The Federal Reserve’s plan to buy $600 billion in long-term securities before the middle of next year will be certain to keep stock prices elevated, but Charles Biderman, chief executive of TrimTabs Investment Research, worries the Fed will end up harming financial markets worldwide.
"We are concerned that the Fed’s money printing will cause severe collateral damage, including responses from foreign central banks and governments that could roil financial markets and disrupt global trade,” Biderman wrote in his “Weekly Liquidity Review,” which declares the firm has turned “neutral” from “fully bullish” on U.S. stocks.
TrimTabsfollows all aspects of liquidity flows in the U.S. stock market, including purchases and redemptions of mutual funds and ETFs, as well as stock buybacks and new offerings.
In the weekly report, the firm warns investors not to buy “overpriced” stocks on hopes the Fed’s policies will push prices higher. Investors that load up now “had better hope they are able to find seats when the speculative music eventually stops,” the report said.
Other signs that warrant caution: companies and corporations are selling stock, TrimTabs said.
So far this month, shares sold into the market — including General Motor’s initial public offering — are on pace to reach the highest level since December 2009. Meanwhile, corporate insiders sold $8 billion so far this month, the most since November 2007, while corporate buying dropped to $7.8 billion last week, the lowest level in three weeks, Biderman said.
“The flood of new shares could make it tough for stock prices to move higher over the near term,” the report said.
On the plus side, TrimTabs note the economy appears to be improving. Wages and salaries are estimated to have risen about 2.9 percent in the first part of the month from the same period a year ago, while online job postings are rising and the four-week average of initial unemployment claims dropped to its lowest level of the year.
Mutual fund investors seem to be heeding TrimTab's concerns with U.S. stocks, as investors redeemed shares in U.S. equity funds for the 27th consecutive week. Instead, investors put $1.9 billion into global equity mutual funds for the week ended Wednesday, Nov. 3. That would mark nine weeks of inflows for global funds.
Meanwhile, flows into bond mutual funds slowed in the week ended Wednesday, Nov. 3, to the lowest level since June, likely because the average return for bond funds fell 0.3 percent in November, according to TrimTabs.