There Has Been Just One Buyer Of Stocks Since The Financial Crisis

Tyler Durden's picture

When discussing Blackrock's latest quarterly earnings (in which the company missed on both the top and bottom line, reporting Adj. EPS of $5.24, below the $5.40 exp), CEO Larry Fink made an interesting observation: “While significant cash remains on the sidelines, investors have begun to put more of their assets to work. The strength and breadth of BlackRock’s platform generated a record $94 billion of long-term net inflows in the quarter, positive across all client and product types, and investment styles. The organic growth that BlackRock is experiencing is a direct result of the investments we’ve made over time to build our platform."

While the intention behind the statement was obvious: to pitch Blackrock's juggernaut ETF product platform which continues to steamroll over the active management community, leading to billions in fund flow from active to passive management every week, if not day, he made an interesting point: cash remains on the sidelines even with the S&P at record highs.

In fact, according to a chart from Credit Suisse, Fink may be more correct than he even knows. As CS' strategist Andrew Garthwaite writes, "one of the major features of the US equity market since the low in 2009 is that the US corporate sector has bought 18% of market cap, while institutions have sold 7% of market cap."

What this means is that since the financial crisis, there has been only one buyer of stock: the companies themselves, who have engaged in the greatest debt-funded buyback spree in history.

Why this rush by companies to buyback their own stock, and in the process artificially boost their Eearning per Share? There is one very simple reason: as Reuters explained some time ago, "Stock buybacks enrich the bosses even when business sags."  And since bond investor are rushing over themselves to fund these buyback plans with "yielding" paper at a time when central banks have eliminated risk, who is to fault them. 

More concerning than the unprecedented coordinated buybacks, however, is not only the relentless selling by institutions, but the persistent unwillingness by "households" to put any new money into the market which suggests that the financial crisis has left an entire generation of investors scarred with "crash" PTSD, and no matter what the market does, they will simply not put any further capital at risk.

As to Fink's conclusion that "investors have begun to put more of their assets to work", we will wait until such time as central banks, who have pumped nearly $2 trillion into capital markets in 2017 alone, finally stop doing so before passing judgment.

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mobrule's picture

Good article. Aside from the selfish reasons, sometimes this makes good financial sense. If you are paying a 4% dividend, borrow at 3% and buy back shares so you do not have to pay out that 4% per share. You net 1% for doing nothing.

hola dos cola's picture

Mostly it is insiders that load of their stawk at the inflated price.

hola dos cola's picture

More people should move to the sidelines. Beat them to it.

Ricki13th's picture

This market is not real. 

Lebronn Jakens's picture

guess you are on the wrong side of the market

DeathMerchant's picture

Tell that to someone who jumped in at  Dow 10,000 in 2010

Gold Dog's picture

Am I the only individual that has been buying all along?

Go Boeing, Rockwell, Lookheed, McDonalds, Abbott, et.al.

Dumb as a Dog

The Real Tony's picture

They'll take you to the cleaners when the market indexes trip all the circuit breakers and the entire market closes for 2 weeks to a month and reopens 50 to 60 percent lower. I buy deep out of the money puts on the major market indexes each month.

JailBanksters's picture

Well luckily the Jewry running the Banks don't have to work to earn their money to go shopping, they can just create it then go shopping.

So it's no surprise they are the only ones with money ROFL.

 

 

Cordeezy's picture

well, I am sure this story ends well.

 

www.escapeamazon.com

 

Spectre's picture

I hope I'm still alive when this shit-show Casino blows !!

Lebronn Jakens's picture

ALL BEARS ON ZEROHEDGE ARE NOW BROKE

The Real Tony's picture

Not me I made money shorting stocks the past 8 years because I shorted very small cap stocks. 

Lebronn Jakens's picture

ShepWave nailing this rally. 

TabakLover's picture

And where do you think all the "overseas" Corp cash is gonna go, once some sweet deal to bring it back to the US is provided to our facist overlords? GD! the US sheeple sure are stoopid.  GO 'MERICA.

OverTheHedge's picture

At least Janet will have some inflation if they repatriate all the offshore fumds

Fake Trump's picture

What goes up must come down. 

oobilly's picture

no more investing..only trading.

runnymede's picture

You misspelled speculating

 

hooligan2009's picture

the author of the article is not paying neough attention to

central bank intervention of over 4 trillion from each of the ECB, BoJ, BoCh and the Fed - crowding out investors in government bonds (the Swiss National Bank owns a chunk of AAPL as well ffs) - 20% og S&P500 market cap is worth only 4-5 trillion

pension fund savings via 401k's worth half a trillion a year. - going into passive via the cartel structure enjoyed by fund managers in target date funds - over ten years that's 5 trillion

so these more significant and as significant as stock buy backs.

NONETHELESS, STOCK BUY BACKS SHOULD BE ILLEGAL

Pollygotacracker's picture

I've been saying stock buybacks should be illegal for years. You issue stock shares...you do not get to buy them back. During the last crisis, companies were buying back shares right into the crash. Stupid.

Fishy Rickster's picture

Correct up to the conclusion of "stupid".

