentially for some time now.

The bulls say that the current healthy earnings results deserve a decent multiple. Between 1983 and 2007, when the market went up 14 times, the average PE was between 15 and 20.

However, what the bulls don’t mention because they probably don’t know, is that after tax take home pay net of inflation, including capital gains, grew by more than 5% annually between 1983 and 2007.

Currently after tax take home pay net of inflation is growing by less than 1.0% for the last two years. Some recovery.

What the bulls should be worried about is that the last time after tax take home pay net of inflation grew less than 3% annually was the ten years before 1983. The average PE that decade was less than 10.

Our guess is that within a couple of years, the average PE will again be below 10 unless a miracle happens and faster take home pay growth resumes.

 

-Charles Biderman

President & CEO TrimTabs Investment Research

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Charles BidermanCharles Biderman is the Chairman of TrimTabs Investment Research and Portfolio Manager of the TrimTabs Float Shrink ETF (TTFS)

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