US corporations watched with detached amusement as Hillary Clinton, in branching our her populist campaign to pander to key Wall Street donor firms such as Blackrock (where her personal advisor and liaison Cheryl Mills just happens to be a board member), threatened to crack down on stock buybacks. Couple of points: i) by now it is far too late to crack down - most companies, even investment grade ones, are well on their way to being saddled with so much debt the next crisis and/or rate spike will result in a supernova of "fallen angels" and bankruptcies, ii) the government is hopeless to stand in the way of the "other people's money" juggernaut, and if career risk-threatened bond managers demand to hand over cash to management teams who promptly give that money back to shareholders, nothing can stop them.
Which is why for all the huffing and puffing from presidential wannabes about ending the buyback bonanza , corporate C-suites are laughing.
In fact, there is just one variable they care about - the amount of cash entering Investment Grade bonds funds because as long as the dry powder arrives, it has to be used up somehow, that somehow being almost exclusively stock buybacks in recent months and years.
And it is what happened here in the latest week that is making CEO, especially those whose compensation is a direct function of how much stock they repurchase, very nervous because as Lipper reported overnight IG funds just saw $1.8 billion in outflows, the most in over two years or since June 2013.
U.S-based high-yield bond funds reported $1.2 billion in outflows, while U.S.-based investment-grade corporate bond funds posted their biggest cash withdrawals since June 2013, at $1.8 billion, data from Thomson Reuters' Lipper service showed on Thursday.
The latest figures, for the week ended Aug. 12, mark the third straight week of outflows for the two fund categories, Lipper said.
It isn't just buybacks via the IG-bond pathway that are in trouble: as we have shown every day this week, the junk bond market is also on the precipice.
"The flows data indicated investors were running away from high yield in both mutual funds and ETFs," said Pat Keon, research analyst at Lipper. Keon said the iShares iBoxx $ High Yield Corporate Bond ETF, which suffered outflows of $524 million, and the SPDR Barclays High Yield Bond ETF, with withdrawals of $305 million, saw the most money leave among exchange-traded funds.
Investors turned to low-risk, U.S.-based money market funds, which attracted $6 billion to mark their second straight week of inflows. Additionally, funds that specialize in U.S. Treasuries attracted $601 million in inflows, Lipper said.
And following the broad derisking in bonds, it is not surprising that investors decided to get out of stocks as well: "U.S.-based domestic-focused stock funds reported $1.5 billion of outflows, for a fourth straight week of outflows, while U.S.-based non-domestic-focused stock funds attracted $2.4 billion, their fourth straight week of inflows.
And just like that, all of a sudden the dry powder to fund corporate stock buybacks - the only buyers of stocks in 2015 - seems far, far less.
But that's not all: suddenly investor appetite for the momentum, high-beta "growth" names appears to be rapidly fading. According to Bank of America "appetite for “yield” continues to wane as equity income funds record outflows in 9 out of past 10 weeks ($0.3bn outflows this week)"
By sector, healthcare/biotech funds see weakest inflows in 11 weeks (tiny $10mn); utilities funds see largest inflows in 5 weeks ($0.3bn); REITs with $0.8bn inflows
Then again, anyone looking at the severe beating some of the most prominent story, pardon "growth" stocks have taken in the past week, will surely be aware of all this by now.