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The "Money On The Sidelines" Paradox: Difference Between Money Market Outflows And Asset Inflows Hits $100 Billion
The weirdness in fund flows continues: first Lipper/AMG has reported that for the past week equity outflows were a total of ($3.3) billion. We assume this is total domestic and global outflows because we know from ICI that domestic fund flows have been consistently negative for the past several weeks confirming yet again that the only people buying the market are Primary Dealers who are using ZIRP as a free capital to create stock market bubbles in selected stocks in the hope of offloading extremely expensive positions to gullible retail investors. Still, total equity flows YTD are positive and even after this week's outflow, are up for the year by $18 billion. Once again, we are confident the bulk of this number is based on foreign equity flows.
Yet the most startling number is the ongoing pillaging in money market funds, which after losing another massive $35.6 billion in the past week are now down a stunning $327 billion for the year, or a 10.2% decline in total assets in just over three months. At this rate of redemption, the total holdings of money market funds will be cut in half by the end of the year. And even as investors have allocated the bulk of their money into bonds, primarily taxable and high grade, there is still nearly a $100 billion disconnect between total MM outflows and various asset inflows. As this money has not been reinvested, and certainly not into equities, and as deposit savings accounts offer about the same yield as MM, meaning it likely has not been funneled into deposit accounts, it has instead most likely been spent on various goods and trinkets. If one assumes that just half of the $100 trillion in Money Market withdrawals that has not been reinvested has gone toward various discretionary purchases, that would explain the "outperformance" of all retail sales year to date. The problem is that the Money Market outflow will moderate very soon as consumers realize that the boost to consumption has been entirely temporary and a function merely of depletion of existing MM cash, pushed out mainly due to Bernanke's insistence on keeping rates at zero.
In summary: Bernanke has succeeded in getting Americans to deplete their money market accounts. However, he has failed miserably in getting this money funneled into equities, which has been the plan all along. And the longer the market continues its relentless march upward with no respite, the more certain it is that no incremental money will be invested to chase skyrocketing prices. Once again, the Fed Chairman has been cornered, and will be forced to take equities much lower very soon. That in turn, would have material impacts on the Primary Dealers, who are levered to the gills with stock exposure. Any forced market correction will impair banks more than any other investor class at this point.
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But the iPad is going to save the economy. It's all worth it.
The MaxIpad is the least of everyone's worries.
REMEMBER: Due to a recent law/ruling it is now legal to LOCK YOU OUT of your MM funds. They do not even need any approval, they can just lock you right out, so forget trying to liquidate if that happens.
RUN AWAY from MM ASAP.
Is Bernanke making the Great Depression2 far worse than is should have been?
Actually yes he is. This is a drug induced hallucination from QE. Per Dorsch, "In a final act of desperation to stop the carnage, the infamous “Plunge Protection Team,” (PPT) unleashed the most powerful weapons in its arsenal, resorting to accounting gimmickry, and nuclear-QE, - injecting $1.75-trillion into the coffers of the Wall Street Oligarchs, in order to turn the bearish tide. Bankers were set free of mark-to-market accounting, and instead, were allowed to value their toxic assets at “mark-to-make-believe” prices, leading to a strong recovery in the financial sector." (http://www.marketoracle.co.uk/Article17811.html).
Things do not get better by borrowing money, or taking drugs.
Forbes Says:
April 16th, 2010 at 8:49 am
We initially had Yves Smith outing ZH many months ago about alleged shenanigans from ZH’s past and ZH’s use of a pseudonymous persona , ironically it turned out that Yves Smith is actually a “pen name” for a certain financial consultant named Susan Webber. In the process she lost one of her best contributors (Leo Kolivakis). Felix Salmon that mainstream media financial blogger also piled on, outing ZH for his alleged sins when ZH was a trader. Now we have Ritholtz (King of financial bloggers) trying to stir things up implying that ZH was some how directly challenging Matt Trivisonno commentary on payroll withholding, which is not the case.
