Fund Flows Go Defensive

We really don’t talk about fund flows very often, but last week saw moeny moving out of equities and into bonds.

According to AMG Data, the week ending May 24 2006:

-Equity Fund Outflows -$3.3 Bil;
-Taxable Bond Fund Inflows $229 Mil
-xETFs –
Equity Fund Outflows -$3.0 Bil; Taxable Bond Fund Inflows $149 Mil
– Money Market funds report net inflows totaling $12.567
billion (Taxable MM funds inflows totaling $15.094 billion  versus Tax-exempt outflows of -$2.527 billion)

I would love to see this data as a longer term chart versus SPX

via AMG Data


UPDATE May 26, 2006 3:09pm

Good chart I’ve been meaning to post — and on this very subject


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What's been said:

Discussions found on the web:
  1. Bynocerus commented on May 26

    Yet another piece of data suggesting we’re not quite at the denoument of the bull rally. My impression is that we get a rally no one believes in till the very end, followed by more selling than this time. The difference will be that people will continue to hang on to their stocks/funds next time around believing that it’s just another temporary correction. Come to think of it, isn’t that Barry’s thesis already? Bounce, test…

    My wrinkle is that the test is actually a marginally higher high, then a big whoosh. How’s them apples?

  2. B commented on May 26

    We are going higher. How high? Who knows. History says 2600 but I just can’t see that. But then, I couldn’t see TIE up 4000% this cycle either. The Naz leadership sucks but it could turn around tomorrow.

    The only question is where we rally from. The bulls trying to punch it up here are too early IMO. I don’t see anything in place yet for a sustainable rally. We need a few more days of holding this price with some positive pin action before we go higher IMO. That will bring in some money for a rally. Right now it is just a bounce.

  3. royce commented on May 26

    Isn’t this traditional when rates start going up? If you’re expecting the S&P 500 to go up only 5-7% and you can get bonds at 5%, you’d expect a certain amount of cash to flow into bonds.

  4. ndk commented on May 26

    Hmm. This is pretty interesting under the old theory that the herd is always wrong, and moreso under the old theory of self-fulfilling prophecies. I’m amazed to see such large redistribution so quickly. People seem nervous.

    Does this also distort the fear-of-inflation vs. fear-of-slowdown argument, given that bonds may have been bid up by the masses instead of the vigilantes?

    When the personal savings rate dips to -1.6% (gag), I can understand a little nervousness.

  5. Bynocerus commented on May 26

    That’s the thing though, B: No one is giving this rally any credit for anything. Just as so many bulls didn’t want to give the selloff any credit on the way down, I think a lot of bears won’t give any credit to this bounce till we’re at COMP 2300 or higher. I’ll admit that a nice close Tuesday will cause me to get just as long in the serious money accounts as I was short back on May 10, so I may have a little bias. But, with so many people getting so bearish so fast, I can’t believe that the bear market begins this tidy.

    I’m not sure I’m a good proxy for anyone else, but my own experience in these bear markets is what informs this opinion. Back in 2000, I was down over 10% on the year at the end of March when my sell signals triggered again. And, granted, I made it all back up and then some being short over the next three weeks, but making money was a lot harder then. Same thing before the crash in ’87 (not down 10%+, as it was a very good year prior, but got whipsawed a few times heading into the crash). In fact, the only crash I can think of where I was right from the beginning was ’98, but I had been short for some time going into that, so I’m not sure that counts.

  6. B commented on May 26

    Well, similar to you, regardless of my developing sour outlook, I don’t confuse what I think will happen economically with what I do in the equity market. We had one hell of a rally in the Great Depression. Actually much, much better than this rally.

    I will say that some analysis I’ve done points to oil going higher longer term. I think this Goldman superspike might just happen. I guess a gift from our Wall Street bretheren who are bound and determined to crater the global economy while jamming commodities up. We’ll just have to see.

    I will say that sentiment and contrarian investing is getting a little absurd in its use. People want to out sentiment the sentiment. It seems chic to be a contrarian and people have no idea why they are. The opposite trade for contrarian’s sake is…….uh……….STUPID.

    My data is not giving a buy signal yet. And I’ve seen these fakeout rallies off of a new low get smacked down to make one final dump before a rally. So, not yet for me……but close IF we hold here.

  7. Bynocerus commented on May 26

    My point about the sentiment is the contrast with ’00. Back then, the market dropped however much it was and advisors got even more bullish. This time around, we’ve had a minicrash, and a run-for-the hills mentality has set in among the trading community.

    One could interpret this as people learning their lesson from 2000, but in my experience, very few people ever learn the lesson, so the cynic in me says the crowd is wrong this time just like last time.

