Biderman Goes on The Disciplined Investor Podcast

Feb
18

Charles Biderman joined The Disciplined Investor Podcast to explain how stocks can make new highs at the same time as the overall economy is barely growing.

To listen, CLICK HERE

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10 Responses to Biderman Goes on The Disciplined Investor Podcast

  1. Chris on February 19, 2014 at 5:54 pm

    Charles –

    In 6yrs time since ’08 “foreign” holders of US Treasury debt have increased their holdings from $2.4 T (Jan ’08) to $5.8 T (Dec ’13)?!? A 150% increase while the Fed sold/ did not roll $800 B in ’08 (almost entirely in bills) to it’s present $4.2 T (2.25 T, all Notes/Bonds…$0 bills and $1.5 T MBS).

    So the Fed & “foreigners” have picked up $6.6 T of $7.2 T increase in Public Outstanding Treasury debt since ’08. This means Fed & “foreigners” have purchased $5.35 T of $6.2 T in new Notes / Bonds issuance & own 80% of total Public Outstanding Notes/Bonds.

    The “red flag” in this is the Fed tapering. The Fed in it’s recent QE were buying nearly all medium term Notes / all Bonds (up to their 70% limit) but on their stated exit from QE, “Foreigners” who own $5 T+ (double the Fed’s holdings) would have seen rates would be rising and prices falling absent this buyer…typical “investors” they would have been selling to front run the Fed’s exit. The Fed would have known this taper would cause a rate shock. But no selling…no yields to the moon. Rather “foreign” holdings have hit a new record high as of December.

    Seems these “foreigners” are not typical “investors”. Upon the exit from the “market” of a buyer of 40% to 70% of issuance, they are unconcerned. Typical “investors” would be concerned w/ the likelihood of losses.

    What’s fascinating about the “foreign” category in the TIC reports is that it only represents where the Treasury’s are purchased and held…not the nationality of the buyer.

  2. Chris on February 19, 2014 at 5:57 pm

    ooops…should read Fed / Foreigners picked up $5.6T (not $6.6T) of $7.2 T increase in Public Outstanding debt.

  3. Chris on February 20, 2014 at 6:11 pm

    Lastly, seems interesting the increases in US Treasury debt “foreigners” have amassed. Fascinating to note:

    Asia has

    Individual country increases, Jan ’00 – ’07 – Dec ’13:

    Global $1 T —> $1.6 T —> $5.6 T

    ASIA
    China $60 B —> $400 B —> $1.27 T
    Japan $315 B —> $600 B —> $1.18 T
    Taiwan $35 B —> $38 B —> $182 B
    HK $39 B —> $52 B —> $159 B
    Singapore $30 B-> $30 B —> $86 B
    India $15 B —> $69 B
    Thailand $13 B -> $16 B —> $52 B
    TOTAL $497 $3 T

    AMERICAS
    Brazil $54 B —> $245 B
    Canada $15 B —> $28 B —> $56 B
    “Carribean banking centers”
    $35 B —> $68 B —> $291 B
    TOTAL $55 B $592

    MENA
    “oil exporters”
    $45 B —> $112 B —> $238 B

    EUROPE
    Russia $9 B —> $139 B
    Norway $20 B —> $97 B
    UK $50 B —> $100 B —> $164 B
    Switzerland $18 B> $34 B —> $175 B
    Turkey $25 B —> $52 B
    TOTAL $78 B $627 B

    BANKING CENTERS EURO
    Ireland $5 B —> $19 B —> $125 B
    Belgium $28 B –> $13 B —> $257 B
    Luxembourg $60 B —> $134 B
    TOTAL $38 B

    CORE EURO
    Germany $54 B —> $50 B —> $67 B
    Italy $20 B —> $14 B —> $30 B
    Netherland $13 B-> $15 B —> $37 B
    France $27 B —> $10 B —> $54 B
    Spain $20 B —> $ $23 B

  4. Chris on February 20, 2014 at 7:01 pm

    Lastly, seems interesting the increases in US Treasury debt “foreigners” have amassed.

