Fewest Stocks Traded In 32 Years - The Market Is Disappearing In One Giant Leveraged Buyout

Tyler Durden's picture

The number of common stocks traded on major U.S. exchanges are the fewest in three decades.

As CNBC reports, "Currently, there are just 3,267 stocks in the University of Chicago's CRSP data, and this is the lowest since 1984," wrote longtime Jefferies equity strategist Steven DeSanctis.

What's behind this phenomenon? DeSanctis explains:

"Between the lack of IPO activity, the pickup of M&A, and buybacks, the U.S. equity world is becoming smaller and smaller, and this could be one of many reasons why active managers are lagging behind their indexes. Companies may not want to come public due to the additional cost of Sarbanes-Oxley or the fact that the private market has become a bigger source of financing than it has been in the past."

So whether it's the total number of stocks or the amount of shares for each company outstanding, the stock market is shrinking.

Or as Dark Bid's Daniel Drew previously noted, The Stock Market Is Disappearing In One Giant Leveraged Buyout

It's easy to find critics and doomsayers who predict that the next stock market crash is just around the corner. They could be right, but another possibility is that the stock market itself will disappear entirely.

Anyone who is familiar with mergers and acquisitions knows what happens when a company is being slowly acquired. The price climbs higher, slowly yet relentlessly. Liquidity evaporates as offers are lifted. If the price moves up too quickly, buy programs are canceled. The buyer waits until the froth dies down a little before resuming purchases. Eventually, the bids reappear, and the process continues. Once the buyer acquires 5% of the company, a legal requirement is triggered: the SEC requires the buyer to file Schedule 13D, otherwise known as a "beneficial ownership report." Once this report is filed, everyone can see the buyer, and the stock price will usually jump.

This same process has been underway in the stock market over the last 6 years. The market is up well over 200%. Liquidity has evaporated in the S&P 500 futures market, and the central banks themselves are buying S&P 500 futures. Companies are spending nearly all of their profits on stock buybacks.

All of this activity harms employees. William Lazonick discussed the negative effects in a Harvard Business Review article called "Profits Without Prosperity." According to Lazonick, the American economy has transformed from a system of value creation to one of value extraction. He explained,

From the end of World War II until the late 1970s, a retain-and-reinvest approach to resource allocation prevailed at major U.S. corporations. They retained earnings and reinvested them in increasing their capabilities, first and foremost in the employees who helped make firms more competitive. They provided workers with higher incomes and greater job security, thus contributing to equitable, stable economic growth - what I call "sustainable prosperity."

 

This pattern began to break down in the late 1970s, giving way to a downsize-and-distribute regime of reducing costs and then distributing the freed-up cash to financial interests, particularly shareholders. By favoring value extraction over value creation, this approach has contributed to employment instability and income inequality.

The private takeover of the stock market is also apparent in the IPO market, or lack thereof.

This is the end game of unfettered capitalism. The signs are all here. When you cast aside reasonable restraints, the unscrupulous among us will rise to the top and exploit everyone else. What we have left is a new American feudalism where CEOs move around like a pack of ruthless Somalian warlords. Riding behind the banner of efficiency, they replace employees with robots, outsource their work to foreigners and tell their employees to train their own replacements, and collude with hedge fund managers to strip companies of their most valuable assets to temporarily boost the stock price.

As if all this weren't enough, now they are buying the entire stock market with money provided by the Federal Reserve's quantitative easing policies. This is essentially the largest leveraged buyout in history, and it's being paid for by every American. If the IPO market continues to dry up and companies maintain their buybacks, eventually, they will run out of stock to buy, and the market will disappear.

In a country without public markets, corporate fiefdoms will dominate the landscape. Instead of actual castles and moats, fiefdoms will have legal barriers to protect them, like low minimum wages, tax loopholes, and regulatory capture. Warren Buffett always said he likes businesses with "economic moats." Just imagine how much he would like the moats of the new American feudalism.

