Over the past few years three things have ‘worked' – Buybacks, Biotechs, and Buying IPOs. Those days are now over…
We discussed IPOs recently… this is the worst year since Lehman…
Biotechs have imploded…
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But, by far the most important of all was the low-cost financing of float-reduction (buying back shares via releveraging)…
Investment Grade credit spreads are at 2-year wides, spiking higher in recent days, raising the cost of financing those record-breaking non-economic buybacks for even the most pugnacious CFO. As is clear above, with a lag (i.e. we borrow and then we spend) the cost of financing and the relative performance of firms buying back their shares is extremely highly correlated (and while correlation is not causation, we suspect in this case – from simple Corporate finance theory – it is winking rather clearly).
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So, summing it all up…'Nothing” is working…
Charts: Bloomberg and @Not_Jim_Cramer
Bonus Chart: HYG leading Stocks down again…
