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The Amazing Chart Showing What All The Debt Issued This Century Has Been Used For

Tyler Durden's picture




 

Over the past three years, we have beaten the topic of soaring, record stock buybacks to a bloody pulp.

Starting in 2012, among countless other pieces on the topic, we wrote "How The Fed's Visible Hand Is Forcing Corporate Cash Mismanagement" and "Where The Levered Corporate "Cash On The Sidelines" Is Truly Going", i.e., buybacks", then in 2013 with "$500 Billion In 2013 Corporate Buybacks: Half Of QE", then again in 2014 in "Here Is The Mystery, And Completely Indiscriminate, Buyer Of Stocks In The First Quarter" and finally two days ago "It's Not The Record High Debt That Is The Biggest Risk, It's [the dropping cash flows]", we have constantly explained that the primary source of stock buying over the past several years have been corporate management teams repurchasing their own shares using ever greater amounts of debt as a source of funds, in the process boosting not only their stock price but their equity-linked compensation and bonus pools.

This couldn't go on for ever, and on Monday, Goldman which may or may not have read our prior piece "Why The Stock Buyback Spree Is Ending", issued its own loud warning when it finally noticed that corporate debt has doubled in the past several years and said "so, does this mean the levered re-cap is dead? In our view, the answer is yes for the broad market."

Today's market action seems to be confirming just this.

This progression of events had been both predicted and documented on these pages.

Yet one thing that is absolutely stunning, is something which SocGen's Andrew Lapthorne pointed out a few days ago, in a chart which compares the changes in net debt with net buyback activity.

The chart below shows something absolutely amazing: while there are clearly other fungible "sources and uses of funds", what all the leveraging activity of the current century boils down to is the following: virtually every single dollar raised through issuance of debt has been used for one thing - to buyback stock!

To be sure, other sources and uses of cash can be comparably tracked, and this is not to say that companies haven't used their own organic cash creation, declining as it may be, for other purposes such as spending on CapEx and M&A, but the chart does show that in isolation from all other sources and uses of funds, several trillion in fungible debt has had just one simple use - to boost stock prices, and to make management teams richer, while letting bondholders managing other people's money foot the bill for record high management bonuses and stock prices.

Behold - what all the debt issued in the 21st century (and really ever since 1990) has been used for:

Source: SocGen

* * *

And the punchline: buybacks are finally starting to drop... but debt just soared to new all time highs.

 

 

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Thu, 11/12/2015 - 16:23 | 6783590 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

Can I use buybacks to purchase my own debt? 

Thu, 11/12/2015 - 16:27 | 6783615 Sudden Debt
Sudden Debt's picture

Why don't you just sell your debt for the same amount and call AAA+++ debt and use that money to pay down your debt?

 

 

Thu, 11/12/2015 - 16:31 | 6783647 coinhead
coinhead's picture

Coinhead reccomends you go into debt to buh Bitcoin.

Thu, 11/12/2015 - 16:34 | 6783660 J S Bach
J S Bach's picture

"virtually every single dollar raised through issuance of debt has been used for one thing - to buyback stock!"

Just as virtually every single dollar raised through TAXES has been used for one thing - paying the INTEREST on that debt!

Thu, 11/12/2015 - 18:13 | 6784183 Save_America1st
Save_America1st's picture

I can't tell anymore if all this shit is like watching a train wreck in slow motion or in fast motion.  I guess it's like watching 10,000 train wrecks all at once at all different speeds?

fuck it...keep stackin' that phyzz, folks...shit's still on sale for as long as you can get it!

Thu, 11/19/2015 - 17:15 | 6784542 turtle
turtle's picture

Doesn't anybody put scales on graphs anymore?

Even half a million per month is not much.

I will assume "USD1000/month" but hate making asses of us all.

Thu, 11/12/2015 - 16:33 | 6783662 nuubee
nuubee's picture

What's most worrying is the last part of the plot, where buybacks are falling, but debt is increasing. It seems the paradigm is shifting as we speak.

Thu, 11/12/2015 - 16:38 | 6783689 Sudden Debt
Sudden Debt's picture

If you don't make a real profit, you still need to pay your employees.

so how could they get rid of their employees...

Thu, 11/12/2015 - 16:39 | 6783699 nuubee
nuubee's picture

War

Thu, 11/12/2015 - 17:49 | 6784068 The Pope
The Pope's picture

Buyback stock in... Lockheed Martin, Northrup Grumman, Raytheon, & the AIPAC IPO.

 

There ~ Fixed it!

Thu, 11/12/2015 - 17:58 | 6784111 Money Counterfeiter
Money Counterfeiter's picture

Just likie 1929 when 40% of new debt was for stawks.

