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And The Biggest Buyer Of Stocks In 2015 Will Be...
Back in May, when the world was still wondering who would step in and bid up US stocks now that the Fed has, if only for the time being, stepped away from indirectly monetizing $1 trillion in US risk every year courtesy of a POMO a day (keeping the short sellers away), we revealed that mysterious buyer's identity: the stock-issuing companies themselves by way of record amounts of stock buybacks, which - funded with new debt issuance - have resulted in net corporate debt levels rising to fresh all time highs. In fact, as Goldman clarified further in November "buybacks have been the largest source of overall US equity demand in recent years."
So as we look at 2015, and with the Fed still on the sidelines and in fact many anticipating the Fed to begin hiking rates in the summary despite Charlie Evans' warning last night that such an action would be "catastrophic", the question once again emerges: who will be the biggest buyer of stocks in 2015?
The answer, courtesy of Goldman Sachs and largely predictable to anyone who realizes that in this macabre Chuck Princian game of musical debt chairs management must buy stock back to boost their compensation to record levels before everything crashes, is the same: corporations.
According to Goldman, the stealth LBO of the S&P 500 will not only continue in 2015 but accelerate, with another 2% of the entire market cap converted into debt, thanks to a whopping $450 billion in net corporate inflows, $35 billion more than the $415 billion in corporate inflows in 2014.
And while ETFs, foreign investors, mutual funds and life insurance companies will also be net buyers of stocks, who will, in addition to Pension Funds - expected to sell a record $175 billion in stock in 2015 - be, for the 10th year, the largest seller of US equities? Households.
From Goldman:
We expect corporations will continue to be the largest source of demand for stocks, and we expect net purchases by corporations will total $450 billion or about 2% of public equity cap. We forecast equity inflows from equity-related ETFs ($170 billion), mutual funds ($125 billion), foreign investors ($125 billion), and life insurance ($50 billion). We forecast net outflows from households ($245 billion) and pensions ($175 billion). Our report An equity investor’s guide to the Flow of Funds Accounts (March 11, 2013) provides more information on the Financial Accounts of the United States.
Some more details on how courtesy of ZIRP, the Fed can let go of the Primary Dealer POMO pathway steering wheel and let corporate management teams issue trillions in debt to yield-starved investors, and use the proceeds to slowly take themselves private while boosting their equity-linked compensation to unprecedented levels.
We expect corporations to purchase $450 billion of US equity through buybacks and cash M&A (net of share issuance). We expect spending on share buybacks and M&A to have a direct, positive impact on the US equity market.
We forecast a net outflow of $245 billion in 2015 from the Households category. Flows from the Household sector equal the remainder of net issuance less net purchases from all other categories, so Household outflows are essentially corporate repurchases that cannot be allocated to other holders. Inflows through indirect equity ownership can reduce the market impact of direct equity outflows. Although households own 33% of the corporate equities directly, total effective ownership is closer to 73% when combined with 40% indirect ownership through mutual funds, pensions, and insurance policy holdings.
We forecast net equity inflows of $170 billion from mutual funds, ETFs, retirement funds, and life insurance companies. In recent years, retirement fund assets have shifted out of direct equity allocations into indirect equity ownership through mutual funds.
Global diversification of equity holdings to continue in 2015. We forecast $125 billion of inflows from international investors in 2015, with US investors allocating half of total equity inflows, $250 billion, to foreign equity.
The good news for America's households, many of which are approaching or in retirement age and whose selling of stocks will surge to the highest since 2011, is that there will be eager management teams, pardon, yield-chasing bondholders - investing other people's money of course - willing to buy it all up.
The only problem is that these same bondholders are ultimately the same entities that took buybacks to the previous record high back in 2007:

... when just like today, companies scrambled to raise debt and use all the proceeds to buy back their own stock..
And yes, the current stock buyback frenzy was visible, and predictable, from a mile away, or at least in November 2012 when we wrote "Where The Levered Corporate "Cash On The Sidelines" Is Truly Going." This is what Albert Edwards said more than two years ago:
We know that buybacks are contrarian indicators, occurring at the top (and not the bottom) of the market. Why, we ask, are companies leveraging up now and not 12 months ago, when equity prices were much lower? We conclude that (contrary to what we read), US dividend payments are not enjoying a revival relative to cash flows and that buybacks remain the distribution channel of choice for corporates wishing to boost EPS and limit the effects of option dilution. Indeed, some of the biggest US names have issued debt to pay for buybacks... In the current economic climate, you may find this surprising -we do too. A buyback in this form is not a return to shareholders - it's called gearing or balance sheet risk and will come to haunt some firms when the economy enters a downswing.
But what's risk when the Fed will step in now with a verbal bailout of the S&P literally every time that there is a 5% downtick?
The irony of course, is that households were massive sellers to corporations just before the last bubble burst too, and what "profits" they booked would quickly be turned around in the biggest implicit and explicit bailout of the financial system in history.
This time will never be different either, and in the end, when all comes crashing down, it is those sames "households" that will again bail out the creditors of uber-rich management teams spending like drunken sailors to buy their stocks at all time highs, but until then the Fed is blasting loud music, and that friendly corner-store CEO, is not only dancing but is perfectly happy to buy back all the stock of his company that is currently available in the "market."
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The biggest buyer will be the U.S. taxpayer via the National Debt increasing to fund corporate share buybacks.
It's already been proven in 2014, the biggest buyer of the markets in 2015 will be the central banks... Hard to fight the tide when they can print $$$$ to move the markets in any direction they want...
The shitshow must go on.
other = retail investor
Bought on credit
https://www.youtube.com/watch?v=VI6tBwVjyOY
same trick, in other words, same old sh't...
not without consquences.
Why do we let con artist print money?
