![]() While credit is available and spreads are tight the financial engineering happens. ![]() ![]() It explains ALL of the net flow into Equities. How is that possible? Share repurchase and M&A has meant the Corporate flow has been the ONLY driver. Not every year in every category, but a cumulative line of flows is OUT from 2009-2020. Of those major fund flows ALL are outflows from US Stocks post- GFC (Pensions, Mutual Funds, Foreign, and Individuals). ![]() Not to risk-takers.īrian Reynolds, of Reynolds Strategy, has been highlighting this dynamic for years. I think it’s the greatest transfer of wealth in human history. I think you would be AMAZED at the proportion of stock buyback programs that go towards sterilizing stock-based comp. To the degree the buyback program does not reduce the sharecount, but simply sterilizes new issuance to management, it is purely a transfer of wealth from shareholders to management. Stock buybacks only “return cash to shareholders” to the degree that the buyback program reduces the sharecount. This is true whether or not management actually sells its shares into the buyback program. When stock buybacks are used to sterilize stock-based comp (i.e., a company gives managers stock with one hand and buys it back from them with the other hand), no money is “returned to shareholders”. They generated more anger, more arguments and more cold shoulders from the mainstream finance community than anything else we’ve done. The Epsilon Theory notes I wrote about stock buybacks in 2019 are the most controversial thing we have ever published. I saw this work of art on Twitter today, referring to Dropbox management using stock buybacks to sterilize their outrageous stock-based comp, and it made my day.
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