Thu, 11/12/2015 - 16:39 | 6783674 SillySalesmanQu...
SillySalesmanQuestion's picture

Your dimness, is only outshined by your ignorance coinhead.

Thu, 11/12/2015 - 16:36 | 6783681 madcows
madcows's picture

can the US use debt to buy bitcoin, and then switch to a bitcoin backed dollar, er, Fiat.  I want to call the new currency Fiats.  Yo, how much they paying you an hour?  Bruh, they be slaving me @ 5 trillion fiats.

Fri, 11/13/2015 - 17:16 | 6788126 Bruce Gender
Bruce Gender's picture

Perhaps 5 trillion Obamas has a better ring to it...

 

"You lost this one, bro. Go home" -Obama thug at Mizzou

Wed, 11/18/2015 - 10:51 | 6808738 Vendetta
Vendetta's picture

The US could make some trillion dollar bitcoins, then all problems are solved ....

Thu, 11/12/2015 - 16:34 | 6783670 Mr Pink
Mr Pink's picture

I wish I would have seen this coming....I could have made hundreds of dollars being one of those stock market picker guys

Thu, 11/12/2015 - 16:37 | 6783673 Rainman
Rainman's picture

" When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

             Chuckie Prince   July, 2007

Thu, 11/12/2015 - 16:27 | 6783621 Kaiser Sousa
Kaiser Sousa's picture

no...

here is ur amazing fucking chart..

i mean seriously - both take downs end at the same fucking PHONY paper price point....so fucking blantanly retarded and desperate....

 

Thu, 11/12/2015 - 16:48 | 6783745 BandGap
BandGap's picture

i think we brokt it bad this time

Thu, 11/12/2015 - 16:29 | 6783638 Glass Seagull
Glass Seagull's picture

 

 

Suck it, real economy!

Thu, 11/12/2015 - 16:30 | 6783643 blindman
blindman's picture

get it?
https://www.youtube.com/watch?v=5-LeKkUsMpE
Loudon WainWright-The Sh*t Song

Thu, 11/12/2015 - 16:33 | 6783654 Dre4dwolf
Dre4dwolf's picture

So all the CEOS owned stock in their respective companies.

The markets were not liquid so money was injected into the system so that the companies could afford to pay the CEOS and Board Members what they wanted for their shares.

 

Carving out the pumpkin, except the pumpkin and the knife dont belong to you, and you are in someone elses kitchen and you helped yourself to the pumpkin pie that someones grandmother baked for her grandchildren and ate the entire thing in one sitting.

 

Thats what debt was used for.

Thu, 11/12/2015 - 16:32 | 6783656 Bill of Rights
Bill of Rights's picture

Seven years of " the recovery is at hand " and on the 8th year like all presidents before the "great one " it too will implode.

Thu, 11/12/2015 - 16:33 | 6783661 Jethro
Jethro's picture

HAHAHAHAHAHAHAHAHAHAHAHA. Diocletian had nothing on these retards.

Thu, 11/12/2015 - 16:34 | 6783667 tommylicious
tommylicious's picture

FUCK YOU, BUYBACK REACH-AROUNDERS!!!!!!!!!                   BASTARDS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Thu, 11/12/2015 - 16:34 | 6783668 venturen
venturen's picture

debt good ....more pay bad! Wall Street is going to be sorry when their vanities all burn in that bonfire....along with a few bankers

Thu, 11/12/2015 - 16:36 | 6783680 Sudden Debt
Sudden Debt's picture

Did anybody know that Facebook has been convicted for spying on people who don't use facebook in Belgium?

They have to pay 250K per day that they break the conviction.

And as Brussels is the capitol of Europe, that may go for the rest of Europe.

 

And then there are the rest who will follow.

Binge, registers every keystroke you make, even if you don't use it.

McAfee scans you're entire computer and transfers the entire inventory daily to it's own servers.

...

...

Maybe the spying of non US citizens will someday stop... which is actually a act of war...

So soon, most of these big companies that lead the market, will need to use their money to pay for the fines!

Thu, 11/12/2015 - 17:40 | 6784018 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

LOL Europeans pretending they can stop the American web, spying and military machines. Bigger LOL Europeans pretending they care and are not completely in on the game. A few Dutch lady politicians who need to shave their underarms flapping their gums to make a few uppity ex-hippies feel justified while the backroom deals for permanent war, permanent financial repression, and permanent fascism roll on

LOL "act of war", as if most of US actions don't belong in that quaint old definition from a bygone age

I'm not saying I like any of it, just remarking that the game is done, finished. Get back in your Matrix pod for you will be harvested too.

Thu, 11/12/2015 - 18:00 | 6784119 Bunga Bunga
Bunga Bunga's picture

Just read the sticker on your CPU correctly: "virus inside".