If Matt has an issue with ZH`s writings I am certain that ZH would welcome a rebuttal within the ZeroHedge.com forum and if Ritholtz has an issue with ZH`s opinion perhaps he would do well to take him on directly either here or over at Zerohedge. To simply post another blogger`s (Trivisonno) rebuttal of another bloggers (Zero Hedge) writings is at the very least bizarre and at worst a cop-out.
~~~
BR: I published Matt Trivisonno work last week. Zero Hedge called it out as wrong. I allowed Matt to respond here.
Fail
did i not call for fabien's solo into the velodrome last sunday? ;-)
thought about you all day.
he could be juicin'
beating boonen by that much, hummm. two weeks in a row.
now they are calling for him to maybe win the tour.
can't climb, but i cheer for anyone that can beat armstrong. he is pulling out of
Amstel Gold RaceWell the powers that be are just going to have to stop their cruel inhuman mayheming of anyone who stands up to them if they want the right to fight back. Until that day comes just freaking take it like a man.
Translation: Max out your HELOC and get a car loan while you still can!
Could it be that the MM outflows have been used to pay down consumer debts, cover existing cost of living expenses during unemployment (the 'ole emergency fund bit), or self-fund purchases that would normally be made by debt (such as larger ticket items)? It would be interesting to see the debt contraction (not credit limits, mind you, but actual debt contraction) numbers with these numbers side by side.
Well kind of like Japan ? Savings rate there has dropped mightily from a loft 20% + to almost 2.3 % now. Crime among seniors is almost at all-time high these days as they struggle in retirement. So much for low interest rates to stimulate the masses !!
Meanwhile dailyjobcuts.com shows why consumer confidence is plunging again. Job losses in March / April are severe especially in govt sector.
"as deposit savings accounts offer about the same yield as MM, meaning it likely has not been funneled into deposit accounts..."
Not necessarily true. Transferred signficant $$$ from MM account to ING Direct. MM yielding 0.20% tax free (0.32% pre-tax equivalent) vs. 1.25% on checking account funds ($100 k +). Plus I get the benefit of worthless FDIC insurance!
"As this money has not been reinvested, and certainly not into equities, and as deposit savings accounts offer about the same yield as MM, meaning it likely has not been funneled into deposit accounts, it has instead most likely been spent on various goods and trinkets."
I'm seeing this with my clients, who see/saw their brokerage MM cash as "available" for purchases they might have previously taken a loan for, such as a car, motorcycle, boat or even cash in the pocket for everyday expenses. I'm also seeing MM cash being used to pay down debt, the thinking being that since they are getting next to nothing for the money, they might as well use it to pay down that 15%-25% credit card.
And I agree that in many cases this is a productive use of idle cash that isn't earmarked for immediate future use. Money should be allocated to the highest returning asset while also controlling for risk and asset class. Sometimes cash is better used to pay down debt than to simply accumulate. People don't want debt hanging over their heads and I don't blame them one bit.
Finally, a few who are unemployed are using the cash to supplement their UI checks, again as expected.
...or just buy physical gold.
Agreed. About a year ago, I closed out a mature bank CD and used it to pay off the balance on my home. BTW, profits from the Y2K drop were used to pay for the other part of the home. I bailed, mostly by sheer luck, in March 2000 when I needed cash to make a large down payment on the house. Now I don't owe anyone a dime and it feels great.
And it is so true that the PPT must keep equities elevated or the banks will crash the most. Alas, we will have to bail them out once again. Wash, rinse, repeat, ad infinitum.
Serious request:
With the possible exception of three folks on this site, most regulars are some combination of bearish or bewildered, even the ones who are long the madness. Thus most of us are seeing the same side of things.
If anybody is out there (here) who holds a positive view of the economy/debtstructure/financial system/future, would you be so kind to explain why. Please take into consideration the debt levels---public and private---, RE inventory, accounting "poetic license", jobless rate, world economy, moral hazard argument, etc. Please feel free to point out the aforementioned issues which you might find irrelevant.
