Minyi Chen, CFA, Chief Operating Officer of TrimTabs Investment Research and Portfolio Manager of AdvisorShares TrimTabs Float Shrink ETF (NYSE Arca: TTFS) shares recent fund flow trends.
Wage and Salary Growth Picks Up Modestly in Early September. Income Tax Withholdings Rise 2.0% Y-o-Y in Real Terms in Past Three Weeks and Three Days Adjusting for Tax Changes.
We have opined for months that the U.S. economy is weaker than conventional wisdom believes. The Federal Reserve seems to agree, passing on an opportunity to reduce its money printing and downgrading its forecasts for GDP growth in future years. We continue to believe that any "tapering" later this year will amount to no more than $15 billion to $20 billion per month.
The best measure of the economy's health is income, which we measure in real time based on the income and employment taxes withheld from the paychecks of the 136 million salaried U.S. workers. The data improved a bit in recent weeks but is nothing spectacular. Adjusting for tax changes, income tax withholdings increased 3.5% y-o-y in nominal terms and 2.0% y-o-y in real terms in the past three weeks and three days (Friday, August 23 through Tuesday, September 17).
Source: U.S. Treasury and Bureau of Labor Statistics. All periods end Tuesday, September 17. Inflation is calculated based on the non-seasonally adjusted consumer price index.
Real growth in the latest period is higher than the 1.2% y-o-y in August but merely in line with the levels that prevailed in the first half of this year.
(click to enlarge)
Source: U.S. Treasury and Bureau of Labor Statistics. Inflation is calculated based on the non-seasonally adjusted consumer price index.
We believe softening real estate activity is a key reason the Fed decided to stand pat. The Mortgage Bankers Association's Mortgage Refinance Index is down 65% from its peak in May, and numerous large banks have announced thousands of layoffs in their mortgage origination departments. Jobs related to refinancings tend to pay higher than average wages.
Home Construction Soft in August. NSA Building Permits Up 5% Y-o-Y, while NSA Housing Starts Up 18% Y-o-Y. Growth in Permits Lowest since July 2011.
The latest data on home construction was soft, likely reflecting the impact of higher borrowing costs on buyers who had not locked in loans before mortgage rates began to rise in May. Absent a sharp decline in mortgage rates, we expect housing activity to provide less support for the economy as this year progresses.
Non-seasonally adjusted building permits decreased 3,800, or 4%, to 84,300, while non-seasonally adjusted housing starts decreased 1,200, or 2%, to 81,200 (we track the non-seasonally adjusted data, not the seasonally adjusted data widely reported in the media). Permits fell to the lowest level since March, while starts fell to the lowest level since April. On a year-over-year basis, permits were up 5%, the slowest growth since July 2011, while starts were up 18%.
(click to enlarge)
Source: Census Bureau.
New Offerings Lower Than We Had Expected This Week. Dealogic Reports $1.0 Billion Scheduled for Wednesday and $1.5 Billion Scheduled for Thursday.
The new offering calendar is running more slowly than we had expected this week, which is favorable for stock prices. In addition to the $3.0 billion that priced Friday through Tuesday, Dealogic reports that $1.0 billion is scheduled for Wednesday-led by a $450 million IPO for Controladora Vuela Compania de Aviacion-and $1.5 billion is scheduled for Thursday-led by a $400 million follow-on for Pandora Media (P) and a $350 million IPO for ClubCorp Holdings (MYCC). Unless some big overnight deals materialize, this week's volume is unlikely to top $7 billion.
So far in September, new offerings have reached $16.0 billion, not counting what is on deck for later this week. This month's volume is highly likely to be the highest since at least May.
(click to enlarge)
Actual Stock Buybacks for S&P 500 Companies Rise to Seven-Quarter High of $1.8 Billion Daily in Q2 2013. We Leave Our Estimate of Actual Stock Buybacks Unchanged at $2.0 Billion Daily.
Standard & Poor's reported Tuesday that actual stock buybacks for S&P 500 companies rose to $118.1 billion in Q2 2013, up 6% from $111.8 billion in Q2 2012. Buybacks last quarter were the highest since Q3 2011.
Apple (AAPL) dominated repurchase activity, buying back $16.0 billion in shares, the highest buyback by any company in a quarter. Five other firms repurchased at least $3 billion: Merck (MRK) ($5.5 billion), Exxon Mobil (XOM) ($4.0 billion), General Electric (GE) ($3.9 billion), IBM ($3.6 billion), and AT&T (T) ($3.3 billion).
Dividends increased to $76.7 billion in Q2 2013, up 14% from $67.3 billion in Q2 2012. Dividends were only 4% below the record $79.8 billion in Q4 2012, and they are likely to set a fresh record in the fourth quarter (dividend payments usually peak in the fourth quarter).
(click to enlarge)
Source: Standard & Poor's.
Even counting the $40.0 billion buyback that Microsoft (MSFT) announced Tuesday, new stock buyback activity has decelerated this quarter, suggesting companies are becoming more cautious with their cash. The volume of $125.4 billion ($2.3 billion daily) is respectable, but the 131 announcements is the lowest number since Q4 2009.
Due to the acceleration in buyback volume in previous quarters, we are not reducing our $2.0 billion daily estimate of actual stock buybacks. Actual stock buybacks tend to track new stock buybacks closely with a lag. If the volume keeps falling in Q4 2013, however, we will likely reduce our estimate.
(click to enlarge)
Additional disclosure: This communication is a publication of TrimTabs Asset Management. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Information presented does not involve the rendering of personalized investment advice. Content should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing performance returns. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Past performance may not be indicative of future results. Therefore, no investor should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions, may materially alter the performance of an investor’s portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio. To the extent that this content includes references to securities, those references do not constitute an offer or solicitation to buy, sell or hold such security. AdvisorShares is a sponsor of actively managed exchange-traded funds (ETFs) and holds positions in all of its ETFs. This document should not be considered investment advice and the information contained within should not be relied upon in assessing whether or not to invest in any products mentioned. Investment in securities carries a high degree of risk, which may result in investors losing all of their invested capital. Please keep in mind that a company’s past financial performance, including the performance of its share price, does not guarantee future results. To learn more about the risks with actively managed ETFs visit our website AdvisorShares.com.