Monday, September 21, 2015

US Flow of Funds: Net Equity Issuance (excerpt)

The Fed released its Q2 Flow of Funds (FOF) report on Friday. There's always plenty of interesting developments that are chronicled by this voluminous data dump. I was particularly struck by the data on net equity issuance by US nonfinancial corporations, US financial corporations, and foreign issuers. On balance, the data somewhat diminish the bullish share buyback story that I have been telling since early on during the current bull market. Consider the following:

(1) Three players. Corporate buybacks along with M&A activity have most noticeably reduced the supply of shares issued by nonfinancial corporations in the FOF tally. Over the past four quarters, their net equity issuance was minus $490 billion. This is the most negative this series has been since Q2-2008, and it has been in negative territory since the mid-1990s.

On the other hand, US financial corporations had net equity issuance of $250 billion over the past year. This series has been in positive territory since the beginning of the previous decade. There’s been a significant increase in net equity issuance by foreign corporations, which rose to a record $549 billion over the past four quarters.

(2) Grand total. The sum of these three series adds up to $309 billion over the past four quarters. While the S&P 500 data show that buybacks have been increasing throughout the current bull market, the FOF data on total net equity issuance was positive during 2009 and 2010, when financials had to raise lots of capital. Then it turned negative during 2011 and 2012 as financials significantly reduced their issuance. Since 2013, it has been increasingly positive as foreign equity issuers raised record sums in the US stock market.

Today's Morning Briefing: Coming Home to Roost. (1) Not suitable for a family publication. (2) Fearing a measly 25bps. (3) Strutting around the yard. (4) Giving more weight to foreign developments. (5) Central Bank of the World. (6) Yellen’s fairy dust losing its magic. (7) Losing touch. (8) It all depends on everything and nothing. (9) Transparency reveals cluelessness. (10) More chapters to the buyback story. (11) Foreigners are big issuers of stocks in US. (12) Record corporate bond crop. (13) “Black Mass” and “Narcos” (+ + +). (More for subscribers.)

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