Sunday, 22 July 2018 18:20

As Firms Buy-Back Shares In Record Amounts, Look Who Was Selling

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As the old adage goes "if you've been at the table for a while and you still don't know who the sucker is... it's you."

And in the case of the US equity market, it is hard to argue with who the 'whales' are and who the 'suckers' are based on the following data.

At the start of the year, when the impact of Trump's offshore cash repatriation holiday was just being felt, JPMorgan made a daring forecast: it predicted that buybacks in 2018 would hit a record $842 billion, a number that would put any prior year's total to shame. It also meant that as corporations themselves emerged as the biggest buyer of stocks in 2018, it would require an avalanche of selling to push the market lower.

More recently, when looking at its client trading activity, Bank of America made another surprising observation: in the first half, corporations were the only net buyers of stocks (with the only exception of companies in the Industrial sector), as institutions and hedge funds have been net sellers throughout 2018.

And while we were originally skeptical that JPMorgan's forecast would be validated, the latest official data blown all our skepticism out of the water.

According to TrimTabs, Stock Buyback Announcements swelled to a record $436.6 Billion in the second quarter, smashing the previous record of $242.1 billion set just one quarter earlier, in Q1. Combined, this brings the first half total at a ridiculous $680 billion, or just $160 billion less than JPM's full year forecast. Annualized, this number amounts to  $1.35 trillion, an absolutely staggering number.

Putting the Q2 number in context, TrimTabs writes that "the amount of money committed to buybacks last quarter could fund 6.8 million $1,000 bonus checks to workers every single trading day."

So, as we have noted numerous times, the 'demand' side of the US equity market is dominated by corporate buybacks... and within that group, dominated by the Tech industry.

All of which perhaps explains why, amid a collapsing yield curve, crashing yuan, trade war turmoil, and geopolitical chaos, stocks soared, led by the mega-cap tech stocks.

However, there's a dirty little secret lying just beneath the surface of this 'different this time' ramp in stocks.

Insiders are dumping their shares to retail investors at an almost unprecedented manner...

h/t @hmeisler

And guess what sector dominates... (hint - Tech!)

h/t @jmllubber

So while CNBC et al. are busy gloating over the soaring stock market (that must mean the economy is - or will be - awesome), perhaps it is worth them paying attention to just who is selling into this surge as they bring guest after guest on to stock-promote FANGs...

And even the SEC is starting to find this potential market abuse too...

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