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Muad'Grumps's picture

Correction. This is not unfettered capitalism. It is unfettered CREDITISM. Counterfeit Credit...aka..Communism.

Doom Porn Star's picture

It isn't communism.  

It's a fucking heist.

Counterefeiters don't print phony money to give it away to everyone; they counterfeit money to steal what they cannot earn.

They aren't counterfeiting to share it all; they are counterfeiting to steal it all.

reTARD's picture

And communism isn't a fucking heist? Socialist (of which communist and fascist are just more extreme branches of) systems require centralized/controlled banking which counterfeit their "legal" (government mandated/enforced) tender. But digging deeper, government itself is one of the ultimate socialist systems around.

Stainless Steel Rat's picture
Stainless Steel Rat (not verified) reTARD Sep 2, 2016 2:13 PM

The counterfeiters are committing a much bigger heist.

Leopold B. Scotch's picture

Let's be clear if we're using the term capitalism not to conflate what we have here with Free Market capitalism. This is unfettered Political Economy Cronyism.  It is the product of massive central planning done by socialist planners attempting to fine tune the system to their desired Utopia and plunderers who have bought and paid for regulation that destroys competition and guarantees profits, all backed by the point of a gun BIG GOVERNMENT.

Don't believe me?  Go create your own liberty dollars.  Go give investment advice without their approval. Go sell securities outside of their corruption.  Build a business that's based on consumer demand and respecting others liberty / property ONLY and see how quickly the flunky bureaucrats they've created come to shut you down.

Really, that this particular Durden simply throws out the term "unfettered capitalism" as if it's the market, well -- it is both irresponsible and stupid.

Doom Porn Star's picture

Socialism is a democratic form.  The underclassess demand that the government grant/distribute to them goods and services that they have not produced or paid for and which are inarguably not their property or due to them for service or payment.

That might be ( rightly in my opionion ) considered theft; but, it isn's a heist.

It certainly isn't the same as two or more counterfeiters accepting each others phony accounting/credits/bills in payment for real goods and services and forcing others into taking the same counterfeits for their wages and assets and services, etc...

 

robertsgt40's picture

"Since 1984". That's too rich for words. 

pathosattrition's picture

Unfettered capitalism wouldn't have the limited liability and anonymity of the corporate system. This - like all thefts on a grand scale - is state-sponsored.

Doom Porn Star's picture

State sponsorship of a criminal racket does not automatically render the racket 'socialist' or 'communist' in nature.  

State sponsored and shielded racketeering has nothing to do with either construct.

Leopold B. Scotch's picture

Depends.  Generally speaking, when the state is creating a market environment for social purposes, it is a form of socialism, even if it's not outright state ownership. 

I mean really: enough with the "if it's not originary definition of socialism or it's not socialism" excuse to defend pro-big-gov meddlers.   Socialists of the 50s and earlier understood state ownership was a dead end because The People would resist, so they focused on hijacking regulation.  No need to own the company if it's forced to do your bidding through law.  Same result.

To your point, though, where dreamy eyed, uinicorn chasing (too dumb to know better) socialists are always stumped is that they never understand that any government powerful enough to violate others' liberty for their cause will be hijacked by the most crooked, corrupt, etc.  They think if they just wish hard enough, everyone will be equal and we'll all live happily ever after... so long as they can force everyone into their mold.

Doom Porn Star's picture

"Generally speaking, when the state is creating a market environment for social purposes, it is a form of socialism, even if it's not outright state ownership.  "

 

1. I'm not here to defend socialism; but, to condemn it.

2. The objective of socialism is to distribute assets, goods, and services to the general populace with some uniformity.

That is NOT the case despite the interferences of government in said distribution.

The objective is to expropriate/sequester/distribute assets, goods, and services amongst the cronies/elites/1%; and to instigate manufactured crisis of scarcity amongst the general populace.

 

Your argument only functions if the 'social purpose' is disenfranchisment and expropriation of the general populace.  

