Money Pouring Into Stocks 'Is Usually a Negative Sign'

CNBC ^ | February 01, 2013

[ExxonPatrolUs]

Despite all the ballyhoo over money flowing back into stocks, the return of mom-and-pop investors means little to how well the market performs this year.

Measuring fund flows—or the amount of cash going into mutual funds—is Wall Street's favorite new past-time when it comes to predicting market activity, and the bulls are gushing over the amount surging into equities to start 2013.

But in the greater historical context, such moves can foretell very little.

For one thing, January almost always sees money coming to the market, and this year is no different.

For another, money is pretty much pouring into all asset classes except for some commodities, so it's hard to read anything into mutual fund trends at this point.

"When mutual fund investors pile into equities, it's usually a very negative sign for the market," legendary mutual fund titanJack Bogle, founder and head of Vanguard, said in a CNBC interview Friday as the market staged a robust rally.

And piling in they are.

Stock-focused mutual funds saw about $32 billion in fresh cash to start the year, according to the Investment Company Institute, as the Standard & Poor's 500 posted its best January in 16 years.

So it's all risk-on now, right?

Hold on a minute.

Safe-haven bond funds did even better than stocks, collecting some $37 billion in new assets. Dead money in zero-yielding money markets, meanwhile, was little changed near $2.7 trillion.

And it wasn't just stocks and bonds that saw piles of new money come in. Evenfunds that focus on bank loans posted a fresh new record last week, raking in $927 million to cap off a tremendous month that saw net assets grow by $3.3 billion.

[cuban leaf]

Looks like they’ve found a place to put all that QE money.

[OldArmy52]

Buy high, sell low...

And yes, since the Fed can create trillions at the push of a button....and give it to the banks, small wonder the DOW is at a record high...same thing happened in Zimbabwee’s stock market, Wiemar Republic Germany too.

[billorites]

This is what monetization of the debt looks like.

[bagman]

Yep, it’s the QE money that’s driving the stock market. I’ve been resisting going into the market as I am very pessimistic regarding the long term economic prospects. Hey, what the heck - why fight the current?

I know of a financial advisory service which is bearish right now. Among the factors which it cites for this stance is “QE1, large budget deficits, QE2, congressional stalemate, long-term outlook for Social Security, QE3, long-term outlook for Medicare, regulatory outlook, Obamacare, QE-infinity.”

QE-infinity...

[SVTCobra03]

A better indicator of where the economy is headed is the amount of gold and silver that has been purchased since the beginning of the year. Apparently, a lot of people have figured out what is coming down the pike. And it’s not pretty.

[Cyman]

This Bull run seems to be as implausible as the 15-20%/6mos increases in home values in the not too distant past. Time to pull out and watch from the sidelines.

[BfloGuy]

I’ve been resisting going into the market as I am very pessimistic regarding the long term economic prospects.

Long term prospects?

C'mon, dude. Never forget the immortal words of [our] Lord Keynes:

"In the long run we are all dead".

Make hay while the sun shines and Bernanke's still got his job.

[Vermont Lt]

I have to laugh here. I guess I sound my parents did about the depression. But I got my ass handed to me in 2000. I lost about half as much as everyone I know during the last go around in 2008. This time I think I am just going to take what’s left and buy food.