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The chart above, courtesy of Bianco Research, gives you a sense of how much enthusiasm there has been for Bonds, at the tail end of a 30 year bull run in fixed income, following the 2008 credit crisis and market collapse.
Note that even after the equity market began to rally, it was still sold off by the public.
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
"Dollar depreciation leads to higher inflation and ultimately forces foreign creditors to question their rationale and indeed their sanity for continuing purchases of U.S. Treasuries." -Bill Gross
Signs continue that European markets are getting tired. The Spanish and Italian stock markets, big beneficiaries of the sharp decline in their bond yields over the past few months are falling to the lowest since Feb 1. The European bank index is at a 1 1/2 week low after earnings reports from Commerzbank and Credit Ag (RBS bouncing although reporting weaker than expected earnings) were disappointing. This market action is in spite of the German IFO business confidence figure which rose to a 7 month high coming in a touch above expectations and Italian consumer confidence which bounced more than...
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December 29th, 2010 at 12:40 pm
So, you could say we are still buying cheap, before the crowd rushes in.
Yet, PE’s are climbing.
~~~
BR: I said nothing whatsoever about valuations . . .
December 29th, 2010 at 1:08 pm
I’m a little skeptical of these ICI flow charts and whether they’re a relevant market indicator. Here’s why:
1. A lot of mutual funds (>50% of net flows) are bought through qualified plans and especially 401(k). Even more is through allocation models derived from financial advisory firms (wirehouses, planners, RIAs, brokers etc). They all use allocation funds (target date, risk etc) to get their bond and equity exposure so they will have participated in the recent rally, albeit through a more indirect approach.
2. Also the bulk of mutual funds buyers are in the dreaded boomer cohort and were seriously underweight bonds for much of the last 10 years.
3. Finally, 401(k) flows are notoriously seasonal. Participants max out towards the end of the year and start up aging in January…and you can see the pattern (just) in the chart.
This may be no more than prudent rebalancing and not the contrarian indicator the pros think it is.
December 29th, 2010 at 1:17 pm
Why wouldn’t mutual funds bought through qualified plans or 401(k)s showbup in fund flows ?
December 29th, 2010 at 1:47 pm
Almost of the flow into bonds is into corporates and munis. Treasuries have seen little net flow by comparison (i.e., it’s not about risk, it’s about income). I agree with Dave Rosenberg that we are in a secular change to a desire for income over growth (as always, boomers rule).
Also, on the equity chart if one connects the tops of each bar, turning the chart into a line chart instead of a bar chart, the classic pattern of a downtrend (lower highs, lower lows) will be more evident. So does the downtrend continue or, as housing prices turn down, world governments adopt austerity budgets (in the west) or raise interest rates (in the east) are we about to party like it’s 1998?
December 29th, 2010 at 1:48 pm
[...] fund flows the story of 2011? (Big Picture, [...]
December 29th, 2010 at 1:59 pm
FRC, Morningstar, other trackers all show the same trend as ICI. Rebalancing isn’t going to explain tens of billions.
http://corporate.morningstar.com/novflows10/fundflowsdec2010.pdf
December 29th, 2010 at 2:02 pm
They would show up….my point is only that the flows don’t (I think) reflect optimism/pessimism about bonds or equities by retail investors. Or that they show up late to very party. More the rebalancing of assets in multi-allocation models. Bonds were underweight, hence the flows, and investors got some equity kicker through the equity exposure.
December 29th, 2010 at 2:22 pm
Money market funds get bundled into bond mutual funds. At least according to Fidelity.
December 29th, 2010 at 4:46 pm
I wonder if ETFs are attracting money from equity mutual funds. It would be interesting to see the sum of equity ETFs and equity mutual funds.
December 29th, 2010 at 5:22 pm
I sold a bunch of silver and gold when gold was around 650 and and there was a lot of selling. Never again. Those equity outflows look bullish for stocks to me.
December 29th, 2010 at 6:16 pm
Be nice to see the cumulative numbers post Lehman.
The one way QE dwarfs these net quarterly numbers.
December 29th, 2010 at 6:17 pm
This makes sense to me. Investor’s have gotten burned buying stocks and are not returning. It’s not that they don’t believe that bonds are over-priced(they are), but that stocks are over-priced more!
