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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 products which are steamrolling over the active management community, leading to billions in fund flow from active to passive management, he did make 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: 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 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 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 would rather wait until such time as central banks, who have pumped nearly $2 trillion into capital markets in 2017, finally stop doing so before passing judgment.