Thu, 11/12/2015 - 20:08 | 6784562 Cult of Criminality
Cult of Criminality's picture

Miley Virus ?

Thu, 11/12/2015 - 16:40 | 6783701 SSRI Junkie
SSRI Junkie's picture

my bad..i thought they said barebacks

Thu, 11/12/2015 - 16:46 | 6783737 Never_Put_Down
Never_Put_Down's picture

Borrow at zero percent, buy stock, stock goes up 10%, before earnings report - sell stock and bonus off profits

Thu, 11/12/2015 - 17:13 | 6783884 blindman
blindman's picture

Loudon Wainwright - Down Drinking At The Bar
https://www.youtube.com/watch?v=OedLAodBJ3k

Thu, 11/12/2015 - 17:25 | 6783938 Mark Mywords
Mark Mywords's picture

Exceptional.

Thu, 11/12/2015 - 17:25 | 6783940 Niall Of The Ni...
Niall Of The Nine Hostages's picture

Oh, the new bondholders were in on the joke. They were mostly the same people who owned the stock in the first place.

Uncle Sugar still charges huge rates of corporate tax. Of course, only small fry without access to bond markets actually have to pay them, making it harder for them to grow big enough to be a threat to anybody important.

All the big boys had to do to avoid corporate tax was switch from equity financing to debt financing. Dividends are taxed; interest payments aren't. And their incentive to switch got bigger as interest rates dropped. 

Management got higher prices for stock options; former shareholders, now bondholders, lost less of their profits to tax and if anything had more effective control over the firm than ever. Everybody who mattered won.

(Who needs voting rights when you can just threaten to stop rolling over a company's debt if the CEO turns out to be a moron and nobody on the board has the balls to throw him overboard? Works like a charm in Latin America.)

The proles wound up paying higher taxes on their already pisspoor wages, but who cared about that?

Thu, 11/12/2015 - 17:28 | 6783956 Crocodile
Crocodile's picture

Go ahead Janet, make my day and raise those rates.

Thu, 11/12/2015 - 18:24 | 6784228 NotApplicable
NotApplicable's picture

She's gonna be too busy buying up the S&P 500.

Wed, 11/18/2015 - 11:17 | 6808846 Vendetta
Vendetta's picture

Does she feel lucky, ... does she?

Thu, 11/12/2015 - 17:38 | 6784005 KellySpinner
KellySpinner's picture

Corporate executives need to jack up the share prices so their options are "in the money."   

Thu, 11/12/2015 - 17:42 | 6784031 JailBanksters
JailBanksters's picture

So what do you do when you reach peak buybacks, you look forward to peak selloff and then repeat.

Thu, 11/12/2015 - 17:44 | 6784040 Brooks_Orpington
Brooks_Orpington's picture

#Back-buys Matter

Thu, 11/12/2015 - 18:00 | 6784124 Phillyguy
Phillyguy's picture

So companies have loaded up on debt to buy back their stock, which is declining in value……

Thu, 11/12/2015 - 18:32 | 6784258 dreadnaught
dreadnaught's picture

for WAR? IM SHOCKED!

Thu, 11/12/2015 - 19:11 | 6784383 cigarEngineer
cigarEngineer's picture

There's nothing wrong with this. It's a transfer of money from dumb people who lend to smart people who cash out and loot corporations. Corporations should be poor.

Besides, later some corporations can buy back their own debt at a lower price.

Thu, 11/12/2015 - 21:06 | 6784756 all-priced-in
all-priced-in's picture

< Hookers and blow

< Stock buybacks

 

 

 

Fri, 11/13/2015 - 02:03 | 6785431 Kirk2NCC1701
Kirk2NCC1701's picture

The music stops for many companies, when they can no longer pay their debts. 

That's when the culling climbs up the Corp ladder. Unlike the working stiffs, the big shots will have golden parachutes.

If that's not enough, then M&A's start: Big fat fish eat skinny and smaller fish.

Fri, 11/13/2015 - 05:58 | 6785658 Reichstag Fire Dept.
Reichstag Fire Dept.'s picture

I just photocopied some money I invented...who wants to borrow some?? Reasonable rates!

Sun, 11/15/2015 - 14:23 | 6796349 Hope Copy
Hope Copy's picture

Corporate buy backs will only end up with that stock being released again.  The issue is when the buy-back reaches controlling interest as defined by law, that is the 18.5% through 21% level, because at the level of required reporting and then being the largest voting block, the government gets to look at the corporation, the individuals that run that corporation, in a very different light and the court cases will start to fly, especially when a jury is convened.  The won't be able to jump ship without liability.

 

 

 

Go figure..  maybe the Fed will start picking up stock in it's already established Fascist manner, Bank Trust Funds...  court apointed.

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