And the rise in yields these last few months, only makes bonds an even better deal. I agree with the poster who made the treasury comment. The individual chooses tax frees, corporates and GNMA funds.
December 29th, 2010 at 7:19 pm
What about stocks like Intel that pay a nice dividend?
December 29th, 2010 at 7:28 pm
Market is pricing in the risk that p.c. is on the way out, in favor of personal devices like ipads, ipods, etc that are not powered by Intel
December 29th, 2010 at 9:27 pm
iPads and IPods don’t actually replace a real PC, they both run a limited set of software.
They act as additional tech toys, where you know you won’t need heavy duty tools.
Take Apple for example, IMovie on the iPad or IPhone isn’t Final Cut Pro,
and it will never be.
December 29th, 2010 at 10:27 pm
I suppose it’s giving ma and pa kettle too much credit to think that maybe they get it, after a decade of 0% returns buying and holding like the experts said to, while all the middle men and fund managers got fat.
It might be they are simply not playing the equity bubble game any more. Even Bernanke admits that he’s trying to create a “wealth effect,” i.e. another bubble to replace the last one.
Of course, there are some other factors, some of which have been mentioned, like the fact that most boomers were horribly overinvested in stock funds and are rebalancing what’s left and what’s still coming in for those still with jobs.
There is also the phenom that many of those who have lost jobs are having to use what little they had in retirement to pay for things like housing and food. And there are stories of others still employed using 401k’s to pay house notes because their loans reset.Since most retirements were in stock funds, it makes sense that the money is coming from stock funds.
December 30th, 2010 at 2:28 am
The Economy is so bad. . .
Jury Duty is now considered a good-paying job.
I got a pre-declined credit card in the mail.
African television stations are now showing ‘Sponsor an American Child’ commercials!
Wives are having sex with their husbands because they can’t afford batteries.
I ordered a burger at McDonald’s and the kid behind the counter asked, “Can you afford fries with that?”
CEO’s are now playing miniature golf.
Exxon-Mobil laid off 25 Congressmen.
My ATM gave me an IOU!
A stripper was killed when her audience showered her with rolls of pennies while she danced.
I saw a Mormon polygamist with only one wife.
I bought a toaster oven and my free gift with the purchase was a bank.
If the bank returns your check marked “Insufficient Funds,” you have to call them and ask if they meant you or them.
McDonald’s is now selling the 1/4 ouncer.
Angelina Jolie adopted a child from America .
Parents in Beverly Hills fired their nannies and learned the names of their children.
My cousin had an exorcism but couldn’t afford to pay for it, and they re-possessed her!
A truckload of Americans was caught sneaking into Mexico .
Motel Six won’t leave the light on for you anymore.
A picture is now only worth 200 words.
They renamed Wall Street ” Wal-Mart Street .”
When Bill and Hillary travel together, they now have to share a room.
One of the casinos in Las Vegas is now managed by Somali pirates.
And, finally…I was so depressed last night thinking about the economy, wars, jobs, my savings, Social Security, retirement funds, etc., I called the Suicide Hotline. I got a call center in Pakistan , and when I told them I was suicidal. They got all excited, and asked if I could drive a truck.
December 30th, 2010 at 9:29 am
Hot damn – you’re good.
…& my bank did give me an iou (b4 christmas).
With your perception and knowledge of austerity (the new normal), how do you feel about getting drafted to Congress? We’ll pay you to talk, argue, and make speeches.
December 30th, 2010 at 2:45 pm
Is it possible that equity funds are also being liquidated to keep funding (rather than changing) lifestyles? I personally know of a few people who are raiding 401k’s just to stay afloat.
December 30th, 2010 at 2:50 pm
I love it when smart guys–with a big audience, sound absolutely certain that a 30 yr trend is over….it’s comforting to know a lot of people could be wrong. Kinda like Jim Rogers bearish bond call back in 1988.!
December 30th, 2010 at 3:47 pm
Are the outflows of 401k’s caused by the Mortgage foreclosure mess?
Why don’t people re-mortgage to a fixed rate mortgage?
December 31st, 2010 at 9:00 am
When people need to re-mortgage they often can’t. With loss of job comes lover income and you may not qualify for the new loan. A lot of people are under-water and would have to take cash to the table to re-mortgage.
December 31st, 2010 at 4:55 pm
Are fund flows a leading, lagging, or coincident indicator? Or are they just noise? I’m really just asking the question.