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"Even Wile E. Coyote had to come back down to
earth sooner or later", says Charles Biderman,
founder of TrimTabs Investment Research. In his
opinion, the prices of stocks and bonds - enabled by excessive financialization of our economy and central bank money
printing - have been defying gravity for a dangerously long time.
If we continue to do all we can to preserve the
status quo -- to maintain "phony" asset price levels as Charles
calls them -- at best we will restrict overall growth and handicap the
economy.
The problem isn't so much the unfairness and malinvestment evident in a rigged market. As Charles
shrewdly asks: what happens when the market becomes un-rigged?
We've never experienced the unwinding of an entirely
manipulated financial system, so we can't predict for sure. But at this
point, a painful collapse of our markets and loss of the US dollar as the
world's reserve currency seem entirely plausible.
On Market
Manipulation
The market is rigged. In January of ’10, I went on
CNBC and on Bloomberg and said that there is no money coming into stocks, and
yet the stock market keeps going up. The law of supply and demand still
exists and for stock prices to go up, there has to
be more money buying those shares. There is no other way in aggregate that
that could happen.
So I said it has to be coming from the
government. And everybody thought I was a lunatic, conspiracy theorist,
whatever. And then lo and behold, on October of 2011, Mr. Bernanke then says
officially, that the purpose of QE1 and QE2 is to raise asset prices. And if
I remember correctly, equities are an asset, and bonds are an asset.
So asset prices have gone up
as the Fed has been manipulating the market. At the same time as the economy
is not growing
(or not growing very fast).
On the
Future of the Dollar
At some point, the world is
going to recognize the Emperor is naked. The only question is
when.
Will it be this year? I do not think it
will be before the election, I think there is too much vested interest in
keeping things rosy and positive. And I just do not see it happening soon.
However at some point, hard money wins
out over phoney money. And of the investor class or
those with capital, which right now seems to be the emerging
markets, they are buying gold and bullion and they are not buying dollars.
Or China appears to have slowed their buying of dollars, even though China
might be having their own growth problems, or their own bad debt problems.
But Singapore and all those other countries with huge cash flows, the
emerging world, I would not be surprised -- maybe by 2013 of
2014 -- seeing a non-US dollar alternative currency by those countries.
On the
Challenge Facing Investors
We are in strange, uncharted territory.
I think is very important for people
to realize, in 1981, before the market crossed 1,000, the Dow crossed 1,000
in early ’82, and stayed above that, the value of all U.S. Stocks was
about $800 billion. And in October of ’07, it peaked at $22 point
something trillion. And it is back up to $19.4 trillion.
So in 1981, there was
maybe 100 hedge funds or less, I am sure less. And maybe 100 or so equity
mutual funds. And 3,000 stocks, you know,
institutional size and sorts back then. Now there is
still 3,000 stocks, but there is 4,500 equity mutual funds, 10,000 hedge
funds. The real wealth created in the last 30 years has been in the equity
market, not in earnings. I mean earnings are up several times, four or five times
take home pay is up -- but the market is up 19-20 times.
Over that time, we have the boomers
entering their peak earning years, as well as technical advances like the
Internet. You know, more people in the last 30 years have gone from calorie
insufficiency to calorie sufficiency as a percentage of the population than
going back to the first time we industrialized in the 19th
century. So it is like this huge increase in wealth and calories and our goal
across the globe, and a lot of that money went into the real estate markets
and went into the equity markets -- and boosted home prices, and stock prices
dramatically, and now it is unwinding.
All booms create excesses and excesses
are painful as the excesses from the boom are worked off and worked out. And
that is the process we are in, and in the past it has taken 13 to 17 years to work
off those excesses. And we are still not even through year five.
Click the play button below to listen to Chris'
interview with Charles Biderman (runtime 36m:10s).
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Or click here to read the full transcript.
Charles Biderman is the
Founder and Chief Executive Officer of TrimTabs
Investment Research and Portfolio Manager of the TrimTabs
Float Shrink ETF (TTFS). After earning his MBA from Harvard Business School,
he began his career as Alan Abelson’s assistant at Barron’s from
1971 to 1973. There he predicted the collapse of real estate investment
trusts (REITs). After Barron’s, he worked in the Wall Street short
selling community and recommended shorting REITs on their way to perdition.
In 1990, Mr. Biderman founded Market TrimTabs in Santa Rosa, California.
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