by Mish

Please consider Billions Rush into Equity Funds as ‘Great Trump Rotation’ Takes Hold.

Global equity funds witnessed a $21bn flow of cash in the last week – the ninth highest on record – as bullish stock investors pile into stocks in the wake of Donald Trump’s election, according to data analysed by Bank of America Merrill Lynch.

Cash poured out of bonds and into equity funds as the sell-off in global debt ramped in the days ahead of the US Federal Reserve’s second interest rate since the financial crisis this week.

In the week to Thursday, BAML data showed the seventh straight week of outflows from fixed income at $4.4bn, with investors rotating into stocks on the back of a stronger outlook for the world’s largest economy and expectations of ramped up corporate profits after Mr Trump’s election.

In total, $63bn has flowed into equities funds since the presidential election compared to $151bn of outflows in the 10 months from January to October.

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BAML data also showed materials, energy and industrial stocks as the biggest beneficiaries of the “Trump trade”, while the soaring dollar has hit gold and commodity funds.

Money Flow

It’s important to know that money does not flow into stock or bonds. Nor does money flow out of stocks and bonds.

Given there is a seller for every buyer there cannot be a flow. Equity funds can have a “flow” so to speak, but there is no net flow. The alleged amount of cash on the sidelines does not change one bit.

On an overall basis, it is impossible to dump stocks for bonds or cash but one can do that on an individual basis.

Contrary Indicators

What is it that retail traders know that those on the other side of the trade don’t know?

The above chart is a strong contrary indicator.

Mike “Mish” Shedlock

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