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: