Washington, DC -- (ReleaseWire) -- 10/31/2014 --Nationally Syndicated Financial Myth Busting Radio Show with Host Dawn Bennett, CEO of Bennett Group Financial Services, LLC, on October 26, 2014 interviewed Charles Biderman, chairman of TrimTabs Investment Research, founded in 1990.
TrimTabs developed into the only independent research firm which provides daily coverage of U.S. stock market liquidity. The premise behind TrimTabs approaches that stock prices are a function of supply and demand of shares of stock and money rather than fundamental value.
He is also the author of TrimTabs Investing, using liquidity theory to beat the stock market, which came out in 2005. Mr. Biderman was the assistant early on in his career to Alan Abelson of Barron's.
Here is the interview with Charles Biderman:
BENNETT: Do you think these rigid markets are coming to an end, or do you think the Federal Reserve is actually going to try to attempt some type of controlled collapse?
BIDERMAN: You have to step back a second and watch underneath. The Central banks are propping up the global financial markets, whether it's actual regaining or just creating the circumstances by which financial asset prices can't keep levitating. There’s one reason why this is all happening and that is because the major governments around the world have created obligations to citizens that they cannot pay.
The governments are all running huge deficits and not just current account deficits, if you add unfunded future liability. So the major governments around the world: U.S., Japan, England, except for Germany, all the future obligations. The present value of future obligations are greater than any ability to pay. That doesn't even include the current budget deficits. So if these countries were public companies and if a public company did not disclose that its future liabilities would not meet, that it couldn't be paid, the people running those companies would be in jail for fraud. But the government can lie about its ability to meet its future obligations. So how if you can't meet your future obligations, do you create wealth ? Well, not by making it more difficult to start businesses or to do new ventures. No. You levitate asset prices and the first step is the zero interest rate policy. We know that Japan has admitted that they are buying equities. The U.S. has never admitted it's buying equities, whether it is or isn't relevant, they've created a zero interest rate policy so companies growing cash are using or even if they're not growing cash, they're shrinking the share account and if there's more money chasing too fewer shares, the stock market goes up.
BENNETT: Janet Yellen, our Fed chairwomen has said, 'It isn't the Fed's job to pop b ubbles. Now, given the upside-down world we seem to be living in, which when you rig a market, or manipulate a market, do you think that means that they see that they've done something wrong and they're actually going to pop this bubble?
BIDERMAN: Well, they thought we needed to build a bridge over the economic valley so we can get to the other side safely. That's what they have thought. They didn't realize that they are not capable of creating the underlying conditions or economic growth. They thought they could do what Europe did and that is try to control everything, try to make sure that the people in charge stay in charge for the rest of their lives sucking the blood out, like pa rasites committed to the death of the host by their actions. But the parasites have convinced themselves that they're necessary for the whole survival and they will keep thinking that until the host dies. I ran across a key statistic that shows that there's been a significant decline in the amount of new company start-ups per a year going back to 2000.
BENNETT: Why do you think that is?
BIDERMAN: The amount of new business start-ups plunged under Obama, so you could say, 'Well, maybe it wa s the recession.' But the other statistic that's not dropping but it's growing is the death of businesses. So we're now at the point under Obama where there's less new businesses starting than existing businesses going out of business. That is not conducive to economic growth.
BENNETT: This past week a number of financial commentators speculated that something helped save the stock market from a serious crash, of course after it had gone down. They are saying it is the work of the group called the Plunge Protection Team. You've been one of the leading voices on the secretive group, can you tell us about who they are and what they do, and if in fact they actually really exis t?
