Yesterday, before today's latest ICI release of the weekly mutual fund flow report, we predicted that "Tomorrow ICI will reaffirm the retail investor boycott of stocks with the 33rd out of 34 equity fund outflows." Sure enough, the report came and, as expected retail investors have pulled money from domestic (and foreign) equity funds for 33 of the past 34 weeks, with last week another $4 billion getting redeemed as mutual funds, now unchanged for the year, somehow have to deal with a $133 billion lower cash balance than at the beginning of the year. Because if anyone thought last year was bad with the flash crash and all, the $98 billion that was pulled in all of 2010 is a pale imitation of what 2011 is setting up to be. And this year we didn't even need a 1000 point DJIA drop.
As for where the money is going, why straight to Gresham's finest: taxable fixed income, with another $4.7 billion in cash entering the fixed income arena and departing equities, probably for ever. Our advice to the Chairsatan - if he truly wishes to get savers to push their money out bonds and back into stocks, he may very well want to consider some very traumatic event in fixed income: a flash crash for bonds if you will. Because at this rate mutual funds will i) have no cash left very soon (as a reminder here is what cash balances at mutual funds look like), and ii) will be forced to start selling assets to satisfy redemptions. And as John Paulson will gladly attest, ii) never leads to anything but a toxic spiral of selling begetting more deleveraging and selling. In retrospect, knowing the Fed's bull in a china store approach to generating crises, forget we said anything and just keep on pretending that manipulating the bond curve will eventually, finally, some day get people to stop buying bonds and back into stocks... Or not.