In today’s Barron’s, Mike Santoli very politely and quietly, using language suitable for a family dinner, calls Charles Biderman out for his clueless commentary about secret government cabals:
“One conspiracy theory gaining undeserved traction on Wall Street lately holds that the Federal Reserve or another government entity might — or must — have been a buyer of stocks or stock futures during the run higher off the March lows.
A report by fund-flow research firm TrimTabs Investment Research a couple of weeks ago intensified the usual conspiracy chatter in the blogosphere and across trading desks, suggesting the Fed might be goosing stocks because publicly observable fund flows (via mutual funds, corporate buyback plans and insiders) seem not to be able to account for the 70% gain since the March bottom. Aside from the observation that theories that assign blame to unseen forces are inherently the laziest of all possible explanations, there are many problems with this assertion.
Fund flows don’t capture changes in positioning by hedge funds, mutual funds, pension funds, individual stock buyers, foreign capital and others. The fact that long-short hedge funds outperformed the Standard & Poor’s 500 both into the lows last year and for all of 2009 shows hedge funds went from substantially hedged/short in the deleveraging phase to very long.
More broadly, why would the Fed have to buy stocks, with all it has openly done to penalize risk aversion by adding reserves to the banking system, setting short rates at zero and buying credit products and Treasuries? The whole asset spectrum has fed off these initiatives.”
Mike is a nice guy, and way too polite to write anything nasty — so I will add what he is implying. Outside of fund flows, Biderman’s track record is mediocre at best.
Further, the rise of hedge funds, dark pools and private trading networks means that there is much less volume information available for fund flow analysis — which is TrimTab’s bread and butter research.
So its no surprise that Biderman missed the turn, and has remained on the wrong side of the market’s 70% rally. He has concocted a half-assed government conspiracy theory, rather than admit the error. That is weak.
The analytical faux pas has provided a few positives: 1) It reveals that the level of skepticism amongst the public is still high; 2) Its a way to measure someone’s investing IQ. If they bought into the nonsense of this theory, then pull your money/delete them from the blogroll/unsubscribe from the newsletter.
Worse than worthless, they will cost you money.
TrimTabs: Its a Recession, and Its Already Over (Wrong) (April 2nd, 2008)
Trimtabs Continues to Abuse Withholding Data (April 23rd, 2008)
Trimtabs: Americans have stopped saving (?!?) (January 2nd, 2009)
PPT: The President’s Working Group on Financial Markets (January 8th, 2010)
Barron’s JANUARY 18, 2010