Tags: Biderman | Fed | rates | stocks

TrimTabs' Biderman: 'Stocks Are Just as Overpriced as Bonds'

Thursday, 09 May 2013 07:45 AM

By John Morgan

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If bonds are a terrible investment because of the Federal Reserve's ultra-loose monetary policy, as Warren Buffett claims, then stocks must be just as bad since they are being propped up by the same policy, according to TrimTabs CEO Charles Biderman.

"So, if stocks are just as vulnerable as bonds to the Fed withdrawing the narcotic known as free money, why does Mr. Buffett say stock prices are reasonable?" Biderman commented in his blog.

"To me, logic says stocks are just as overpriced as bonds."

Editor's Note:
An $87,500 Tax Loophole Discovered by Cherry Hill Accountant

According to Biderman, the U.S. government has a current deficit of about $900 billion annually, even while the Fed is buying bonds and paying for them on credit.

"In other words, the Fed is buying up the entire U.S. Government deficit and then some," he noted.

"That means there is lot of extra cash floating around the financial markets bidding up the prices of not just bonds but stocks as well. So while I agree with Mr. Buffet that at some point bond prices have to drop significantly, so do stocks."

Biderman said Jim Bianco, president of Bianco Research, has projected that year-over-year sales and earnings of U.S. public companies "are dropping toward zero and below. To me, that is also consistent with wages and salaries barely growing after inflation."

"Combine slower growth with massive amounts of government intervention, and you get a world that looks like this."

John Carney, senior editor of CNBC.com, attempted to cast a bit of doubt on the widely held assumption that the Fed will end quantitative easing (QE) before it begins to tighten rates.

"It's at least worth considering the possibility that that particular view of the future may not be as certain as Wall Street wise men think. We do not have a lot of history with the zero bound and QE, and so we should be wary of anyone who 'knows' exactly what the exit strategy will entail," Carney wrote.

Instead of totally pulling the plug on QE when it begins to tighten rates, he speculated the Fed could simply stop buying short-term bonds, but continue to buy long-term bonds so that rates would go up more slowly.

"None of this is to say you should bet the farm on the persistence of large-scale asset purchases after rates begin to rise," Carney concluded.

Editor's Note: An $87,500 Tax Loophole Discovered by Cherry Hill Accountant

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