    Individual / Regional “foreign” TIC assigned increases, Jan ’00 – ’07 – Dec ’13:

    Global
    $1 T —> $1.6 T —> $5.6 T

    ASIA
    China $60 B —> $400 B —> $1.27 T
    Japan $315 B —> $600 B —> $1.18 T
    Taiwan $35 B —> $38 B —> $182 B
    HK $39 B —> $52 B —> $159 B
    Singapore $30 B-> $30 B —> $86 B
    India $15 B —> $69 B
    Thailand $13 B -> $16 B —> $52 B
    TOTAL $497 —> $3 T (600% increase, ’00-’13)

    AMERICAS
    Brazil $54 B —> $245 B
    Canada $15 B —> $28 B —> $56 B
    “Carribean banking centers”
    $35 B —> $68 B —> $291 B
    TOTAL $55 B —> $592 B (1100% increase)

    MENA
    “oil exporters”
    $45 B —> $112 B —> $238 B (500% increase)

    EUROPE
    Russia $9 B —> $139 B
    Norway $20 B —> $97 B
    UK $50 B —> $100 B —> $164 B
    Switzerland $18 B> $34 B —> $175 B
    Turkey $25 B —> $52 B
    TOTAL $83 B —> $627 B (750% increase)

    BANKING EURO
    Ireland $5 B —> $19 B —> $125 B
    Belgium $28 B –> $13 B —> $257 B
    Luxemburg $60 B –> $134 B
    TOTAL $38 B —> $516 B (1350% increase)

    CORE EURO
    Germany $54 B —> $50 B —> $67 B
    Italy $20 B —>$14 B —> $30 B
    Netherland $13 B-> $15 B —> $37 B
    France $27 B—> $10 B —> $54 B
    Spain $20 B—> $ $23 B
    TOTAL $134 B —> $211 B (57% increase)

  5. Chris on February 27, 2014 at 10:43 pm

    Interesting the increases in US Treasury debt “foreigners” have amassed, to wit;

    Jan ’00 – ’07 – Dec ’13
    $1 T —> $1.6 T —> $5.6 T (cumulative “foreign” held US public outstanding Treasury debt)
    25% —> 40% —> 55% (% of notes / bonds held by “foreigners”)
    1% —> 1% —> 25% (% Fed held notes / bonds…Fed primarily held Bills until ’08)
    74% —> 59% —> 20% (% domestically held notes / bonds)

    180% —> 130% —> 247% (% public vs. intra-gov debt)
    350% increase (public outstanding debt, $3.5 T to $12.4 T)
    250% increase (intra-gov debt, $2 T to $5 T)
    6.6% —> 5% —> 2.4% (net interest rate on debt)
    $300B -> $270B —> $223B (net interest paid on national debt)

    $9.2 T –> $13.7 T –> $16.1 T (GDP = 75% increase);
    $5.7 T –> $9 T –> $17.4 T (National debt = 305% increase )

    Japan vs. US debt – In Japan we are told institutions buy Japanese debt due to deflationary conditions coupled w/ a sense of national duty but nearly all Japanese debt is domestically held. In the US, 1/3 of all Treasury debt is now “foreign” held and 55% of Public Outstanding. With the Fed tapering (for argument sake to zero by year end) and deficits persisting, someone will need to continue buying the new issuance of a minimum of $500 B plus rollover all existing debt. States and domestic institutions are loathe to buy @ such low rates. This leaves only “foreigners” to continue increasing their gross and % of US debt likely to 75% holdings of all notes / bonds by 2015 and nearing a 50% holding of all US Treasury debt.

    The implications for Japan are scary but regardless whatever debt level is hit and the corresponding interest payments, the silver lining is the money will remain in the Japanese economy. These Yen paid in interest can at least stay within the Japanese economy increasing the money velocity and multiplier effects.

    The implication for the US are honestly far worse as “foreigners” are under no such national duty and may redeploy assets as they please. Much of the interest paid to “foreigners” simply exits the economy with no multiplier or velocity effects.

