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

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.

Comments

mobrule Jul 17, 2017 8:36 AM Permalink

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.

JailBanksters Jul 17, 2017 8:46 AM Permalink

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.  

TabakLover Jul 17, 2017 9:14 AM Permalink

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.

hooligan2009 Jul 17, 2017 9:34 AM Permalink

the author of the article is not paying neough attention tocentral 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 trillionpension 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 trillionso these more significant and as significant as stock buy backs.NONETHELESS, STOCK BUY BACKS SHOULD BE ILLEGAL

DelusionsCrowded Jul 17, 2017 9:34 AM Permalink

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 .

moneybots Jul 17, 2017 9:40 AM Permalink

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 (not verified) saveUSsavers (not verified) Jul 17, 2017 9:48 AM Permalink

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. "

In reply to by saveUSsavers (not verified)

saveUSsavers (not verified) Jul 17, 2017 9:42 AM Permalink

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

adr Chris88 Jul 17, 2017 11:42 AM Permalink

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.

In reply to by Chris88

moneybots Jul 17, 2017 9:43 AM Permalink

"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?

Ink Pusher Jul 17, 2017 10:00 AM Permalink

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#selbsterhitzu…

opport.knocks Jul 17, 2017 10:31 AM Permalink

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 A is A Jul 17, 2017 12:12 PM Permalink

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.

In reply to by A is A