    I will admit, though, that all this contrarian-ness reminds me of that scene in The Princee Bride where the short bald guy spends about three minutes taking the opposite side of every previous statement.

  8. jkw commented on May 26

    This is how secular bear markets start. You have the long secular bull piling everybody into equities thinking they never go down. In 2000, people didn’t remember that the stock market could decline. Now they do. A lot of people are going to be pulling money out of the stock market for the next 10-20 years and not putting it back in. When they lost all their gains for the year over the course of 2 weeks, the retail investors gave up. If they’ve been long since the late 90’s, they had almost broken even with the 2000 peak at best, and now it was taken away in 2 weeks. They will leave the market and not return for a decade or two.

    I just found a book in the library called “How to Profit in the Coming Bull Market” written in 1981. It has a very good description of the psychology that caused the major market movements of 1950-1980. We’re 5 years into a secular bear. Most people haven’t given up on stocks yet, but with every decline more of them will leave for good. I agree with Barry, we’re in a situation like the early 70’s.

    If everybody is selling, the market cannot go up. Somebody has to buy the $3b that the retail investors just sold in order for prices to recover. Who is going to do that?

    In theory, contrary investing shouldn’t work. If everybody is buying, prices can’t drop. If everybody is selling, prices can’t rise. The reason it does work is that people change their sentiment slowly, so people are most bullish at the peak and most bearish at the trough. But throughout a bull market, the popular sentiment that prices are going to keep rising is right. And sentiment can continue going further in either direction until everyone agrees. Contrary investing is like using overbought/oversold indicators. It can work, but you lose money on long trends.

  9. jab commented on May 26

    I agree with jkw and would like to add that I think this bear market will last longer than those in the past with the baby boomers retiring they will get out and never return and this will be a larger percentage than in the past.

  10. Alaskan Pete commented on May 26

    Jab, you can also take the converse of the boomer argument and say that they are extremely ill prepared for retirement and will save (invest) more over the next decade or more as well as working longer before tapping into retirement funding (i.e. liquidating equity holdings).

    But it’s all Jibba-Jabba that sounds good, nobody really knows.

  11. jab commented on May 26

    Pete – they ain’t going start saving – they never have they never will – they will expect Uncle Sam to bail them out at the end.

  12. Bynocerus commented on May 26

    So it appears that we’re all students of history, and that the consensus is for the market to ultimately go much lower than at present.

    However, one of the reasons I enjoy coming here is for Barry’s talk about what he’s doing and why he’s doing it. I try to do the same in my posts when I make a move. My point is that I find these insights interesting, but what I really want to know is how you personally are planning to profit from your convictions. I see the occasional post on what positions folks have, but I’d like to see more of the “this is where I see things going and this is how I’m going to make a mint exploiting it” kind of entries.

  13. Bynocerus commented on May 26

    Oh, and one last thing before I head off to los montanas, pretty much everyone still hates this rally. Over on RM, JJC hates it most, followed closely by Rev and then everyone else indistinguishably (Excluding Helene, who thinks we go higher, and who you could have made a fortune following over the years). And I don’t see any bullishness on any of the other sites I frequently visit.

    Everyone enjoy the long weekend and let every veteran know how much you appreciate their service to our country.

  14. jw commented on May 26

    Of those inflows 74% chased emerging markets , only 26% into US equities ….we need to define these charts better than that

  15. me commented on May 26

    “denoument ”

    I am glad I use Firefox with the “answers” extension. Great word.

  16. ndk commented on May 26

    Before anyone here uses the word again, it’s usually spelled “denouement.”

  17. me commented on May 26


    You are indeed correct. Answers corrected the spelling and I didn’t even notice. I thought it was like google and would ask what you meant. Sigh

  18. Bruce commented on May 27

    Take a look over at calculated risk…

    He feels “PCE excluding food and energy” released this morning is a key figure. CR suggests if it was .3, the fed might be inclined to treat this as inflation.

    It came out at .2, so the fed will be less likely to see this as inflation.

    But wait! Doing the actual calculations, one ends up with a number of 2.497

    Coincidentally very very close but just a little bit shy of the number that would be needed to bring us to 2.5, which would be rounded to a press release number of .3

    Coincidence? Or convenience?

  19. Kris Tuttle commented on May 27

    I do know that most people talking about investments are pointing to bonds these days as attractive which they have not been doing for quite some time.

    But I don’t see the crazy valuations in technology that we witnessed in 2000.

  20. toddZ commented on May 28

    What are you guys talking about? Look at the chart one more time… outflows = time to buY!!!!

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