Bloomberg Stumbles On The "Only One Buyer Keeping The Bull Market Alive"

Tyler Durden's picture

Last week, when Bloomberg was celebrating the 7 year anniversary of the third longest, most central bank-supported, and thus "most hated" bull market in history, it said that  "investors are awash in angst, showing little faith the run can continue. They worry about contracting corporate earnings, slowing Chinese growth and uncertainty over interest rates. And they’re walking the talk by pulling cash from stocks at almost the fastest rate on record. It’s not unwarranted - the S&P 500 has gained just 0.5 percent in the last 18 months."


While confused by this unprecedented equity outflow, it then promptly spun the "bullish angle"and noted that just because the rally is the "most hated in history", it probably will continue:

[W]hen people withdraw money, stocks inversely tend to rise later, according to data since 1984. In the 12 instances when funds experienced monthly outflows that were at least 2 standard deviations from the historic mean, the S&P 500 rose an average 7.1 percent six months later, compared with a normal return of 3.9 percent, data compiled by Bloomberg and Investment Company Institute show.


[Once] things start to turn around, bears will be forced to buy. From Feb. 11 through Monday, a Goldman Sachs Group Inc. index

of the most-shorted companies outperformed the S&P 500 by almost 16 percentage points, the most in data going back to 2008.

What Bloomberg failed to touch upon was who was buying. Ever helpful, we explained what Bloomberg was missing:

What Bloomberg is confused by is that despite this unprecedented rally, after a brief period of inflows in 2013 and 2014, investors have been pulling money out of stocks at a record pace, leading not only Bloomberg but many others to dub the move in the market as the "most-hated rally ever."


Specifically, what Bloomberg fails to note is that as everyone else has been selling, corporations have unleashed the biggest debt-funded stock buyback spree in history, providing the natural offset to wholesale selling by virtually everyone else, and allowing the market to barely dip over the past year.


And since the bond market had gotten clogged up in recent months as a result of the market turbulence, that explains why the ECB proceeded with the unprecedented step of explicitly backstopping the IG bond market, a move which we first, and then JPM explained, would encourage even more stock buybacks.

* * *

Today, nearly a week later, Bloomberg follows up on its celebratory "anniversary" piece with the much needed clarification hinted here, in an article explaining that "There's Only One Buyer Keeping S&P 500's Bull Market Alive." This is what Bloomberg "uncovered":

Demand for U.S. shares among companies and individuals is diverging at a rate that may be without precedent, another sign of how crucial buybacks are in propping up the bull market as it enters its eighth year. Standard & Poor’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007. The buying contrasts with rampant selling by clients of mutual and exchange-traded funds, who after pulling $40 billion since January are on pace for one of the biggest quarterly withdrawals ever.


It gets better: in a far less exuberant note than last week, Bloomberg's Lu Wang - author of the original article - writes that "while past deviations haven’t spelled doom for equities, the impact has rarely been as stark as in the last two months, when American shares lurched to the worst start to a year on record as companies stepped away from the market while reporting earnings. Those results raise another question about the sustainability of repurchases, as profits declined for a third straight quarter, the longest streak in six years."

“Anytime when you’re relying solely on one thing to happen to keep the market going is a dangerous situation,” said Andrew Hopkins, director of equity research at Wilmington Trust Co., which oversees about $70 billion. “Over time, you come to the realization, ‘Look, these companies can’t grow. Borrowing money to buy back stocks is going to come to an end.”’

Even the banks are throwing up on the "rally"

Assuming Bank of America maintains a roughly 8 percent share in the total buyback pool since 2009 and the pace of transactions lasts through the end of March, corporate repurchases may reach $165 billion this quarter, data compiled by Bloomberg show. That would bring the 12-month total above $590 billion, an amount that’s higher than the record $589 billion in 2007.


“Corporate buybacks are the sole demand for corporate equities in this market,” David Kostin, the chief U.S. equity strategist at Goldman Sachs Group Inc., said in a Feb. 23 Bloomberg Television interview. “It’s been a very challenging market this year in terms of some of the macro rotations, concerns about China and oil, which have encouraged fund managers to reduce their exposure.”


Should the current pace of withdrawals from mutual funds and ETFs last through the rest of March, outflows would hit $60 billion. That implies a gap with corporate buybacks of $225 billion, the widest in data going back to 1998.

The bottom line:

S&P 500 companies have churned out more than $2 trillion of repurchases since 2009, helping sustain a rally where share prices almost tripled. Bolstering the outlook for debt-financed buybacks, credit stress has eased since February, with the extra yield demanded on investment-trade bonds over Treasuries narrowing by 36 basis points.


The growth rate of buybacks is slowing as profits are poised for a fourth quarter of declines. After rising an average 37 percent in the previous five years, repurchases grew less than 4 percent in 2015. During the last two decades, there have been two times when earnings contractions lasted longer than now. Both led companies to slash buybacks, with the peak-to-trough drop reaching an average 62 percent.