I'm open to being shown what it is I am not seeing, but the arguments must be stronger than what CNBC offers, and must encompass more than just "liquidity". Thanks in advance.
+1
Great request. Admittedly there is some marginally positive info. But it is just that, marginal, or more often just less bad. Now the reaction to that marginal or less bad news is decidedly optimistic, but the underlying news is not.
Or are we all blind to the obvious?
i want more banker diatribes from you.
that is the highlight of my day.
Great post. However, it would seem one does not have to look far to find the aforementioned bulls. Whether it's Tom Keene's interviewees, most of the guests on any "major" news outlet, anecdotal evidence from connections in hedge funds, or the price action in the stock and debt markets, everyone but us appears to be locked-on to a sustainable recovery thesis (or at least continuing the 'moral hazard' trade). Sure, a lot of these bulls talking their book, serving the interests of news outlets, or gaming Fed policy, but a position is a position and these motivations do not subtract from the resulting virtuous circle.
As convinced as I am of a massively looming crisis that lies ahead in the very near future, I can't help be frustrated at the CBs of the world successfully reflating key asset classes and using all means necessary to keep the yield curve suppressed (via indirect buying, Fed MBS purchase proceeds looking for a home, and ZIRP-spurred buying).
My biggest concern is that I am unable to explain how we are are able to clearly identify factors that we're saying are about to sink the ship while most others believe this recovery is healthy and on track. Now, I would argue that their belief that the recovery's foothold will grow into a full grip is a result of decades of conditioning of QE pushing present pain into the "distant" future, but it doesn't change the aggregate effects of their beliefs.
Could it be the case that we are the ones too paranoid or close-minded to see a recovery that could last many years?
Good news! Consumer sentiment drops! Oh, wait...
you frickin reside in the union of myanmar.
do they have golf courses there?
Golf courses? It's a former British Colony, so of course. And the King Cobras are not just clubs for sale in the Pro Shop.
i got a king cobra, driver.
Charmer^
is your time stamp - 14:27 your time?
am curious about this offset time zone of your region.
been to beijing and they are not on it. what constitutes your increment change.
oh i see now it is a half hour ahead increment, that makes sense.
by chindit13
Cognitive Dissonance said we have all the power of the multiverse inside us. I'm going to spend my free time trying to tap that power, so I can do a Captain Planet on those who seek to loot and plunder.
I'll use my super powers to win in Iraq.
Then kung-fu chop the Taliban-Ka-Chow! Ka-Cha!
Our image in the world I'll mend
Then make the Jews and Arabs friends!
I'll keep the globe from getting warm
Fuel your car with nuts and corn
By All the Power in the Multiverse!
I have been struggling with the same question, namely 'how can I be so wrong, the numbers suck'.
Best explanation I've seen so far is that many large US companies are global, and the rest of the world (ex-EMU) has bounced back relatively well. It is easy to focus on trees, especially in the midst of my local forest fire, without looking at the forest as a whole. I don't have any numbers to back this global recovery thesis up, but it is a possible explanation.
However, if I had to put money on it, I'm sticking with "liquidity".
Much of it could have gone into local bank CDs, thats where the better rates are.
Hey TD check this out...
This morning's King report ...
An astute money manager from across the pond informs us that buried in the JP Morgan earnings report on supplement page 4, JP Morgan admits that an accounting change shaved $4.5B off its equity and adjusted for this change JPM would have shown an earnings loss for Q1.
Ben now buying Ky in bulk....jeez, is his ass gonna be sore!!
Home town banks here in dallas area getting
a lot more aggressive about CD's and savings
accounts. I got cold called to open a bank
savings account last week.
Money market accounts are not competitive
and the right pitch from the local bank
will win the account. Most of this money
will ultimately wind up there especially
when equities turn and more muni's BK.
If they are going to drive everyones pensions into gold they are going to have to pay a hell of a lot more than 1160 an ounce.
