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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: John Hunt who wrote (8077)	11/16/1997 11:42:00 AM
From: tekgk	Read Replies (1) \| Respond to of 18056

The is a lot more to the equation than mutual funds flows. You have to account for: 1: IPO's around 93 billion per year as I recall. 2: Buy back programs around 110 billion per year. 3: Net foreign investment - I view the stock and bond markets as a single market - foreign money going into bonds allows more money to go into stocks. This is a huge number that has several components central banks (CB), institutions and private investors. I estimate that the total inflow for the last three years is close to a trillion dollars. There is no single source of information. I look at the custodial account, foreign CB reserves, the fed, the treasury, foreign currency/dollar carry trade estimates, various articles in business magazines etc. For example Japan (all three components) alone is estimated to hold 880 billion is US paper/stocks. New Foreign CB buying stopped in June of this year. That is when I sold almost all of my long positions that I had been holding for years because I think that without CB leadership private investment will also dry up. I expect some fear money as the competitive currency devaluation continues but this is a one time effect that will only last 6-9 months at most. I also think that the Euro might get as much as 15% of the total CB reserves late next year. Since everyone is having money problems these days I think that this will be a 15% replacement of the dollar rather than net new purchases. How will we finance the trade/current account deficit? 4: Direct trading - This is another huge number that I don't know how to get precise information on. I don't like even estimating this one. Insider sales are net out and hit record levels in August -4 billion. The dipsters seem to be out of money and the mutual funds mostly spent their cash a few weeks ago during the big dip. Some help here would be appreciated. 5: Fed adding liquidity to the markets - 12.57% annualized growth for M3 - Since every financial instrument that I can think of is liquid these days (can be turned into cash instantly in some market or another) I like this measure the best. Eventually this money makes it's way into the markets since boomers seem to be more inclined to invest rather than buy things lately (at least until they start retiring). 8: Pension funds - this is in flow - getting the mix of bond vs stock purchases would be nice and the net inflow number would also be nice. When will it turn into a net outflow as boomers start to retire over the next few years. 7: Other flows? I am bearish because one of the biggest components (foreigners) that have driven the market in past few years is grinding to a stop and I don't see anything other then the fed big enough to replace it. If the fed keeps running up the money supply to replace the foreigners I will be exiting the dollar by early spring of 98.

To: John Hunt who wrote (8077)	11/16/1997 11:57:00 AM
From: Rational	Respond to of 18056

John: The inflows to the funds simply indicate a belief in the stock market doing well over the long run. It also indicates that people might be spending less and saving more; which means corporate profits will likely begin to dwindle soon. But, the distribution of the inflows and existing balance in the funds between stocks and bonds will impact the stock prices. The time series of allocation of funds to stocks and bonds will tell the story. If bonds receive more weight than stocks, bond prices will rise and interest rates will fall which will boost corporate profits of highly leveraged firms. Tech-stocks are underleveraged and hence will lose more. Utilities will gain a lot, and so on. Sankar