The flow of funds: Masses running scared
So, one would think this massive rally was being funded by investors that are selling bonds and redeploying this money into the stock market. But that’s not the case, according to EPFR data over the past 8 weeks. The flow of funds indicates that money is pouring into bonds instead of stocks. US Equity funds have experienced outflows of $11 billion dollars, while bond-based funds have experienced net inflows north of $95 billion dollars.
This is a fantastic development from a contrarian perspective, for it indicates that the crowd is still incredibly nervous and this data is backed by the Anxiety index and the consistent bearish sentiment readings that have refused to drop despite this massive rally. Hence, the game plan; view all panic-based selling as a huge opportunity to open positions in top stocks at a discount.
Random thoughts on BTC and The flow of funds
After the MACD’s experience a bullish crossover the bitcoin market is likely to take off, and GBTC could surge to the 17.40 to 18.00 ranges with an overshoot as high as 21.00. Until then, the market is likely to remain volatile. In terms of bitcoin that could translate to a move as high as 14,400 with a possible overshoot to 15,500 ranges. If this comes to pass, it will prove that the Hard money and Gold bug community is a dying community and that the idea of Gold going through the roof is another myth. It does make sense to put some of your money into precious metals, but no more than 15% of one’s funds should be allocated to bullion; the ideal figure would be 10%.
Flow of funds Article summary
Following the flow of funds can be a helpful strategy for investing in the market because it helps investors identify the direction and momentum of capital movement. By tracking where the money is going, investors can gain insights into market sentiment and recognise emerging trends relevant to their investment decisions.
For example, if there is a significant amount of capital flowing into a particular sector or industry, it may be an indication that there is growing investor confidence in that area. Conversely, if capital flows out of a specific stock or sector, investors may lose faith in that area.
By following the flow of funds, investors can also identify opportunities to invest in areas experiencing significant capital inflows. This can help investors identify stocks or sectors likely to outperform the broader market.
Furthermore, tracking the flow of funds can also help investors to manage their risk exposure. By identifying areas where capital flows out of the market, investors can adjust their portfolio allocations and reduce their exposure to potentially risky areas.
In summary, following the flow of funds is a valuable strategy for investors who want to gain insights into market sentiment, identify emerging trends, and manage their risk exposure.
Research validating the benefit of following the flow of funds
A body of research supports the idea that following the flow of funds can be a helpful strategy for investors. Here are some examples:
- “Capital Flows and Asset Prices” by Hui Tong, Shang-Jin Wei, and Jian Wang (National Bureau of Economic Research, 2008). This study found that capital inflows in a country are positively correlated with stock and bond prices in that country. The authors suggest that tracking capital flows can be a helpful tool for investors interested in predicting asset price changes. https://www.nber.org/system/files/working_papers/w1442/w1442.pdf
- “The Importance of Fund Flows in the Momentum Strategies” by Clifford S. Asness, Tobias J. Moskowitz, and Lasse Heje Pedersen (Journal of Financial Economics, 2013). This study examines the momentum trading strategy, which involves buying stocks that have performed well in the past. The authors found that momentum trading strategies are more profitable based on fund flows rather than past stock performance alone. https://www.sciencedirect.com/science/article/pii/S0304405X13002015
- “The Dynamic Relation between Stock Returns and Trading Volume: Domestic and Cross-Country Evidence” by Geert Bekaert, Campbell R. Harvey, and Robin L. Lumsdaine (Journal of Finance, 1998). This study examines the relationship between trading volume and stock returns in various markets worldwide. The authors found that trading volume positively correlates with future stock returns, suggesting that tracking trading volume can be a helpful tool for predicting future stock prices. https://onlinelibrary.wiley.com/doi/abs/10.1111/0022-
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Define Fiat Money: The USD Is A Great Example
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BTC vs Gold: The Clear Winner Is …
