Charting The Great Bear Market Fund Flow Vacuum
Many skeptics enjoy pointing out that the fear and loathing toward stocks as exhibited by the seemingly endless mutual funds outflows, now in the 18th consecutive week, is nothing but a contrarian play, and when the masses are stepping out is when the smart money should invest. Under other circumstances we would totally agree. However, in this case, we make the argument that it is in fact these "contrarians" (with the assistance of the Fed, the Primary Dealers, and the HFT scalpers) who have ramped the market in advance of this move for many months now, anticipating an inflow which never comes. In other words, the true contrarian move is to fade the market here. Why? Because as the below chart from ICI shows, stocks have experienced the biggest short-term equity return upswing in history on the smallest net amount of positive inflows also in history (which incidentally has now turned negative). The argument would go that the entire upswing is nothing but an engineered push on nothing but momentum, and QE, and that fair values are far, far lower. Once GDP passes below zero, and once S&P EPS forecasts are revised to +/- 60, as the double dip unwinds, and applying an appropriate multiple of 10-12x, the market will be far more credible, and will see far more inflows when it is at 600-700. For now, however, nobody is foolish enough to enter. And those buying on hopes that Joe Sixpack will finally put in his two remaining cents in Amazon will continue to be disappointed, entrusting their entire risk capital to the like of the Federal Reserve, Goldman and Getco.
We wish them all the best.