The Federal Reserve of NY publishes the following two charts in its National Economic Indicators series.
- First, the net issuance of corporate bonds has plunged 77% from the high reached in 2007. A lot of the decline can be accounted by the total seizure of the mortgage market and the related products (CDO's, CMO's, etc.).
- But it is the next chart I find more interesting. Equity proceeds, i.e. IPOs and secondary offerings, were running negative since 2004. Repurchases, LBOs, etc. were removing equity from the economy very fast. The process reached a dizzying peak of -280 billion dollars in the last quarter of 2007 alone, meaning that equity was being removed at a pace of $1.12 trillion per year! This fact alone was enough to account for the puzzling behavior of the stockmarket - until recently.
Well, what a difference a year makes... net equity removal is now down -71% from the peak and pretty soon I expect the process to reverse. Or, actually, I expect that very little activity will be taking place in the takeover/LBO/private equity business for the next couple of years. The plunge in oil prices is rapidly removing a main source of funding from those guys, i.e. oil money.