One of Zero Hedge's favorite indications of rationality (in addition to following what credit does, without fail to the chagrin of permabullish equity fanatics) in the face of Fed-induced capital markets psychopathology, is following the flow of funds into various asset categories. Last week we pointed out that ICI reported the 13th sequential outflow from domestic equity mutual funds, validating our persistent skepticism that the money pushing stocks higher on margin is certainly not coming courtesy of retail accounts, which represent the bulk of holders behind the $10 trillion market cap of US stocks. Incidentally the retail redemptions are also occurring at the ETF level, and in total now amount to $32 billion for mutual funds, and $6 billion for ETFs. The paradox of a rising stock market in the face of massive redemptions has forced others, namely BNY ConvergEx' Nicolas Colas to ask the same question: "If retail investors are leaving U.S. stocks in both 401(k)s (read mutual funds) and brokerage IRAs/investment accounts (read ETFs), then who is buying stocks so that the market is still up (modestly) on the year?" His observation is simple: "Investors are shifting assets in both mutual funds and ETFs away from U.S. stocks and into fixed income. The moves are dramatic: there is 2-4x more money moving into fixed income than is leaving stocks. Fresh savings, in other words, are going directly into bonds. There is also some modest shift to international investing, mostly in equities, but not on the same order of magnitude as the bond trade." In this environment, we believe that in addition to the recently floated idea of annuitizing 401(k), a new revision to retirement planning will be made to allocated even more capital to the equity portion of 401(k) plans, now that the Fed is about to imminently get back to monetizing treasuries thereby making the question of just who buys Treasurys on margin moot.
Full presentation from Nicolas Colas.