The management is getting a free piece in sharing a Ponzi pie of debt.  Because the practice is not, at present, recognized as theft those managers not looting the company would be considered "stupid".

Pollygotacracker's picture

They were buying shares at the top of the market highs. When the crash came, the shares were worth 30-50% less than what they were purchased for. Stupid.

DelusionsCrowded's picture

The ponzi scheme has exposed the pinata system of corporate regulation run by the Shadow Gov in the USA .
Like the FDA etc etc . Corrupt corporate cronyism has been deliberately allowed to run wild .

Salzburg1756's picture

It's the equivalent of eating one's own poop. It isn't pleasant; the only good thing about it is that it can't last.

moneybots's picture

While significant cash remains on the sidelines, investors have begun to put more of their assets to work"

 

There is no cash on the sidelines. Cash is an asset. Money in the stock market or any other asset, is just as much on the sidelines as it is anywhere else. The money is parked, just as if it was sitting in a bank.

 

 

saveUSsavers's picture

MISH: "

Sideline cash will keep rising as long as debt expansion and Fed printing continues, but not a penny of it can come into the markets, except for new or secondary offerings.

There is no conundrum. Nor is there any such thing as “sideline cash”. Someone has to hold every penny printed into existence, at every point in time until reverse repos drain the cash. "

DeathMerchant's picture

He meant mattress instead of sidelines.

Chris88's picture

There is record PE dry powder on the sidelines, so you're dead wrong.

VWAndy's picture

 By sidelines do they mean money in banks thats been rehypothocated/invested mutiple times?

Chris88's picture

Talking out of your ass, PE dry powder has nothing to do with banks.  Why make such an idiotic remark and expose yourself as a fool?

saveUSsavers's picture

MOFO TRAITOR CORPS HAVE SPENT NEARLY EVERY FKING DOLLAR OF CASHFLOW ON

BUYBACKS + DIVIDENDS 

Chris88's picture

Really?  How many stocks do you model and analyze?  What's your professional AUM?

adr's picture

I sat with some big wig NYC investors a couple months ago. They were going over reported sales numbers from NPD and trying to figure out how a certain company was valued at $25 billion, up from $12 billion a year and a half ago, when by all metrics their sales were down 30%.

They said the stock should be crashing, but its not.

The data says crash, but the market says soar. Eventually the data has to matter, because eventually there won't be enough money to keep the lights on. Maybe the company will be valued at $100 billion even though it has no employees because it can't make payroll off what it actually sells.

Actually that pretty much describes this insane stock market.

Chris88's picture

Would you like to answer the questions posed?  BTW, I'm not arguing the stock market isn't generally overvalued.

moneybots's picture

"What this means is that since the financial crisis, there has been only one buyer of stock: the companies themselves"

 

How much Apple stock does the Swiss National Bank own?

runnymede's picture

As much as fiat CHF can buy. In theory they could buy all of it. Any fiat can buy everything anytime. They just do it slowly so as not to attract too much attention.

Fiat money is the greatest con in history. 

Chris88's picture

It means repurchases have had higher ROI than capex investments.

silverer's picture

If you want your bankrupt company, you can buy your bankrupt company.

Ink Pusher's picture

It's only a matter of time before the mountains of heavily re-inked stacked paper spontaneously combust.

" When paper is stacked, chemical reactions resulting in spontaneous combustion may occur under certain circumstances (e.g. storage together with oxidants)"

"Paper bales are extremely sensitive to contamination and must in particular be stowed away from colorants, acids (exposure to nitric acid and other strong oxidants may result in chemically induced spontaneous combustion), chemicals, tar and fats/oils."

SOURCE: http://www.tis-gdv.de/tis_e/ware/papier/papier/papier.htm#selbsterhitzun...

runnymede's picture

Good thing that cant happen with ones and zeroes, or we'd be in big trouble

Herdee's picture

Social benefits ready to go parabolic shortly. You ain't seen nothin' yet, the baby-boomers are ready to hit like a tidal wave:

https://twitter.com/DA_Stockman?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7...

opport.knocks's picture

Sorry folks - this has to have been one of the worst garbage finance articles ever written in on ZH.

What does that chart really mean/say? The % number does not add up to 100 (or net out to zero) for one, so it does not mean share of total market activity or even a reasonable proxy for it. Stock buybacks are likely happening because they are a better investment than 1.x% paper or acquisitions of other overvalued companies. But as a % of overall activity they would be far less that this article suggests.

I hope this was written by a "summer intern" Tylers, otherwise this site has gone to shit.

Chris88's picture

Amen!  Someone else gets it.  And yes, this site has gone to shit, taken over by the FSA. Opinion on everything, couldn't read a balance sheet.

A is A's picture

Another genius. See above comment.

Chris88's picture

It's by % of market cap, genius.  Of course corporates are larger buyers on a market cap basis, retail doesn't have enough money to purchase meaningful amounts of market cap.  Guess that's over your head.  Also, ZH's commentary is moronic.  They're not buying back stock to boost EPS, it's because buybacks are more accretive and provide higher ROI than expected discounted after-tax ROI on CapEx investments. Another lost on the whole lot of ditch diggers here.