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.
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%.
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 (NYSE:P) and a $350 million IPO for ClubCorp Holdings (NYSE: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.
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 (NASDAQ: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 (NYSE:MRK) ($5.5 billion), Exxon Mobil (NYSE:XOM) ($4.0 billion), General Electric (NYSE:GE) ($3.9 billion), IBM ($3.6 billion), and AT&T (NYSE: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).
Source: Standard & Poor's.
Even counting the $40.0 billion buyback that Microsoft (NASDAQ: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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: AdvisorShares is an SEC registered RIA, which advises to actively managed exchange traded funds (Active ETFs). This article was written by Minyi Chen, CFA the portfolio manager of the AdvisorShares TrimTabs Float Shrink ETF (NYSEARCA:TTFS). We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article. This information should not be taken as a solicitation to buy or sell any securities, including AdvisorShares Active ETFs, this information is provided for educational purposes only.
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