It was one month [9]ago when we first noted that, perhaps in advance of what was correctly perceived as contentious Greek bailout negotiations, the "smart money", i.e., hedge funds and institutions, had just sold the most stocks on record. This is what BofA's Jill Hall said "BofAML clients were big net sellers of US stocks in the amount of $4.1bn, following four weeks of net buying. Net sales were the largest since January 2008 and led by institutional clients—after three weeks of net buying, institutional clients’ net sales last week were the largest in our data history [10]."
Fast forward to today when we got the latest BofA client flow update in which we were expecting to find that the "smart money", flush with cash and taking advantage of the Greek "deal" would piggyback on last week's biggest weekly market surge since October 2014 when Bullard hinted at QE4 and unleashed a buying surge.
To our surprise we find that not only did "smart" money continue selling, but they were joined by the "smartest" money of all, hedge funds.
From BofA:
Last week, the S&P 500 rallied 2.4%... as the situations in Greece and China turned seemingly less dire and 2Q earnings began to come in better than expected. Amid the rally, BofAML clients were small net buyers of $32mn in US stocks, led by private clients. (Private clients’ flows in recent weeks have suggested uncertainty over market direction, as they’ve alternated between buying and selling most weeks since May.) Institutional clients and hedge fund clients were both net sellers for the second consecutive week last week.
The latest weekly action is broken out on the chart below:
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The selling was broad-based across virtually all sectors with the exception of tech (see Nasdaq) and of course, retail's favorite investing instrument: ETFs.
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The chart below which confirms that for all the endless propaganda on financial TV, both institutions and hedge funds are net sellers so far in 2015.
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Going back to propaganda TV, as the table below shows, the only ones actively buying stock so far in 2015 (aside from the corporations themselves) are retail investors, mostly those using ETFs, who are happy to buy everything the "smart" money has to sell. Still, with net purchases of $1.5 billion YTD, retail is simply unable to keep pace with the institutional and hedge fund selling which is almost $6 billion YTD and which explains why major investors such as Icahn demand, via open letters on Twitter, that companies engage in even more aggressive stock buybacks. Because as this point the traditional recipient of Wall Street's hot potato simply refuses to play in the rigged casino.
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But that's not the worst news: as IBM hinted in its earnings yesterday, the biggest buyers of stocks not only in 2015 but in recent years, corporations repurchasing their own stock, are starting to slow down perhaps concerned by the rapidly accumulating debt which the rating agencies are paying increasingly more attention to:
Buybacks by corporate clients were smaller than in the previous week, and the four-week average is now the lowest since January. Buybacks by our corporate clients have totaled $21bn YTD, which on an annualized basis would be slightly below last year’s record $45bn level (chart below). Given that valuations are more elevated vs. a year ago and investors have been agitating for companies to spend on growth, more selectivity in buybacks makes sense to us.
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And extending the latest weekly trends shows what most have known for years: without stock buybacks, the market would be far, far lower.
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Which means that if and when corporations follow in IBM's footsteps and end up with too much debt to engage in more buybacks, that's when the Fed will have no choice but to resume QE especially when one considers the long-term picture...
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Until then, however, let's enjoy the myth of an imminent rate hike, which judging by today's action was just delayed by another 2-4 months.
