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Stock Buybacks To Grind To A Halt Following Massive Credit Fund Outflows, "Bond Carnage"
There is hardly a better signal that inflection points in asset classes have been reached than major shifts in capital in/outflows. As a reminder, Bank of America has practically made a career of dragging out the old "great rotation" canard every time there has been a, well, great rotation, out of bonds and into stocks for the past 4 years... only to always top (and bottom) tick said capital flows.
Overnight it did it again, when it reported that based on EPFR data, bond funds just suffered the biggest weekly outflow in 2 years, when some $10.3 billion left bonds matched by a nearly identical $10.8 billion inflow into stock funds: the largest since March.
As BofA frames it: "this is the 4th biggest bond-to-equity rotation in 6 years."
BofA shows the following chart to suggest that bond flows simply track the Fed's balance sheet.
Well they do of course, because all those newly created excess reserves have to trickle down, and be rehypothecated somewhere in the form of ES margin collateral. What BofA did not show is the chart showing the level of the S&P vs the Fed's balance sheet. For obvious reasons.
So how to know that the bond outflows are over? Simple: BofA gets giddy about the "bond carnage", which it says is "evident in first IG redemptions in 78 weeks ($2.1bn), longest govt bond outflow streak since Oct’13, biggest HY outflows since Dec’14 ($4.0bn)." The driver for said rush for the exits, per BofA, are fears "in the past 2 weeks (in order of worry) on Market Liquidity, Fed, Greece."
Some more from BofA's Michael Hartnett:
Bond mania past 6-years of QE (Chart 1), Fed exit, poor market liquidity raising fear of bond redemptions cycle (Chart 5). Note since 2009, $1.2 trillion inflows to bond funds vs $573bn inflows to equity funds; over same period net equity inflows = just 6% of AUM vs staggering 66% of AUM for bond fund inflows (Chart 2).
Curiously, nobody appears to have explained to retail that if bonds are overvalued (which they are) and in a bubble, then the resultant price collapse will crush equities which are just as, if not more overvalued (they are), as rising rates will leads to soaring interest expense and tumbling profits, a collapse in already scarce balance sheet liquidity, which will force companies to raise capital the old-fashioned way: by selling equity.
Oh, and if yields are indeed surging, one can wave goodbye to the only buyer of stocks in the past year: corporations themselves, who have issued a record amount of debt, and whose proceeds they used not to grow the business to buy back their own shares (even as insiders solds a near record amount of stock back to their own companies!).
Expect that unpleasant side-effect, rarely if ever mentioned by the equity cheerleaders, to trickle down to the retail population in due course, which in turn will lead to an equity revulsion, a sell-off in stocks, and an offsetting massive inflow into bond funds.
And with that, the cycle will repeat all over again.
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FUCK YOU, BUYBACKS!!! BASTARDS!!!!!!!!!!!!!!!!!!!!!!!!
that's good news for People that wants the real Economy back, not this fake shit that they have been serving us for the past 8 years
As Greg Mannarino has been saying for a few years now....watch bonds....bonds are the canary in the coal mine and when bonds start to fall then get the fuck out as fast as you can.
The Elite don’t need the Federal Reserve to raise rates in order to blame it for causing the coming economic conflagration. Bankster-controlled media and bankster-funded historians can already point to the Fed’s “too loose for too long” monetary policies for that. They also don’t need a Fed rate increase in order to trigger the Next Lehman Moment – any number of black swan events can be utilized for such a purpose. What they do need a Fed increase for is to get the public to see the Fed make a move, then see the economy immediately seize up. This will be a clear example to which the media can point in convincing the public to “blame the Fed.” And once everyone blames the Fed (and other national central banks) for causing the problem, the globalists can offer their solution.
But, but, but, I thought the Globalists owned the central banks.
sarc/
Bah! It'll be fine. You'll see.
They just need to rattle the saber with a few quarter point rate hikes, instigate a nice little market pull-back and before you know it, they'll be smashing a bottle of champage across the bow of QE4 and sending it down the ramps to wild fanfare and cheering crowds of bankers.
Poor muppets......Lather, rinse, repeat.
So prices of stocks and bonds will fluctuate?
All I need to do is get the timing right and I can profit.
/s/
Will the oligarchs behind the corporations demand another bailout?!?!?
Go ahead motherfuckers, ask for another fucking bailout, I triple dog dare you...
Time to account for some fucking heads motherfuckers!!!!
nothing changes otherwise!!!
In that regard, the timing of the last crisis was amazingly convenient for the purposes of a government bailout, with lehman failing in Mid september 2008 less than two months before baby Bush's second term was up. Bush had no real political capital left to lose in supporting the bailout completely.
The timing appears to be quite different this time around. This time, the USA's international political capital is set to go bye-bye, potentially opening the door to the "New World Order" anticipated by Daddy Bush. Russia and China appear to be potential spanners in the works of the conspiracy, as many intuitively recognize. Interesting times!
I agree with you completely LoP, but the elites live in a different world and have a very different perspective than us "commoners". They actually think they deserve their unearned wealth, because they are better than the rest of us. They are better educated, better bred, and better looking. When viewing the world from their perspective it becomes quite clear that they will indeed expect to be bailed out, because without them, we would all be lost. They do not think we could survive without their guidance, and so they DESERVE our undying support. Look no further than the shit that emanates from the faces of Jamie and Lloyd for proof of this. So yeah, they will expect, and in fact DEMAND, we hand over the money or the econcomy gets it!! I can't wait for the beheadings to start and am looking for investors in my industrial strength "vegetable slicer" startup.
Got to get that Fitbit stock....and why cant Netflix be a 500 billion dollar company????? Jus sayin
http://abcnews.go.com/Business/wireStory/hershey-cut-300-jobs-lowers-201...
one might also argue that, if one believed in functioning markets that is, which i don't, but i digress, and use a lot of commas, however, one might argue that bonds are being sold not because of bullish sentiment, but rather to prop up equities, and create the illusion that the bull is still alive, because, well, whatever bac says is probably bullshit in any event. [/run on sentence]
See below
This point of view is what I would call traditional and it does make sense that higher interest rates would at some point affect equities. However, what you are not considering is a flight from bonds based on lack of confidence in Government itself. I think most would agree that Gov't have no inclination/intention of ever paying off or back the debt. That leaves only two options, you default or devalue it. Should investors lose confidence in Gov't/Fed, the funds will have to flow somewhere would you not agree? If the losses mount in Bonds, more seller are created and it only seems logical that funds flows out of bonds will have to go somewhere. some may go to cash, excess moving to cash will create negative rates which means it will flow to real assets or businesses/equities. Some capital may flow to real estate, art, gold, silver...but for sure real businesses. It is not unlike what we have seen in Argentina. A collapsing currency, rising interest rates to combat falling currency and soaring stock market.