This is the inverse of the intent/purpose of socialism as is defined by socialists; -whether it is claimed to be 'socialism' or not..

indygo55's picture

They are printing money and buying real assets with it, not giving it away. They will own all the best residential real estate, the mining operations, manufacturers, commercial property, gold and silver, etc. and they dont case the price. Whatever the price, they will print more to buy the real stuff untill the money, or currency will buy no more. I think according to come commentary we are approaching the mpoment when the currency will buy no more. Then the reset comes. Oh, and WAR.

GoldenDonuts's picture

This is not a leveraged buyout.  This is a printed buyout and power grab.   What is leverage when you owe "money" to yourself for debt that you created when you imagined the new script into existance.

Bryan's picture

Yes.  Maybe TPTB have figured out that if they own a majority of stock in most of the largest corporations, then they own the economy, baby!  Print and buy, print and buy!  It's the latest trick to restructuring debt without hyperinflation.  You just buy up the companies that owe you the debt and then you forgive your own debt to yourself.  Ingenious.  Or diabolical... can't tell which.

Dr. Engali's picture

Hmmm, one giant LBO, where have I heard that before? Oh yeah, Dr. Engali since 2010. Try to keep up will ya?

Soul Glow's picture

It's ok, the machines will do the work for everyone.  They know best.

CJgipper's picture

Brawndo has what plants crave.

Xatos's picture

We don't need a stock market anyway.

fbazzrea's picture

uhhh... yes, we do. without stock market financed start-ups (new businesses), the main engine of our economy would stop sputtering and collapse.

otherwise, the only available capital is in the hands of the banksters. not a pretty picture.

Montana Cowboy's picture

Price discovery would be almost impossible. Not that its genuine in the corrupted markets we have now. But with no market, a stock's value would be stated as a wide spread, like $30 to $45 per share.

The Real Tony's picture

Good luck to the central bankers when they find out there's virtually no buyers at any price worldwide and stocks fall more than they did back in the '29 crash. We aren't there yet but we're getting close. Lesson learned no mater who or what that pays 4 times or more that something is worth in the end they always end up losing virtually everything. Hopefully in the end the families of the bankers will be made to make restitution and the bankers at the very least imprisoned for life.

GunnerySgtHartman's picture

Well stated, sir.  Agreed that we are getting close.  It'll be a calamity for the bankers when it all caves in.

Baa baa's picture

Among my peers, pretty much professionals of some sort, it new appears there is about a 50% split between the unemployed and employed. I find that to be profoundly dismal. Time to do the best you can, at least go down fighting for your survival. Oh, we almost qualify as old farts....

Offthebeach's picture

Im a tradesman, plenty of work for 2-3 times the workers, for decades.
But the people don't have money to pay, so once great homes and cities decay and die untended.

Half of us should be lobbyists and the other half fedgov workers. It would be the perfect perpetual motion economy.

Doom Porn Star's picture

The intent is NOT to sell later.

This is a global expropriation project.

Possession is 9/10ths of the Law.

We are at WAR with the Moneyprinters/Moneychangers.

Their weapons are the printing press, interest rate and price fixing -and the mercenaries and enforcers in the seats of governments and bureaucracies who are paid to protect the rackets...

Soul Glow's picture

And our weapon is physical bullion.  Take back the real money supply.  Buy silver.

fbazzrea's picture

+1

been buying on this dip... looks like it was fortuitous.

stackin' til the reset

fbazzrea's picture

+1

i like your way with words. succinct.

USofAzzDownWeGo's picture

Nah, they can print to infinite and keep this going for a lot longer. Look how easy they can ram the markets up while every billionare is supposedly selling or shorting. 

Haraklus's picture

Why would they ever need to sell?  They can just print more money to buy everything else.

mvsjcl's picture

"This is the end game of unfettered capitalism." LOLOLOLOL!

moneybots's picture

"According to Lazonick, the American economy has transformed from a system of value creation to one of value extraction."

 

A cycle. Up phase, down phase.