    The idea that this is sustainable or that US debt isn’t an issue right now, right here seems “debatable”. There is a $5 T+ and growing cornice of “foreign held debt” our heads and the avalanche is simply a question of when, not if. A reversion to the average 50yr yields around 7% would produce Treasury yields with gigantic interest payments, of which nearly half would exit the economy to “foreigners”:

    5% blended interest payments = $875 B of which nearly half would likely exit the economy.
    7.5% = $1.3 T
    10% = $1.75 T
    (btw – total ’13 Federal tax revenue = $2.8T)

    Funny domestic buyers (states, pensions, institutional buyers) have acted somewhat rationally…buying next to none of the low yielding Treasury debt as higher yielding debt continues to roll off their balance sheets.

    However, “foreigners” love our debt the lower the yield goes and just literallly can’t get enuf. Sorta made sense in ’09 as a “flight to safety” meme but now??? Looks quite irrational “foreign investors” or “foreign CB’s” would plow ever more to receive ever less???

    Of course there is always the chance that the Fed (or it’s agents) are actively buying Treasury’s in a shadow QE as some portion of the “foreign” demand. And that’s a whole other discussion.

  6. Chris on March 5, 2014 at 6:49 pm

    Charles – couple questions for you or Mr. Santelli or Mr. Bianco:

    Why since ’08 have “foreigners” been so keen to buy incredible quantities of US Treasury public debt (notes/bonds) while US domestic sources have (net) shown no interest due to their relatively unattractive yields?

    Why now with the Fed tapering their QE would “foreigners” continue to hold their record positions and continue adding to them?

    What do you attribute the deviation of “foreigners” viewing Treasury’s as an attractive asset vs. domestic sources who view them contrarily?

    Is this a stable or sustainable situation?

    Is the transfer of such a large % of this mid / long term debt to “foreign” holders (55% and growing) in America’s interest? If not, in who’s interest? Qui bono???

    • cbiderman on March 6, 2014 at 3:27 pm

      First off, whenever I look at any major financial market, my first concern is supply and demand.
      Market price is a function of supply and demand of the asset traded and cash available.

      In the bond market, the Fed is now buying $55 billion of longer term treasuries and mortgage bonds each month. While that is less then the $85 monthly for all of last year, it is still a big number.

      When the Fed last May announced that taper would start this year, there was a massive sell off in bond funds forcing massive liquidations of bonds.That stopped this year, perhaps more because the scared cash left rather than the market changed.

      No one outside of the Treasury and the big bond houses know who are the “foreigners” that have been regularly buying.

      What I really think you are asking is what is US debt actually worth compared with current prices. Obviously, the price of bonds and stocks have been inflated by the Fed’s creation of money with which they have bought financial assets.

      And not only are US bond and stock prices inflated, so are virtually all global assets. Global central banks have created money with which to buy financial assets all over.

      Remember, part and parcel with what debt is worth is the relationship between income and debt. If global income were to grow significantly faster, obviously the value of the debt improves. However, since it is unlikely — less then a 25% chance — that global economic growth can take off and make good all the recently created money good; then at some point we will have a major repricing lower of stocks and bonds.

      The financial markets have trained investors to believe in “pollyanna”, as global QE has created many many trillions in temporary wealth. The reality is that investors, having made huge profits, are not capable of believing that without QE stimulus, the best we could hope for is quite tepid growth.

      • Chris on March 25, 2014 at 5:53 am

        Thanks for your thoughts Charles and hopeful you will continue to bring your style of understated skepticism that a centrally driven model will yield good or even an acceptable result for more than a very small %. Cheers

  7. Scott on March 11, 2014 at 7:20 pm

    Just wondering if you’re all alive & well there – no new videos lately… Have you all cashed out headed for greener pastures?

    • cbiderman on March 12, 2014 at 12:06 am

      I am scheduled to be on CNBC this Friday at 8:20 AM PDT with Rick and on Maria Bartiromo’s new show next Thursday morning during the 9 AM EDT hour.

      I have been meaning to do some more videos, but we have too many new things in the works that are distracting me. Suffice it to say most of the new stuff have to do with creating additional ETFs.

      At some point, when life slows down, I do plan to resume doing weekly videos.

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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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