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04.01.2001, 00:54

Title : From TrimTabs......

By Charles Biderman, TrimTabs.com
Last Friday, liquidity closed out the year negative $2.4 billion. U.S. equity funds had a surprising outflow of $2.4 billion given the net asset values were up 1.6% on Thursday. There was minimal mergers & acquisitions activity.

We estimate December all equity funds flow at $20.7 billion; US $18.5 billion and International $2.2.

Liquidity boomed the last week of 2000, up $13.8 billion. Hefty post Christmas inflows, several new and completed cash takeovers and the complete absence of new offerings meant there was lots of new cash available to buy stocks. That boosted stock prices over the week ended last Thursday by 5.8%

The key to January, historically, has been the seasonal pattern of huge year-end inflows into equities and no new offerings until the middle of January. There has been no down January since 1992. This year, add record sideline cash, a smaller than normal new offering pipeline for later in January, dramatically less insider selling and we see no reason why stocks won't do anything but go up over the next few weeks, barring any exogenous shock.

ONLY NASDAQ (I.E. TECH STOCKS) DOWN IN 2000; NYSE COMPOSITE ENDED UP

The overall market cap of all U.S.-based stocks, which does not include ADRs but does include listed preferreds and closed-end funds, dropped 8.8%, or $1.55 trillion during 2000. However, all of the loss was in NASDAQ stocks, down $1.6 trillion. The market cap of all NYSE stocks actually rose by 2% during the year.

In other words, value players could have had a good 2000.

We remain bullish on non-tech growth stocks. A key to the near term future for tech stocks is whether or not the margin liquidation is over. Through November, margin debt was still $36 billion higher than at the start of the bull run, which began at the end of October 1999. When that margin debt is finally liquidated, then we can have a healthy rebound in the Nasdaq 100. Until then, we would avoid wrecked-techs.

EQUITY INFLOWS SURGE FOLLOWING END TO DISTRIBUTIONS; DECEMBER 2000 ENDS STRONG

Flows into equity funds spiked to an estimated $15.9 billion over the four days ended last Thursday. Some 80% of that fresh cash went into U.S. equity funds. Of that, $7.7 billion went to Aggressive Growth while Growth got $3.6 billion and the index-loaded Growth & Income category got just $1.2 billion.

Bond funds could have the first positive flow month in December in quite some time. On the other side, money market funds had a small outflow.

Last week, the Investment Company Institute reported November flows into all equity funds of $8.8 billion, with $9 billion into U.S. equities. Our estimate was $4 billion into all equities, with $5.6 billion US.

NEITHER TRIMTABS NOR ICI INCLUDE REINVESTED CAPITAL GAINS AS FLOW

We have heard from several clients that AMG Data has been telling them that both TrimTabs and the Investment Company Institute count reinvested capital gains as inflow. We do not include reinvested capital gains as inflows. Neither does the ICI.

This is now the third year that we have heard secondhand that AMG Data has been explaining their seeming inability to accurately track December flows by asserting that both TrimTabs and the ICI are wrong. Over the past two weeks, AMG Data has been reported in Barron's as claiming that there have been over $20 billion in outflows from equity funds. Our estimate is for an inflow of $8.6 billion during the past fortnight.

During December, when virtually all equity funds make their year-end distributions, we took extra precautions to insure that we did not count a distribution as an outflow, nor the return of most of that distribution the next day as an inflow. Specifically, we back out distributions and assume that 95% of that is reinvested -- a rate even higher than the 80% reinvestment rate reported by the ICI. That means that we probably understated inflows somewhat during December, not overstated them.

Where we think the problem occurs for AMG Data is that several fund families, knowing that most of the distribution is reinvested, do not reduce total net assets one day and increase them the next to show both the distribution and reinvestment. But we don't know for sure why AMG Data keeps on reporting December outflows when both the ICI and TrimTabs show inflows.

PERCENTAGE CASH HITS 6% AT U.S. EQUITY FUNDS

Cash at U.S. equity funds dropped by $5.6 billion to $207 billion during November, the first drop since March 2000. Percentage cash rose to 6.0% from 5.8% at the end of October. Yet, despite the $5.6 billion drop, US equity fund portfolio managers again invested less than the total inflow. Indeed, over those eight months since last March, cash levels have soared by $63.5 billion, or 44%. That cash buildup is equal to two and a half months of the average $24 billion monthly flow over the first 11 months of 2000.

We had been estimating that portfolio managers had not invested any of the November inflow, given the overall market weakness, and that U.S. equity fund cash levels had risen to 6.5% in November.

PERCENTAGE CASH AT AGGRESSIVE GROWTH FUNDS SOARS TO 7.5%

Cash levels at Growth and Income funds, which primarily include S&P 500 index funds, climbed to 4.5% at the end of November from 4.0% the previous month. On the other side of the risk spectrum, cash at Aggressive Growth funds soared to 7.5% at the end of November from 6.7% at the end of October. That is the highest percentage cash figure since 7.7% at the end of April 1997. Given that the net asset value of Aggressive Growth funds declined 15% in November, no wonder cash levels popped big time.

Cash levels at Global equity funds popped to an even higher 8.4% in November from 7.9% in October -- the highest since September of 1999. Given that the net asset value of Global funds dropped by just 6.3% for the month, the rise makes less sense then at Aggressive Growth funds.

BOTTOM LINE: WE RECOMMEND WAITING A WEEK BEFORE INVESTING NEW CASH

We remain longer term bullish. However since a huge five-day inflow historically has been a short term sell signal, we recommend waiting until later this week before investing any fresh cash.

The bullish scenario includes the seasonal year-end flood of bonuses, etc. into equities.

Also, not only are there few new offerings until the end of the month, but CommScan tells us that there are less than $1.5 billion of offerings currently in the pipeline that expect to be sold this January.

What's more, we expect to see a slew of Merger and Acquisition activity at the start of this year.

The bearish argument raises the question: "How much will income growth slow during January?" Also margin calls could dampen sentiment, particularly since most of the recent calls have hit self-styled investment professionals and portfolio managers in their personal accounts.

Finally, there is always the possibility of some exogenous shock to the financial system such as the perceived threat of some global telecom defaulting on a huge pile of debt.

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