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To: CIMA who wrote (31371)	4/9/1999 12:29:00 AM
From: Rarebird	Respond to of 116796

Cash Inflows Into U.S. Equity Mutual funds Declined by over 3 Billion for the Week ending 3/24/99: When the Money Stops By Barclay Leib Princeton Economic Institute As we move into the important April 8th date that marks 8.6 months from the major turning point on the Princeton Economic Confidence Model of last July 20th, we are seeing the U.S. equity market make a valiant attempt to carry on to the upside. Behind the scenes however, we note with great interest the information released previously week by AMG Data Services (amgdata.com) that for the week ended March 24, 1999, the net cash flow into equity mutual funds DECLINED $3.21 billion. This is a volatile time series, and one must view the statistics for any one week within a broader context. Certainly for early 1999, net new cash flow is indeed still coming into equity mutual funds – albeit at approximately just 50% of last year's pace. This has led us to take a longer-term look at the flow of money into equity mutual funds. We have done so using the data series of "Net New Cash Flow" for equity mutual funds available from the Investment Company Institute (ici.com) going back to 1984. ICI has made various adjustments to its calculations over the years, but the basic picture of this series appears as follows: Note that last August was the first time since August of 1990 (when Iraq invaded Kuwait) that inflows into equity mutual funds actually turned negative. They did so by a whopping –$11.7 billion, shattering the prior record monthly outflows that occurred back in October 1987. This is further evidence that the July 20th turning point has indeed marked a change in the underlying capital flow movement even within the domestic economy of the United States. Equity fund flows have since rebounded back to positive territory, but at nowhere near the pace that existed in 1996-1997. The total amount of new paper that is still coming to market in the form of new IPO's is of course continuing to increase. This is the same basic pattern that existed before the equity markets of Southeast Asia fell from grace. The flow of funds into emerging markets actually peaked in 1994 and capital began to slowly withdraw. It took until 1997-1998 for the impact of this slow withdrawal of funds to actually show up in an obvious manner within the financial markets of that region. The Southeast Asian crisis became obvious only when the artificially maintained currency pegs collapsed as capital withdrawal accelerated. In the case of Hong Kong – where the currency was not allowed to adjust – the sale of that country's domestic assets reached a crisis level on the back of net capital outflows. As interest rates continue to gradually upward in the United States – driven by a consumer who insatiably continues to spend and borrow – capital is indeed still flowing into the United States, but it is increasingly flowing not into equity mutual funds but into money-market and bond funds. In the same week of 3/24/99 when equity mutual funds faced net new redemptions, the net new flow into money-market mutual funds increased a whopping $6.35 billion! Early April may well bring one last frenzy of equity buying by the internet-based individual investors, but behind the scenes the real money flow is starting to dry up. To date, the amount of new funds flowing into U.S. equity funds is the lowest it has been at this time of year since January of 1995 – back when the bull market was just beginning. All bull markets end only when it runs out of new buyers. The research at PEI has clearly demonstrated that every market crash is caused by massive liquidation of long positions and not massive short positions that outnumber the longs. For the moment the party continues, but behind the scenes, the beer keg of new money is starting to run dry. Those late to the party will almost invariably regret having even arrived. The lack of a new surge of capital inflows at this time warns that what won't go up – goes down! pei-intl.com

To: CIMA who wrote (31371)	4/9/1999 6:37:00 AM
From: long-gone	Respond to of 116796

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