Fucking Crazy... -_-
bill gross may have been making a new record for himself as he said the future was "........... and high cash flow stocks." paraphrase. bond guys may move more into stocks now that it looks like it does.
There is a limit. We are reaching that limit. As a small businessman, I see clearly that my customers are really cutting back and I don't sell trinkets.
When Main Street doesn't buy, the Fed can print all they want to no avail. It just won't work.
It just boggles the mind these assholes have gotten away with this for four centuries. Such a stupid game adult men are playing.
That "stupid game" has made them stupid rich and powerful. The fact that in the "information" age still only 2% of the population "gets it" makes it genius.
bullish??
Uranus?
Someone'sanus?
Yellen'sanus.
the Fed is the biggest buyer and soon will be the only fucking buyer...
DEATH TO THE MONEYCHANGERS.
but thanks Tylers..
I agree. I am not a financial specialist or anything but I know enough to know that someone is buying big. I think it is well beyond corporate buy-backs too. No matter what we see on the surface, the FED is pumping it big time.
In my simplistic view of things, however, I always come down with the same opinion: If Main Street is stagnant (or broke) then it all comes to an end soon. I think Main Street is broke. Really broke.
Yea I checked the MB today, the printing is on again.
Who's buying? These guys....
President's Working Group on Financial Markets -
http://www.archives.gov/federal-register/codification/executive-order/12...
A few years back, Burning Man did a whole Wall Street stage set and set it a fire infront of the largest gathering they ever had. To cheers, to dancing, to toasts, to the yells of kill the fuckers....the Wall Street set burnt to the ground with all the BIG names flaming in the desert night sky. That was 2012. See, nothing changes when you are the bank, when you are part of the party who says....burn the fuckers, and sponsor the whole party. A full 90% of those attending were from the 1%, SF, Silicon Valley, bankers, lawyers, money managers....and all the other places that put on a good stage front of condemination to the current show.
Unless you have ZERO in any and all stocks and funds...then your' just another 2012 Burning Man stage set. Not so much you Kaiser, but all who read this and play the roll.
"Unless you have ZERO in any and all stocks and funds...then your' just another 2012 Burning Man stage set."
i agree 100%..either because of ignorance,greed,or indifference, anyone who does not withdraw from the death and debt paradigm is complicit...
anyone still plugged into their Matrix is part of their matrix and an enemy of freedom, liberty, and me and mine family..just is what it is...
Everything will be converted to debt, or "Financialized"
Moar likely vaporized, but who's counting.
Corzined?
the market believes that the fed will NEVER stop buying. i'm toast. i give up. i really give up. this is the first time i am being so negative, but unless the people stop it (and they won't) they are pushing for wwiii. it is sick, digusting and obscene. but - that is what greed is about.
I think you probably know that "the people" cannot change a thing. Nothing. They get up, go to work and repeat. The "people" have very few (if any) options at all.
Stop acting like victems! The printing press has diminishing returns concerning the purchasing power of currencies. Case in point because the Russian ruble has crased 50% gold has doubled in the Nation-State.
First of all we're in ww3. Secondly, what's to give up? You're either in the rat race or you're not. If your in it double down and lever up. If you're not then plant the garden, enjoy the family, read a book, exercise and have fun.
The FED, and many other CB's also directly or indirectly owned/controlled by the FED.
Apple just borrowed what...a hundred billion in euro's?
I can't even begin to comprehend that.
These aren't just "corporations" they are HUGE.
This is also a DATA POINT. We have to take that seriously with all the "flim flam" going on.
Not that I take much seriously of course....
Our they using the dollar like a carry trade?
Borrow in dollars that will soon be worth a fraction of their present value. They may be privatizing the S&P 500 under our very nose.
What's the point in a corp to buy back its stock?
If they can afford it it is a sign of liquidity ie the corp has enough assets (cash) to take more ownership. The case now though is the corps are leveraged and doing buybacks which is a desperate attempt to pump the stock price.
Buybacks are bullish because the corporations were taking out loans supplied by banks to buy back their own stock!
Sound logic abounds.
I disagree.
With what?
HA, I gotcha. Sometimes /sarc is required.
I think there's a very real possibility that Japan might implode this year. If the ECB goes full retard with QE and Japan keeps printing the $/¥ could go parabolic. The yen will come under pressure by proxy as the dollar strengthens against the euro.
Personally, I think the $usd is due for a correction in the next week or two. Rates aren't going to be raised and earnings are starting for q-4. The drag on exports and the emerging markets is building, and there's a wave of deflation coming from the east. Many people think the $usd will strengthen.
I think the $usd will possibly strengthen short term, but will weaken as the equity markets sell off. The cash from equity markets will pour into bonds and the net effect on dollar strength will be nil as there's already so much money locked up in the equity markets it will just be a transfer. The $usd will also come under pressure as yields plunge lower and traders look to higher yielding bond markets and currencies.
There is going to be a bond crisis concerning shale plays, margin calls. Bankrupcies will ensue, and the banking sector will go under. Japan is highly leveraged and will not sustain a functioning economy.
I agree, the energy and HYG corporate stuff will get hit. I was speaking more of treasuries.
I too concur. However, my conundrum is in regard to all the debt. Are the corporates and governments and reserve banks planning on a global default? Will there be a total debt forgiveness or write off of some kind?
Should we all be levering up so we too can "just write it off"?
It has been inflated via dollar terms and at one point it will all be revauled versus the [fixed] price of gold.
That'll be a huge unwind. Add the derivatives and pensions and student loans and sub primes...my head is exploding.
Lever everyone up. Crash the pig. Take possession. of. everything.
You serfs wanna eat today?
Yeah!
Then kill the guy next to you.
Oh can't you imagine the kinds of sports we'll have.