Monday, March 8, 2010

Mutual fund flight

Here are two charts which appeared in today's "Abreast of the Market" column in the Wall Street Journal. The bottom chart shows the cumulative money flow into U.S. stock market mutual funds (pink graph) and into foreign stock market mutual funds (blue graph). As you can see investors have been pulling substantial amounts of cash out of mutual funds that invest in U.S. stocks and putting that much and more into foreign stock market mutual funds.

It is quite unusual to see such a prolonged outflow from U.S. stock market mutual funds. This is yet another piece of evidence that global investors are generally bearish on U.S. stock prices. And it tells me that the bull market that began in March of 2009 has much further to go.

The fact that there has been such a substantial inflow into foreign stock market funds by global investors I see as evidence that these investors are bearish on the U.S. dollar. I take this to be more support for my contention that the dollar has begun a new bull market which will carry the US dollar index to the 100 level.

Finally, the top chart above this post shows shows enormous inflows into various U.S. bond market sectors. This contrasts with the outflows from the U.S. stock market. Apparently investors who want to invest in the U.S. markets think that bonds are a better bet than stocks. This is a piece of evidence which supports my view that the U.S. and global bond markets have begun a multi-decade trend towards lower prices and higher yields.


  1. Carl, Great analysis.

    However, would you mind elaborating:
    1) How do you decide if this is a Contrary signal, versus a Trend Change? Remember back in 1980s when 2 decades of Bull market started in DJIA, more and more household poured money into stocks and hold.

    That time coincided with Boomer generation gearing to peak income and spending, and that's why stock was a favourite as they have time to take risk. Now?? Baby boomer retiring and need FIX income -- BONDs.

    What I really want to know is, what is your CONTEXT or BASE of contrary signal, versus recognizing a permanent Structural Trend Change?

    If market Reaction is any good judgement of Contrary signal, then by now (over a year), money should have already started flowing into Stock Market Fund. I never see a Contrary signal that run over 1 year and counting. When you see Sentiment or money flow hit EXTREME, then the contrary reaction should start SOON, not in this case over 1 year.

    2) Be careful though, there are Good Bonds, and there are Bad Bonds. Maybe USA is like Japan afterall, and Treasury (not corporate or municipal) may embark like Japan to 1% yield. Be careful.


  2. First of all kudos for Carl’s recent buy signal early February which hit the market low perfectly. This is just plain brilliant. Regarding this post here I am marveling over the mutual fund data for some months now as well. US small caps were and are THE place to be in as they derive their income mostly domestically and profit from a raising US$. The Russell 2000 index is leading the chase here. Why is everyone shying away from US stocks, even selling hand over fist into this bull market? – It is just beyond me. Maybe someone can clue me in.


  3. The bubble has moved from RE to stocks and bonds, with a bigger one in bonds.

    Trouble is, when the bond market pops, it will almost certainly take the stock market with it.

    PMs will hold on as currency crises commence..! XD

  4. agree with Narby, when interest rates go up, stocks should get clobbered as they will have to compete with higher prevailing interest rate alternatives.