A lurker here..this is a great thread..thanks for all the insights...Anyone care to comment on this..taken from another chat:
There is a great deal of volatility in the weekly AMG mutual fund flow number. I maintain a
chart of the weekly inflows and the four week average of those inflows.
First, this week's outflow is the largest that we have had (excluding the pre-Christmas
withdrawl we get each year) since I began keeping the data back in 1996. Much bigger than
the draw downs following the 1998 sell off and the 1997 panic.
The very size of it sets off alarm bells.
But much more stunning is the 4 week average of the data.
As you may know, we had astronomic fund inflows in the first two months of the year, with
flows in Jan and Feb exceeding $8 billions for 5 weeks in a row with the average peaking at
$8.8 billions the week of 02/02/00 and remaining in that area until the week of 03/22/00.
From then on, the 4 week average has plunged steadily at an ever accellerating rate to its
present figure of a mere $330 millions. It is an absolutely stunning chart, one which is
definitely going to "darken the social mood," to use Bob Prechter's terminology, of all the
fund managers at banks pension funds and insurance companies when they see it
tomorrow (I assume that all mutual fund managers already
know about it).
When you see this chart of the four week moving average you cannot help but realize the
magnitude of the catrastophe that is about to hit us next week IF THE PRESENT TREND
CONTINUES.
Each week, the fund flows have been oscillating wildly, but the four week average is smooth
and telling us that all we would need is a follow on week with the same outflows and we
would have a major melt down.
There are about $3 trillion dollars in equity mutual funds, and
we could easily have outflows of $8 billion per day, much less per week!
Once the public begins to switch out of equity funds into the money market, prices could
very quickly go to zero.
The government will have to come in and order the funds to close
the withdrawl window. Back in the thirties, we had bank holidays,
well we are about to have fund holidays.
Mutual fund inflows are not the only source of cash for stocks.
And I strongly suspect that the big wire houses will be calling
the fortune 500 to ask for a concerted round of massive buy backs
very soon. In fact, it would not surprise me if the effort were under way right now as I write
this. We will still have wild bear market rallies, and as always, I would like to capture the 12
to 15% upside if I can.
But I cannot imagine how a private rescue effort could succeed.
Ultimately, the government will have to shut down the casino and order all mutual fund
holders to remain long term investors.
Thus, as a first concern, you definitely want to exit all long equity funds you may happen to
own while the window is open.
Second, the first very large outflow number and the plunge of the four week average towards
zero alerts us to the high probability of market action that will blow away our standard
expectations and our technical indicators.
We will have to be alert to the possibility of the overriding effects
of this sort of panic. You will see it on the tape long before you hear about it on the news,
and if things get really intense on the downside, you don't want to exit your shorts too soon.
I believe that the SEC gives mutual funds the power to close the
redemption window, but does not require it. Over the next two days
or so someone on this board should call Rydex and ProFunds and ask
them if the inverse funds would close if the government were to
order equity fund redemptions to cease. In other words, would they consider themselves
equity funds for that purpose, or would they continue with business as usual, like bond funds
or money market funds.
The trend is in place. It's clear on the chart.
I think that I finally can hear and smell papa bear.
He has finally arrived.
Thanks,
Bert |