ZIRP has moved a set of savers from a position in which they are spending income to one where they are spending capital. I don't know how large this group is, but gut my gut feel is that it's large enough to affect the aggregates. Is there a way to roughly quantify this, combining the data TD is using here with other sources?
Assuming that this shift affects a (former) saver's propensity to spend, the result would be an offset to the hoped-for boost to spending via QE in the here and now, and a similar offset to the tightening effect on the economy from any exit strategy that is ever put in place.
ZIRP has definitely screwed this saver over. A year ago, the interest on my deposits would fund about 25% of my expenses. Now with ZIRP I get almost no interest.
So I am definitely spending capital.
What will happen when Bernanke will be replaced by Bullnanke ?
Excerpt:
... using ZIRP as a free capital to create stock market bubbles in selected stocks in the hope of offloading extremely expensive positions to gullible retail investors.
reply:
-------------
My thinking exactly and thanks for documenting the flows so clearly.
Please notice that major (hedge fund) banks reporting so far would have lost megabucks if not for the suspension of FAS 157 and trading profits. Without savings being depleted for consumption and the Fed propping up the markets and subsidizing hedge fund profits via ZIRP, the rest of the economy would be closing in on the double dip. Funds flowing out of equities will likely make the investment pros even more shrill in attempting to make people who won't buy their products look like pussies. Perhaps this will be the modern method of making zombie banks?
BTW, what's the big deal at The Big Picture? Matt Trivisonno has a thin skin for criticism. In his post of a week or so ago he made a couple of math errors and went crazy in denial about them. Now BR treats the math error infested work as a credible reference and the author yelps like a yappy ankle biter about other views. WTF??
Speaking of which - Stevie might be not delighted at all.
Israel bans iPad imports.
http://www.telegraph.co.uk/technology/apple/7595107/Israel-bans-iPad-imports.html?utm_source=tmg&utm_medium=TD_ipad&utm_campaign=tech1604pm
Can someone please explain the "Money on the Sidelines" argument to me?
If there is a $1 on the sidelines and it moves into the market to buy a position, didn't someone have to sell that position to him, so isn't that $1 right back on the sideline - a net zero transaction.
Input please.
With 500 companies wanting to do worthless ipo's there's not a sideline to be found.
Assume you bought stock for $1000 and sold it to a greater fool for $1500, with the cash coming from a MM account. Then you bought more stock using those funds. That act would take money off the sidelines.
"gullible retail investors"
are there really that many retail investors - gullible or not - to absorb bad institutional investments? i doubt it...
"spent on various goods and trinkets"
Like gasoline, rent, beer, and food? Somehow even the best among us continue to underestimate the poverty and despare among the young. In central Florida, weekly rentals of rooms are the new normal. What does that tell you???
Once more, for the record, outside a few favored cities there are no jobs. If this is not a depression, I would hate like hell to see one.
Me thinks 100B in tangibles is just a start.
Sorry, but I don't buy the fact that Uncle Ben orchestrated all of this. Money Market accounts are going down simply because they are a supplemental source of funds that are needed by the middle class unemployed, self employed, and the millions of households who have seen their combined income lowered dramatically from previous years. Who, in middle America that is in sales, or is compensated based on revenue generation, hasn't undergone an income haircut over the last few years? OK Goldman Saches doesn't count. These people still have children in private schools, 2 car payments, a house that was purchased at their "peak income level" that they can't sell, property tax's, boat payments, medical payments etc etc etc.
This is one of the reasons these financial melt downs take so long to evolve. It's a slow bleed to death for many. The $60,000.00 question is; Can middle America's savings accounts last long enough to see the real economy make a real come back? For many, sadly, I say no.
Any forced market correction will impair banks more than any other investor class at this point.
Ahhh, but a forced market correction will enable the central bank to issue tremendous amounts of long-term debt at very low interest rates. That is what so many are missing. Many have been writing about the "collapse of the dollar" and the "collapse of our economy". What they don't realize is that "the powers that be" will do anything to preserve their power. And if that means sacrificing the global equity markets, then so be it. (as long as they know about it in advance)
P. Prophet