It goes without saying that since the buybacks come entirely on the back of debt issuance, corporate net leverage is now the highest level in a decade, as Kostin warned last night, and urged investors to stay away from overlevered companies.

What we find most ironic, is that the author of the Bloomberg piece is the very same Wang last week wrote "What Doesn't Kill Bull Market in Stocks May Make It Stronger."

We wonder if this sentiment has been revised now that Bloomberg actually has the "big picture", and realizes that the only thing pushing the market higher is bond issuance (courtesy of central banks) whose proceeds are used to immediately buy all the stock that investors are dumping.

Then again, maybe not for a while. After all, as we explained in under 140 characters last week, the only reason for the ECB's expansion into Corporate bond QE was to boost the market by unleashing European stock buybacks.


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Perimetr's picture

Apparently the Exchange Stabilization Fund and the trading desk at the Fed have nothing to to with it?

Manthong's picture

Help Wanted:

Trader for NY Fed trading desk. No skill necessary.. must only be capable of hitting buy button on terminal..

Excellent  compensation and benefits .. Call Brian 212-555-5550

Cognitive Dissonance's picture

Hell, they could get a computer to do that.


illyia's picture

Hey! It's a witty answer on ZH regarding a relevant, well-researched and timely article!

And the Bloviator and friends were not mentioned once.

Will wonders never cease?!

sam i am's picture


bloomberg? who cares... watch videos of Kazan - the Third Capital of Russia

I MISS KUDLOW's picture

Bloomberg has atually been killing it, the charts and guest the last 3 months from the groups at 5-9 am have killing it, matt miller has actually given zero hedge and its guest a shout out about 5 times last week alone,,,,im not ususally a maninstream guy, meanwhile cnbc is now going towards a format like oprah or the view and maybe a little msnbc

zeropain's picture

just STFR for god sake.  funny how when we were bouncing from 1850-1900,people were posting STFR but now we are at 2000, you only see bull comments.  STFR now retards

Strelnikov's picture

Lots of "killing" in that run-on sentence...

Reichstag Fire Dept.'s picture

Hmmm...a change being made to the "Official Narrative"? 

NoDebt's picture

Like I said many times before- they're going to take this who damned shit show private.  NO "public markets".  Why would you need a mechanism invented to raise new capital when buybacks implicity show that companies need LESS capital (i.e. we're in a depression).

ZeroPoint's picture

Most people are too broke to invest or contribute to IRAs (another scam to prop this thing up).

The few who have money realize there is no more growth opportunities, and there are no real pricing mechanisms in place, so why invest in stawks?



JRobby's picture

+1000 NoDebt & ZP

Unless you have insider info or your own killer algo and a room full of servers (still could not be faster than the front runners!) WHY WOULD YOU BOTHER!!!!!!!!


Bangin7GramRocks's picture

Don't forget Fricken Lasers!

new game's picture

albert would be laughing his ass off...

zeropain's picture

the market has been hollowing out since 2014.  only dumb and desparate money in the casio now.  wonder how that will end.

Strelnikov's picture

Casinos run on dumb money, by definition.

philipat's picture


Not necessarily. Especially now that SarbOx has been completely forgotten, it might be just that Corporate Officers have become completely irresponsible and have an interest ONLY in boosting their Annual Bonuses and care not about the longer term performance of the enterprise?

NoDebt's picture

They only care about the performance of the stock during their compensation contract's "claw back" period.  The bar for Sarb-Ox looks like it is so high it would have CEOs peeing down their leg to run things "sqeaky clean" and diclose everything.  Not the case.  Certainly not at the S&P 500 level with teams of lawyers.

philipat's picture

The bar for SarbOx didn't used to be so high, it's only in the last 5-10 years when the "Too big to jail" mentality has become the norm. Before that, speaking from experience as a (Now retired) CEO of a major Corporation, SarbOx WAS a major concern for Corporate Officers. But, like all other forms of integrity,and GAAP accounting standards, it just slipped away into history. Lost in the greater corruption of all society. And since fascism became the new unspoken norm in US society. Sad.

Incidentally, despite your contention, "Claw Back" periods are STILL VERY unusual in C-Suite Contracts (Actually "Contacts" as such are not generally even used, rarther "Employment Agreements", which are open-ended are still more common (Except in specific and unusual high risk situations on either side) and "Officers Insurance " proviisions are widely employed. Surprise surprise??

BorisTheBlade's picture

Might be, but that's a technicality beside the main point. If there was money to be made through investment and expansion, then same management boards would gladly prefer throwing money into M&A (perhaps equally or even more irresponsibly) and not buybacks.

