Ladies and Gentlemen, the Stock Market is Shrinking

There’s this really interesting phenomenon that’s taking place that you don’t hear much about – my friends at FT Alphaville are calling it “De-equitisation.”  I suppose in the US we’d call it de-equitization with a z but you get the point.

The concept here is that, thanks to a variety of factors, the equity markets are simply not expanding even though nominal stock prices are going up, averages are at all-time highs and the economy is growing a bit. This can be explained thusly according to Cardiff Garcia:

share buybacks + cash M&A – IPOs – secondary share offerings

February of 2013 has just become the biggest share buyback authorization month of all time – $117.8 billion in announced stock repurchases in just four weeks!  This is a 103% jump over last February’s total of $68 billion! Combined with the lack of issuance, the return of mergers and buyouts as well as a bullshit IPO climate post-Facebook, and you have a shrinking stock market. Which is a positive for stock investors but, on balance, probably a negative for the economy.

But for now, this is the kind of shrinkage that’s sexy.

Two articles you have to read on the topic:

February the strongest month ever for US buybacks (FT Alphaville)

Buybacks, M&A, and de-equitisation  (FT Alphaville)

Read Also:

Buyback ETF’s Five-Year Return Creaming the S&P 500  (ETF Trends)