BIDERMAN: I don't know that they actually really exist. We do know that in '09, I couldn't trace any buying sources from March to the end of the year, there were huge amounts of company selling, everybody was selling, but somebody was providing cash buying futures overnight, supporting the market. Now, it wasn't that huge amount of buying so it could have been anybody. It could have been the top six richest Wall Street traders themselves, working with some banks who were giving them some money and it was not from the Fed, or whoever. That turned the trick. This past Wednesday, I think it was more a case of the market has sold off because of fears. Let's go back to Alibaba, wh en the market was short term bearish the week before Alibaba came public, because we knew they’re going to be sucking $25 billion out of the U.S. equity market. There wasn't $25 billion sitting there, so that buyers of Alibaba would have to sell other stocks to generate cash. So if you look at the facts, Google, Facebook, and Twitter got hurt the most. All the high tech stocks went down as people sold them to buy Alibaba. Then you had the Ebola, and the fear that the airline industry would collapse and trade would stop. So you had fears build and then on last Wednesday, you had a concerted effort by the central banks to come back in if the markets need them in essence.
They were there to buy so the market's panic would stop, because underlying all this as of right now, more shares are being bought than sold by companies and if you include cash takeovers of already public companies.
BENNETT: But aren't they buying back a lot of these shares on borrowed money?
BIDERMAN: Some are and some aren't. I have a fund that only invest in companies by reducing the share count out of free cash flow. To me, the best metric, to watch for consistently is free cash flow. Earnings are sometimes irrelevant because they're made up. Cash you can't make up, so I watched companies throw in cash and using a portion of the cash to reduce the share cap, because if the Feds are growing cash, the enterprise value shouldn't go down, and the price of the remaining shares automatically goes up.
BENNETT: You mentioned in recent interviews the reason companies are not investing in new products and instead buying back their stocks is because there's no demand. The economy actually isn't recovering. Can you talk about that?
BIDERMAN: Sure. If you have a situation where y ou have less new businesses starting. Since Obama took office in '08, there's 15 million more Americans. But there's only 1.3 million more jobs. So it's not less than 10 percent of the population growth got the jobs and all those new jobs are part-time jobs, perhaps 30 hours or less, which means that under Obama, there's been no new full-time job creation. It started with Bush, by the way. Bush sent us down the road to perdition and Obama's getting us there. Under Bush we had 25 percent of the population growth got jobs. Remember, Bush decided that we could spend trillions pouring money into the sands in Arabia and that's good for us. I don't know what it has gotten us, and then he opened the biggest Medicare future government obligations. So it's under George Bush that if you add the net present value of future government obligations, the U.S. turned negative net worth. It has deepened under Obama. So in my mind, Obama and Bush are the two worst economic presidents in recen t U.S. history.
BENNETT: So the market, it has all these giant swings up and swings down. Don't you think the average investor should just refuse to invest at this stage?
BIDERMAN: Well, I think that people born after 1980 are not going to invest in the market. Why? Say someone was born 1980, when they reached maturity in 2001, they saw a 50 percent market crash. Then, they see another market boom and, before they get 30, there is another 50 percent market crash. So people experiencing two major wipe-outs are not likely to risk a third. I don't think millennials are going to be stock market investors.
BENNETT: With all this volatility, do you think that there actually is a legitimate role for an agency like, if it exists – a plunge protection team? Can a group like that ever really help extensively a free market?
BIDERMAN: No. No. It is actually a criminal activity. Though it is not against the law for a budget official, or treasury officer to lie about the U.S. finances, you can say whatever you want as long as you’re supposedly not personally benefiting. But if a CEO lies about his company finances, he goes to jail, and if the President lies, he gets re-elected.
BENNETT: So my understanding is that Reagan in 1998 started this, but from what I read, he was very open about it. He was very open about this committee be in existence.
BIDERMAN: You got to remember in '87 when the market crashed that there was stock market insurance that drove it down, so the people who created that were sort of called in on the carpet and they promised to not let it happen again. To me that's what I heard literary happened. Obama in Mach of '09, at the market bottom said, now is the time to buy stocks. Now, was that a signal to an informal group that did buy, that supported the market to the several billion dollars in a short period of time to stabilize things. Then the Central banks were key to going around the world and look, instead of letting garbage be taken to the dump and burned, several big banks went under and sold what? Central banks are run by bankers, and top bankers could not let their best buddies go broke. So not o ne bank went under, not one top banker was ever going to jail.
BENNETT: Do you think they feel the same about that today, or do you think they have more guts to just let it happen?
