The "Smart Money" Is Quietly Getting Out Of Dodge: Sells For A Sixth Straight Week As Buybacks Soar
By Tyler Durden
One week ago, when looking at the latest BofA client flow trend monitor,
So, like last week, we again know who is selling but what about the other side: was it just shorts covering who are providing the bid? The answer is no: “buybacks by corporate clients accelerated last week to their highest level since August, and are tracking above levels we saw this time last year, though below levels we observed in 2014 (see chart below). Clients sold both large and small caps last week, but continued to buy mid-caps—which have seen the most persistent buying by our clients over the last several years despite being crowded and expensive.“
In retrospect, this makes a lot of sense: with the debt market for all but the moost pristine issuers jammed up, corporations who have relied on debt-funded buybacks to push their price higher have had to step on the accelerator in their buyback activity, to give the impression that the market is back to stable, which in turn could thaw the frozen debt market, allowing them to issue even more debt, whose proceeds they would then use to buy back even more stock. Indeed, the lower the market dropped, the greater the buyback activity had to be to offset the natural selling by the smart money.
This is what we said one week ago:
In other words, buybacks are on pace to surpass buyback records, and since the debt issuance pipeline has to be unclogged or else risk the failure of hundreds of billions in bond bond refinancings in the coming months not to mention the collapse of the bond-buyback pathway, companies have scrambled to put a “risk on” mood on the market by repurchasing their stock, so that these same companies can issue more debt, so that they can buyback even more debt in the future.
Since then absolutely nothing has changed, and here we are now: 6 weeks of consecutive derisking and selling by hedge funds, institutions and private clients soaked up by what is now a record short squeeze, as well as a near record buyback spree to mask the fact that the “smart money” is bailing.
We leave it up to readers to decide just how healthy is this “rally” if the smart money has been selling for nearly 2 months, and where the two primary buying groups are corporations themselves, and shorts squeezed into covering positions.
Source: The "Smart Money" Is Quietly Getting Out Of Dodge: Sells For A Sixth Straight Week As Buybacks Soar