Consuelo's picture

 

 

'Unfettered Capitalism' is not possible without even MOAR unfettered Government...  

max2205's picture

Ah, you guys just figured this out now?  Cutting edge 

SDShack's picture

The graph shows 2 forces at work post Great Depression, the Law of Diminshing Returns, and the Law of Asset Bubbles (also known as Ponzi). What we now have is the merging of the 2 into the Law of Diminishing Returns of Asset Bubbles (also known as the Mother of All Ponzis). Just like a junkie, more drugs have to be taken to obtain the same high. This only ends one of two ways... either ntervention with radical treatment resulting in massive withdrawl, or death of the junkie. Plan accordingly.

GunnerySgtHartman's picture

It's going to be painful, no question.

Anyone want to place bets on how many traders and bankers commit suicide off of high-rise buildings when it all caves in?

Zeusky Babarusky's picture

"It's going to be painful, no question.

Anyone want to place bets on how many traders and bankers commit suicide off of high-rise buildings when it all caves in?"

Have to pass Gunny. Not a betting man. If you can however arrange seating for say the 7th to 40th row to watch them jump I'd appreciate it. Why 7th to 40th row? I would like to avoid blood and bodily fluid splatter. Can't be too careful these days with all those blood borne bugs out there.

Anopheles's picture

I wouldn't take a company public if I didn't have to. 

It's the rise of the internet that's caused fewer companies  to go public.   WAY too many hacktivists and morons posting crap they know nothing about.  Now, it's so easy for people to post unsubstantialted and unadultrated CRAP on blogs and social media.  There are no consequences for slandering a company, just becaue they disagree with something.  

These people should be completed ignored.   But yet, some of these same morons gain traction among the uneducated morass of sheeple.   Private is the way to go.  People will still post crap, but it matters much less. 

Going public is a great way for founders of a company to cash out early.  Long term?  Stay away from public markets of today.  If at all possible. 

MASTER OF UNIVERSE's picture

The Corporatists & their lackey Central Bank Federal Reserve Ponzi have already imploded, and everything since 08 has been a mere charade of printing press buffoonery that has already moved North America, and the European Union, towards mass systemic failures that are certain to manifest in contagion, WW3, and Thermonuclear hot war within days from today. Deutsch cannot stay afloat anymore and that will implode the dark pool derivatives universe within 40 days most assuredly. Baltic Dry will not recover within any foreseeable future, and M&A will not be able to keep pace with the defaults on shipping companies. The race to the bottom is here to stay without a doubt whatsoever. Hoarding will ensue from here on out given the trends, lack of fundamentals, and consolidation across the board. The CB-ers know they are doomed, as do so-called 'ruling elites'. The exodus by elites from the USA will be picking up steam right about now, and signs of that should start appearing immediately IMHO.

Kaiser Sousa's picture

guess i shouldnt keep buying physical Gold and Silver now should i????

 

DEATH TO THE FUCKING MONEYCHANGERS.

Zandig Slaytanic's picture

Capitalism.....hahahahahahahahaha
It's been pure Bankism for years

Team_Huli's picture

How far must the market drop for the Fed to receive a margin call?

MopWater's picture

Hard to margin call a printing press.

two beers's picture

Nooo!

Capitalism can never fail! Ayn Rand, Freddie Hayek, and Uncle Miltie Friedman said so! Therefore, all market fallures are ipso facto not capitalism, and must therefore be communism, Rosicrucianism, or hypothyroidism. All market failures are the result of gummint strangling the Holy Magic Invisible Hand. Clap your hands and click your heels if you believe in the Invisible Magic Capitalism Fairy!

MopWater's picture

I think you've had two too many.

SomethingSomethingDarkSide's picture

Maybe you think stable currency is silly, and we may all be worked up over nothing - but you may just be a retard at the same time.  Good luck with those S&P ETF's!

Offthebeach's picture

The failure is the market. None of those figure denighed asset bubbles and speculative collapse, quite the contrary.
You are under the notion of efficient market/rationa man theory. Somewhat more in the philosophical vein of scientific Marxists. Smith, others, knew man as sometime emotional, and with appetites, such as fear and greed.