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2009 was the year of bonds. At least when it came to fund flows. US investors went wild for fixed income shifting mountains of assets from money markets, where they had sought safe harbor. This trend continued right up to the very end of the year.
Here are the total annual fund flows:
- US Equity Mutual Funds: -$40 billion (outflow)
- Foreign Equity Mutual Funds: +$30 billion (inflow)
- Bond Mutual Funds: +$380 billion (inflow)
Back in September 2009 I showed a chart of the monthly US equity and bond mutual fund flows. Here’s the updated edition:
In 2008 a total of $151 billion was withdrawn from US equity mutual funds so I suppose a mere $40 billion is actually some sort of improvement. And to show just how much of an outlier we’re dealing with, in 2008 bond funds attracted less than a tenth of the assets they did last year ($27 billion).
Curiously, US investors were smart when it came to investing abroad. While they shunned the domestic stock market - even as it melted up continuously - they didn’t give the same cold shoulder to foreign equities:
While they had withdrawn $82.4 billion from foreign equity mutual funds in 2008, in 2009 they poured $30 billion into them (almost the same amount they took out of US equity funds). The only time that we saw pure panic and indiscriminate selling was during October 2008. During that month, everyone fled to the safety of money market funds swelling their assets to almost $4 trillion.
The Plunge Protection Team?
Earlier this week Charles Biderman of TrimTabs put out a report in which he claimed that the Federal Reserve (or the US Treasury) was behind the rise in the stock market. After all, he could find no evidence of support for the rally from either retail or institutional investors. It is common to find these sort of outlandish conspiracy theories in the dank corners of the internet but seeing it originate from a Wall Street research firm like TrimTabs is surprising.
Putting aside the fact that Biderman provided absolutely zero evidence and that extraordinary claims require extraordinary proof, the question I have for those that believe in the “Plunge Protection Team” is this: where the hell were they during the brutal bear market?
If there is a secret group working within the Federal Reserve and/or the US Treasury to artificially maintain stock prices elevated… they all deserve to be flogged for gross incompetence. After all, if they do exist and if they do have at their disposal virtually unlimited amounts of liquidity (courtesy of the digital printing presses of the Federal Reserve) then how could they have missed the almost 60% decline in stock prices? Were they on an extended group holiday and just happened to return to work in early March 2009?
These type of conspiracy theories, along with Sprott’s recent allegation that the whole US economy is one giant Ponzi scheme, are what some call bricks in the “wall of worry”. And they provide a fascinating counter argument to the extreme bullishness that we’re seeing from sentiment surveys. Overall, this rally continues to be one of the most despised that I’ve seen in my time in the stock market.
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