AGuy's picture

"Like I said many times before- they're going to take this who damned shit show private. NO "public markets". Why would you need a mechanism invented to raise new capital when buybacks implicity show that companies need LESS capital "

I doubt Companies will go private:

1. Buybacks are to support stock prices since Execs salary & bonuses are tied to stock price. Execs are using buyback so they can continue to collect a paycheck

2. Issuing stock is a debt free capital. You don't need to pay a banker interest and you don't have to payout dividends. We'll continue to see Stocks get sold to the Public


Firepower's picture

Duh. China's slowed because Murkans (long ago) lost the good jobs that afford their exported products.

Why US Cities Fell & New York Thrives Pt. I

Now, the only export China has of value is its dubious financial juggling balls - PERFECT for Manhattan princes.

philipat's picture

Which is also why blaming China (And Oil, also manufactured by Banksters) for the US economic slowdown is total BS. China exports when it has orders. No orders, no exports. Period.

As for those silver balls....

AGuy's picture

"Which is also why blaming China (And Oil, also manufactured by Banksters) for the US economic slowdown is total BS."

China went on a infrastructure construction binge too which fueled its economic activity. US consumption dropped after the 2008-2009 crisis, yet China kept motoring on.

It appears that China infrastructure boom is over or winding down, so its causing a big slow down. In addtion other BRICs (also went on a infrastructure/borrowing binge) are also tanking.


gcjohns1971's picture

Next up...

Privatization, bankruptcies, and The Big Corporate Lending Slowdown.

philipat's picture

Well there is also the PPT/ESF when needed?

E.F. Mutton's picture

Profits and Earnings are passe.  We now live in the National Enquirer Economy, where rumor, interpretations and innuendo are King.

doggis's picture






philipat's picture

Yeah, no need to shout...These types usually use BOLD as well. Even MORE annoying....

Strelnikov's picture


RiverRoad's picture

And just exactly WHO is advising these companies to buy back?  Well, guess.....

Keeps the market up, doesn't it? 


medium giraffe's picture

Debt funded buybacks at the top of the market. What could possibly go wrong?

buzzsaw99's picture

works out well for oily SWFs that are trying to raise cash. that's what you get when the maggots worry more about the globalists than they do about the good of the country.

Phillyguy's picture

The FED, ECB and BOJ have created $ trillions to purchase bank debt. This money has in turn been used to inflate asset prices- primarily stocks, via corporate stock buybacks and real estate. Draghi has now expanded bond buying to include the purchase of corporate debt, as well. So in effect, the ECB is bypassing the middle man, i.e., banks and directly purchasing corporate bonds. No doubt, these corporations, whose revenues and profits are declining, will be only too happy to offload their debt onto EU taxpayers. In addition, a large chuck of this “new” money will be used to buyback more stock, further juicing their share price. Expect the US FED and BOJ to follow Draghi’s lead. As David Stockman has repeatedly pointed out, this is financial lunacy. 

cwsuisse's picture

We don't know how the money created by the central banks has been employed but I think it is wrong to assume that it takes money from the purchase of bank debt to fire up the stock exchange. Let us assume Amazon wants to buy back its shares financed with debt. If the interest is zero or close to zero that seems relatively easy to handle. If a bank is prepared to grant the loan the money is created by the establishment of the loan. No further steps required, always provided the bank has sufficient equity to leverage on. But these rules can be adapted by the FED. The purchase of bank debt has another function. It takes bad debt away from the banks (and their shareholders) and puts the bad debt on the shoulders of society.

Boxed Merlot's picture

No further steps required, always provided the bank has sufficient equity to leverage on...


This "sufficient equity" is then used by said CB to back additional fiat per their CB’s, (BIS’), rules.  At least when invested in the PM mining sector, there is a lump of material to show for it, though they then use that as collateral to print more too, just at different ratios.

I have to believe the BIS / IMF have ways to determine the negative implications for the amount of debt CEOs manipulate to pad their contracts as those incentives are hardly arrived at by throwing dice.  They know good and well what motivates the CEOs they're installing and they can tell with their records of the markets what the implications are.

With that in mind, I see their current stage of development as testing the resolve of various nation's law enforcement agents at maintaining "ownership" of given industries within given jurisdictional boundaries.  The greater the ability to maintain orderly ownership, the greater the value of these bonds these various "banks" hold in the "safekeeping".

Like the quintessential narcissist Carlin was wont to say, it’s a big club and you ain't in it.


Cloud9.5's picture

The mime that tax payers are going to pay for this is moot.  Zimbabwe had the best performing stock market in 07 and 08 in the world.  The FED buying up the world with mouse clicks ends with total collapse.  

new game's picture

mouse clicks to total owership and control. 

dont cha wish you could mouse click money from thin air?

what a scam on mankind.

simple stuff

dr degree required though...

Fijiaaron's picture

The real question is why are they bypassing the middleman? That's very unusual (and possibly unprecidented) behavior.

Jstanley011's picture

Godzilla is going to stomp on these markets until every scintilla of excess leverage is a grease spot.