BIDERMAN: I was speaking at the Irrational Economic Summit and David Stockman was there. He was talking about how horrible things are. So when I asked publicly David, 'If your old boss Ronald Reagan were president today could he make a difference?' He said he would hope so but in reality given how the special interests now run everything, and that it doesn't matter if it's a Republican or Democrat that's elected, he said -- he didn't think even Ronald Reagan could make a difference today.
BENNETT: You think the Federal Reserve actually played the role in preventing this bear market we were entering in October?
BIDERMAN: &n bsp; One of the reasons why the market declined was that the morons on Wall Street who think that the government is capable of engineering an economic recovery, that we were bound to recover. Warren Buffet says, 'Don't bet against America.' But when you put so many headwinds and so many obstacles in the way of growth so that less companies are being started than die, that is not a headwind, that is a huge stop, big barriers to growth. So without economic growth, the only thing the governments can do is keep asset prices high.
BENNETT: I want to hear what TrimTabs does and why your work helps you be uniquely qualified to talk about the Federal Reserve.
BIDERMAN: We track all various stock market transactions bought and sold for cash.
We discovered that if you track changes in the number of shares available to people to be bought and sold, and the amount of money available to buy shares, you will know what in fact the market is going to do. A bull market in essence is more money chasing fewer shares and a bear market is less money chasing more shares. So as long as share cap keeps going down, which it has since 2012, and even though there is no new money going into the market from individuals, the market is going to keep going up until that dynamic changes.
BENNETT: So float and shrink are two terms that play a big role in your financial analysis. Can you explain what they mean?
BIDERMAN: Sure. I have a fund, TrimTabs Float Shrink ETF. It's been on the NY stock exchange for three years. The opening price was around $25 and I think we're at $51 or something like that yesterday. Our sites are propriety closed and we invest in hundredth companies that are growing cash, growing free cash flow, which is the money left over after paying all the bills, capital expenditures, 3/3 in the development. This is all the money left that if they take a portion of that money and reduce the amount of shares that are outstanding, I say that the value of the company should not go down. So there is less shares outstanding and th e company is still growing cash. The prices of the remaining shares should go up by at least the amount of percentage of the share reduction. What we are discovering is companies that have been doing that, they trade at the premium to the share account reduction and to the market because investors like to know what they are going to get and that these companies are growing cash. Some say that oh, it's so horrible that people who run American companies have an economic interest in the share price more so than their salaries so that opportunities options and actual share distribution for people who run companies have bigger interest in growing share price than necessarily their salaries. So they discovered that share account reduction has a bigger impact on stock rise than giving out dividends. So there is less dividends and more share account reduction. So that's why it is so important, particularly at this time. The biggest problem smart people face is, you see what is going on, what the future is like, where we are headed and you cannot understand why everybody else can't see it. As one economist said, the market can stay irrational longer than you can stay solvent. You have to invest as the market is today. The market today is banished because the share accounts are being reduced. November is a very strong month for share account reduction. October is the light month so that also helped the selloff. So, we are entering into a strong end of the year for the share prices but the overall economy is not growing and will continue to shrink. At some point, that is going to be a break, a gap. You can't manipulate gravity. At some point, unless the economy starts growing, share prices are going to come back to Earth. The only question is when.
BENNETT: What do you hope happens this election day?
BIDERMAN: I don't care. I don't vote. I don't think it matters who wins. I think we have to let the governments go broke and then have smart people be around to minimize the damage. When we restart the global economy with a broadband or internet, social media type based, it's not going to be for me, it's going to be the Millennials that grow up on the Internet. They will determine the future form the government takes because the current system is breaking down and everybody realizes it, but nobody wants to face it -- w e want to hope, 'oh, yeah, well, it's lasted this long, maybe it will last until I die, so I don't have to worry about it.'
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com.
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included Rock Legend Ted N ugent, as well as Steve Forbes and Grover Norquist. The show is a great complement to Dawn’s monthly investing seminars that take place at Tysons Corner in McLean, VA, where she discusses investing.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or dbennett@bennettgroupfinancial.com