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Stock Buybacks In Jeopardy: High Grade Bond Funds Suffer Biggest Outflow In Over Two Years
US corporations watched with detached amusement as Hillary Clinton, in branching our her populist campaign to pander to key Wall Street donor firms such as Blackrock (where her personal advisor and liaison Cheryl Mills just happens to be a board member), threatened to crack down on stock buybacks. Couple of points: i) by now it is far too late to crack down - most companies, even investment grade ones, are well on their way to being saddled with so much debt the next crisis and/or rate spike will result in a supernova of "fallen angels" and bankruptcies, ii) the government is hopeless to stand in the way of the "other people's money" juggernaut, and if career risk-threatened bond managers demand to hand over cash to management teams who promptly give that money back to shareholders, nothing can stop them.
Which is why for all the huffing and puffing from presidential wannabes about ending the buyback bonanza , corporate C-suites are laughing.
In fact, there is just one variable they care about - the amount of cash entering Investment Grade bonds funds because as long as the dry powder arrives, it has to be used up somehow, that somehow being almost exclusively stock buybacks in recent months and years.
And it is what happened here in the latest week that is making CEO, especially those whose compensation is a direct function of how much stock they repurchase, very nervous because as Lipper reported overnight IG funds just saw $1.8 billion in outflows, the most in over two years or since June 2013.
From Reuters:
U.S-based high-yield bond funds reported $1.2 billion in outflows, while U.S.-based investment-grade corporate bond funds posted their biggest cash withdrawals since June 2013, at $1.8 billion, data from Thomson Reuters' Lipper service showed on Thursday.
The latest figures, for the week ended Aug. 12, mark the third straight week of outflows for the two fund categories, Lipper said.
It isn't just buybacks via the IG-bond pathway that are in trouble: as we have shown every day this week, the junk bond market is also on the precipice.
"The flows data indicated investors were running away from high yield in both mutual funds and ETFs," said Pat Keon, research analyst at Lipper. Keon said the iShares iBoxx $ High Yield Corporate Bond ETF, which suffered outflows of $524 million, and the SPDR Barclays High Yield Bond ETF, with withdrawals of $305 million, saw the most money leave among exchange-traded funds.
Investors turned to low-risk, U.S.-based money market funds, which attracted $6 billion to mark their second straight week of inflows. Additionally, funds that specialize in U.S. Treasuries attracted $601 million in inflows, Lipper said.
And following the broad derisking in bonds, it is not surprising that investors decided to get out of stocks as well: "U.S.-based domestic-focused stock funds reported $1.5 billion of outflows, for a fourth straight week of outflows, while U.S.-based non-domestic-focused stock funds attracted $2.4 billion, their fourth straight week of inflows.
And just like that, all of a sudden the dry powder to fund corporate stock buybacks - the only buyers of stocks in 2015 - seems far, far less.
But that's not all: suddenly investor appetite for the momentum, high-beta "growth" names appears to be rapidly fading. According to Bank of America "appetite for “yield” continues to wane as equity income funds record outflows in 9 out of past 10 weeks ($0.3bn outflows this week)"
By sector, healthcare/biotech funds see weakest inflows in 11 weeks (tiny $10mn); utilities funds see largest inflows in 5 weeks ($0.3bn); REITs with $0.8bn inflows
Then again, anyone looking at the severe beating some of the most prominent story, pardon "growth" stocks have taken in the past week, will surely be aware of all this by now.
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Fuck the stock market...
But stock buybacks have been so good for the 0.1%
Five years after the official end of the Great Recession, corporate profits are high, and the stock market is booming. Yet most Americans are not sharing in the recovery. While the top 0.1% of income recipients—which include most of the highest-ranking corporate executives—reap almost all the income gains, good jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid. Corporate profitability is not translating into widespread economic prosperity.
The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.
http://davidstockmanscontracorner.com/why-the-casino-is-flush-91-of-sp-p...
The old cool thing: Your an idiot if your holding cash, put it in bonds and make money. The new cool thing: Get out of bonds and into cash before you lose your ass. Life is exciting as a herd animal....
Costco has mattresses in warehouse again.
But on a more serious note, another way to reward stockholders, back when dividends were taxed more reasonably, was to pay out dividends. Can you imagine?
Crazier still, stockholders used to prefer, in business segments where growth was expected, that the business direct profits back to growth of the business, but with a regulatory onslaught reminscent of the capital strike of the FDR Depression, businesses and stockholders do not sense a propitious environment for real investment. Zero Sum investments like mergers("synergies!" "oligopolistic competition" "regulatory capture" "TBTF"), and offshoring, however are rational choices by each actor. The Commons gets fucked up, but if you wanna make a progtopia you have to burn the omelette.
Ah yes, the good old days. I vaguely remember them since it's been awhile......
I think it may be right about the case you mentioned.
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Tom @ best memory foam mattress topper
stuck the fock market
definition of stock: a share of the VALUE of a company which can be bought, sold, or traded as an investment
Definition of market: A medium that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange. The price that individuals pay during the transaction are often determined by the FORCES OF SUPPLY AND DEMAND...
Hmmmm....I will let you digest that and see what ya think :-)
My definition of a stock:
A device that Banksters head, hands and feet will be put through, then padlocked, so that the public will be able to view them, spit on, throw eggs at, throw rotten fruit at and ridicule, while they await their turn at the guillotine.
There, fixed it for ya.
It's pretty hard to invest in the stock market,when 120% of your earnings go to pay rent..
The whole scam of corporations borrowing $$ to buyback stock to make management's and directors' options valuable might come to an end. That is going to put an end to the levitation of many of the high flying darlings on Wall Street.
Buybacks was an excuse to run up the market.
They'll just find another excuse.
I wouldn't worry about it.
Remember, rigged!