Tags: Biderman | Fed | taper | stocks

TrimTabs' Biderman: Stocks Are Headed South if Fed Continues Tapering

By John Morgan   |   Tuesday, 28 Jan 2014 08:32 AM

The trend for the stock market is going to be lower and lower so long as the Federal Reserve continues with its asset-tapering strategy, according to Charles Biderman, chairman of TrimTabs Investment Research.

Equity prices are dependent on the Fed, and not on the value of the companies that make up the market, Biderman told Yahoo.

"The bull market is solely due in my opinion to the Fed pumping money . . . more money chasing fewer shares. And the more money has come from the Fed."

Editor’s Note: Billionaires Dump Stocks (See Video)

Biderman was surprised that very little new money has flowed into equities in January via mutual funds and exchange-traded funds. He said investors may have decided the economy is not growing that strongly and that ripple effects from declining emerging markets are taking effect.

But he suggested the fact the Fed has commenced cutting back its monthly asset purchases is definitely playing an outsized role. "If the Fed keeps tapering, the market will keep going down. If they stop the tapering and start printing again, then we'll see a huge rally."

The U.S. stock market has a $24 trillion market cap, compared with a $9 trillion market cap at the bottom of the recession in 2009, Biderman explained. "We're way ahead of where we were in the last real estate bubble, but the U.S. economy has not recovered."

In a video on his Money Blog, Biderman said another factor that could spell trouble for equities is that American companies are not buying back as many shares or announcing new buybacks at the same level as they did in recent years.

He noted he has cut back his equity exposures by one-third and used at least some of those proceeds to short emerging markets.

Tax-loss selling ahead of April 15 could force another leg down in U.S. stocks soon, he predicted.

"Whenever there's been a bull market for several years . . . investors hold back from selling stocks until the last minute because they don't want to miss the gains."

According to Biderman's calculations, about $100 billion of stock will be sold by U.S. investors by the deadline for tax reasons — much of it in stocks that showed investors the biggest price increase in 2013.

He is also moving toward assets that have recently been out of favor, on grounds that they may have bottomed. He recently bought a gold mining exchange-traded fund and may soon buy bonds.

Ralph Acampora, a noted technical analysis expert and proponent of the Dow Theory, said on Twitter that his research also shows the trend is down for equities.

"A secondary correction is now well in force; expect more volatility — stock selection is key — take some profits," Acampora tweeted. He noted 21 of the 30 Dow Jones Industrials components were trading below their 50-day moving average on Monday morning.

"Risk Off: Emerging Markets (EEM) making new lows & Russell 2000 (IWM) is now below its 50-day moving average. Expect more weakness," Acampora also tweeted.

Editor’s Note: Billionaires Dump Stocks (See Video) 

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