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Liquidity Bounces Back

Stock market liquidity rebounded sharply last week as a whopping $3.7 billion poured into U.S. equity funds on Thursday alone, accounting for two-thirds of the overall $5.4 billion positive flow number.

The new offering calendar also helped as only $900 million of newly printed shares were sold. That was down dramatically during the four-day Presidents Day week from $5 billion the week before. However, we expect new offerings to rebound big this week. Apparently we weren't the only ones to take the week off and go skiing.

Another 12 new cash takeovers were announced last week totaling $2.9 billion, making for almost $13 billion in cash acquisitions announced over the past four weeks. And that number does not include the hostile $9 billion-plus cash offer for

Computer Sciences


. Historically, whenever companies have found lots of other public companies worth buying for cash -- instead of stock -- that has meant there was value in the market at current prices.

While we have not had the opportunity to look at how the bulk of the recently announced deals "pencil out," our guess is that the desire for big banks to place big loans to big borrowers is aiding in the takeover "craze." Today, with a basically flat yield curve, the only place big banks can make big bucks is in funding deals -- with fees for standbys, then with fees for the takeover itself, etc.

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Inflows into equity funds, prior to last Thursday, had slowed dramatically. In our new

Daily Liquidity & Mutual Fund Trim Tabs

, we were seeing one day of inflows and the next day redemptions for eight days -- until Thursday. Why last Thursday? We don't know. What we do know was that the average net asset value dropped 0.1% that day. Obviously, the key here is whether that spike was a one-day event or a harbinger of more big flows to come.

Bottom Line:

We will turn cautiously bullish here. The resurgent inflow and the continuing tale of more new cash takeovers are obviously bullish. This bull market looks as if it will not stop until it has sucked all the possible cash not only out of investors, but from bankers as well. After all, a cash takeover of a public company is just a big margin loan.

Charles Biderman writes Liquidity Trim Tabs, an independent research service used by portfolio managers and market strategists. For more details on Liquidity Trim Tabs, email Michael Alexander at