May 30, 2012

Biderman Boils Doom and Gloom Down to Specific Portfolio Picks

TrimTabs founder launches investment newsletter for retail investors; recommends gold bars over ETFs as hedge against potential economic collapse

Charles Biderman's portfolio assigns a 25% weight to gold. “In turbulent times you want physical possession,” he said. Charles Biderman's portfolio assigns a 25% weight to gold. “In turbulent times you want physical possession,” he said.

Investment research firm TrimTabs, whose institutional clients pay at least $5,000 a year for its comprehensive tracking of supply and demand for stocks and money, is making portfolio recommendations available to retail investors for $10 a week.

Charles Biderman, the firm’s voluble CEO known for his harsh criticism of governmental manipulation of the stock market, told AdvisorOne that the newsletter, called “Biderman’s Market Picks,” is not something that TrimTabs particularly needs as a revenue source.

The purpose of the newsletter is about “the financial survival of me and my family and people I care about,” said Biderman, who is 65 and has a stable institutional client base. He noted that TrimTabs has received thousands of requests from individual investors for access to its research over the years.

Those investors who follow Biderman’s media remarks or Daily Edge videocasts and share his concerns about “delay and pray” policies in the U.S., Europe and Japan can now access easy-to-implement portfolio recommendations reflecting Biderman’s bearish views. In fact, Biderman opens his newsletter stating he is now “the most bearish I have been in quite some time,” a stark statement given his profoundly negative views over the past several years.

The pessimism stems from the fact that public companies have become net sellers of stocks in May—despite the huge Facebook IPO—selling “$25 billion more of new shares than they bought back.” And the $18 billion that went to Facebook shares has also limited the supply of investment capital. “When there’s no new money for stocks, you have to sell existing shares,” he said.

This is why so many big players in the Facebook IPO got burned, he added. “The real problem with Facebook is the smart guys [who] can flip hot deals…couldn’t flip Facebook," he said. "There just wasn’t any cash around.”

A pronounced slowing of wage and salary growth in the U.S. and Europe’s mounting problems, for which he sees no repair, are the other key reasons for Biderman’s current negativity.

Biderman’s largest allocation in his model portfolio is gold, to which he assigns a 25% weight. While the model uses an ETF (GLD) to track performance, Biderman recommends buying gold in one-ounce bars from a reputable dealer.

“In turbulent times you want physical possession,” he said. “My parents were survivors of the Holocaust. One lesson I learned from them is that physical possession could save your life.” He added that it could be hard to cash out of paper securities in the midst of a global financial crisis.

Biderman’s newsletter says gold “is an obvious bet for the long term” because “the U.S., Europe and Japan are all debasing their currencies via the printing press,” but warns that gold will falter over the short term because of the slowdown in China and India that has reduced demand for gold bullion and jewelry.

Another 25% of the model portfolio is in Treasury inflation-protected securities, since he expects inflation to surge “at some point in time.”

Biderman recommends three ProShares ETFs (together totaling 28% of his portfolio) that short Europe (EFZ), China and other emerging markets (EUM) and financial stocks (SEF), since he believes U.S. banks will not withstand Europe’s banking problems.

Europe’s problems exceed the means of any potential financial rescuer, such as Germany, Biderman said.

“The only solution to Europe is mark to market,” meaning bankruptcy, essentially. “Then the quicker the rebound will happen. ‘Delay and pray’ means the end will be worse,” he said, noting that Spanish banks are now leveraged 70 to 1 (Lehman Brothers was leveraged 37 to 1).

As for China, real data (as opposed to official window dressing) show the growth there has stopped, with electricity usage, for example, barely growing year over year. And financial stocks, including U.S. banks, own lots of European banking debt and many trillions of dollars in derivatives risk.

For all the gloom and doom, Biderman is long on Apple, Salesforce.com and Amazon (6%, 4% and 3% of the portfolio, respectively) and even allocates 1% of the portfolio to Facebook—for the nearly 1 billion people on its platform and potential alone.

The portfolio also contains a 6% allocation to his TrimTabs Float Shrink ETF, which owns shares of companies that are buying back their own stock. The ETF has done especially well on the downside, he says, since in a down market, share buybacks are one of the only sources of demand.

Biderman admits a near-term risk to the portfolio: a new round of monetary stimulus, which he says could come as soon as the June Federal Reserve meeting. If wages and salaries continue to slump, he believes the Fed will come to the rescue. “The announcement alone will create a rally,” Biderman says, though he questions how long the rally can be sustained.

“Ultimately, the only real solution is rapid economic growth. And there’s nothing going on that will create that," he said. "All I see is stagnation and huge amount of money printing. I see deflation and inflation at the same time.”

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Check out Charles Biderman's extend profile as an IA 25 honoree for 2012.

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