There are some people who are very confused by last week's news of the "second highest inflow into equity funds on history." First and foremost, this is not "retail" capital reallocation, as EFSF/Lipper compile primarily institutional and ETF flow data. And indeed, as we reported earlier last week [3], the injection into the market, which also includes allocation to such vehicles as equity funds and ETFs by institutions, was driven primarily by a $220 billion surge in deposits in December, subsequently used by banks to reinvest said capital (most of which, ironically, coming from equity sales by retail investors as banks simply take the proceeds and reinvest into stocks). At the same time, retail investors [sic] continued to solidly pull money out of equity mutual funds [4]. But while the source of funds was wrong, the use of funds was indeed accurate, and in the first week of the year there was a massive, $22 billion allocation to equities, second only to the $23 billion dumped into equity funds in the third week of September 2007. What happened the first time we such such an epic injection (whether it is from deposits, or from levered funding, or who knows what)? Brad Wishak of Newedge shows very clearly what happened then.
[5]
Will this comparable attempt to send stocks even higher and fool retail to be the dumb money bagholder once again succeed? Or will this time not be different? Of course, back in 2007 we actually had a market: now it is merely a place where the Fed parks $85 billion in freshly printed money each and every month. So maybe this time will be different after all.