The latest data on mutual fund flows continues to show that investors are generally hesitant to get back into stocks. According to Credit Suisse bonds (see their full bullish outlook here) continue to be the asset of choice for most investors. They think the tide is about to change:
“Since the start of Q3, US$473bn has left money market funds and US$264bn has gone into the bond mutual funds, while US$12.5bn has found its way out of the equity mutual funds. This has just started to reverse. We think inflows into the equity mutual funds should turn positive from here.”
This idea is supported based on past recessions. Compared to past recoveries US equity mutual funds have seen very modest inflows thus far. Net inflows to equities have yet to turn substantially positive:
The story is much the same in hedge funds:
In sum, the positioning of investors remains very conservative. This has the potential to turn into fuel for the rally going forward. The small investor continues to hate this rally and a final push into equities would likely send stocks higher.
Biggest load of nonsense I’ve ever read.
Credit Suisse trying to pump equitiy funds.
One day this site will wake up to the reality of balance sheet recession, about to morph into a huge deflationary depression.
The man on the street is more sensible than Credit Suisse, although they’ll still get burner when corporate bonds fall sharply again. UN:F [1.8.1_1037] please wait... Rating: 1.9/5 (9 votes cast)
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TPC Reply:February 4th, 2010 at 7:31 AM
Hi Gary,
I ignored your comment the other day because it’s quite obvious that you’re a new reader. Anyone who has been around here for more than a few weeks knows that I post a lot of OTHER people’s opinions. This is the work of CS – NOT ME.
I have been out of the market since Obama announced his war on Wall Street. Though I believe this dip will ultimately be a buying opportunity I have not jumped back into the market yet. I have been pretty clear about that.
http://pragcap.com/three-things-i-think-i-think-5
As for the whole balance sheet recession….I was one of the very first people I know of who began actually describing this recession as a balance sheet recession. When everyone else was talking about the Keyenesian stimulus response I was warning of a consumer based debt time bomb that had the potential to wreck this economy for the next decade. I have maintained and still maintain that we are in a bear market that is based on this massive deleveraging cycle. My writings on debt, Richard Koo, balance sheet recessions and deleveraging are ALL OVER the site.
Anyhow, welcome. I try to provide a balanced view of both bullish and bearish perspectives – some of which are mine and some of which are not.
Thanks for reading. UA:F [1.8.1_1037] please wait... Rating: 5.0/5 (4 votes cast)
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TPC Reply:February 4th, 2010 at 7:35 AM
Here’s a taste:
http://pragcap.com/you-should-be-very-concerned-about-the-parallels-with-japan
http://pragcap.com/20-year-bear-market
http://pragcap.com/demise-usa
http://pragcap.com/black-swan UA:F [1.8.1_1037] please wait... Rating: 0.0/5 (0 votes cast)
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chris Reply:February 4th, 2010 at 7:47 AM
i too got out of the market when obama lined everyone up behind him (volker closer to him than summers and geithner…reminded me of junior high) and said that if these folks (bankers) want to have a fight, then that’s a fight i am prepared to have…i also stated in a post that i wouldn’t get back into the market until a jobs report turned positive…well, i lied, i got back in this morning…about 7% correction on the S&P and today’s action smells like a buying window…you have to be a bit anticipatory, right? UN:F [1.8.1_1037] please wait... Rating: 0.0/5 (0 votes cast)
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TPC Reply:February 4th, 2010 at 7:49 AM
I am not so certain. What concerns me the most in the near-term is that earnings have not served as a positive catalyst despite being VERY good. What will be the upside catalyst once earnings season ends? UA:F [1.8.1_1037] please wait... Rating: 5.0/5 (2 votes cast)
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chris Reply:February 4th, 2010 at 8:13 AM
i know, i know; my thesis, fwiw, is that it makes perfect sense for inventory drawdown to occur first, then increase in orders, both of which we have seen (are seeing); then jobs will pick up since increased orders have to be produced; once jobs pick up, then consumer purchases will increase, and so on; then the talking heads will say it is finally time to buy equities, and people will move their funds from bonds to stocks; so we are still early, but i think there really are green shoots out there now. UN:F [1.8.1_1037] please wait... Rating: 3.7/5 (3 votes cast)
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Come again? How is this is bullish? UN:F [1.8.1_1037] please wait... Rating: 0.0/5 (0 votes cast)
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Intellectual laziness is the genesis of a thesis such as this. It’s called generational risk aversion. It’s analagous to my grandfather, who continued to shun equities into the latter days of his life, some 60 years after the great depression. Fund flows will remain secularly depressed. UN:F [1.8.1_1037] please wait... Rating: 5.0/5 (2 votes cast)
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TPC Reply:February 4th, 2010 at 7:36 AM
I have to agree. The whole “cash on the sidelines” argument is a lazy man’s argument. UA:F [1.8.1_1037] please wait... Rating: 0.0/5 (0 votes cast)
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My question is how did the mutual fund doing for the past 5 years…the last 2 years…Seem like a lot of these guys didn’t have any hedge at all. UN:F [1.8.1_1037] please wait... Rating: 5.0/5 (1 vote cast)
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Blurb from Trader’s Narrative blog:
“It is very unusual for investors to ignore a rising market. But it is an understandable reaction after having been burned so many times within a decade. The last time we saw such "scarring" in the psyche of investors was in the aftermath of the 1970's bear market. Then, as now, US retail investors left equity mutual funds in droves. In fact, from 1974 to 1982 US equity mutual funds saw net redemptions every single year.”
Go take a look at how the Japanese retail investors invest today — that is our future. UN:F [1.8.1_1037] please wait... Rating: 5.0/5 (1 vote cast)
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TPC Reply:February 4th, 2010 at 12:13 PM
It’s a very real concern. I can’t tell you how many people I know who lost money in the tech bubble and then were fooled into coming back to the equity market in 2006/7 only to be fooled again. You know how the old saying goes: fool me once shame on you….Those investors will not be fooled a third time…. UA:F [1.8.1_1037] please wait... Rating: 5.0/5 (2 votes cast)
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Does this data take into account money flows into ETF’s?
I thought I read somewhere, though I can’t find it now doing a quick google search, that while money has been flowing out of equity mutual funds, money has been flowing into equity etf’s. UN:F [1.8.1_1037] please wait... Rating: 0.0/5 (0 votes cast)
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