Surge into stock mutual funds is most in 11 years (But It Was Just A Reversal of “Beat The Cliff”)

Wall Street Journal
Surge into stock mutual funds is most in 11 years
BOSTON (AP) — The flow of cash into stock mutual funds the first week of 2013 was the largest weekly inflow in more than 11 years. Mutual funds investing in U.S. stocks attracted $4 billion in net deposits during the weeklong period that ended Wednesday,
That Big Inflow To Stocks Ain’t All It’s Cracked Up To BeWall Street Journal (blog)

This story got wide play yesterday afternoon, as the 192 news articles linked above suggest. Some pundits have glommed on to this as being a contrarian sell signal. The truth is that it’s just a reversal of the “beat the cliff” tax selling that reached a crescendo in December as the chart below, based on data from the ICI shows. Their data is a week behind the Lipper data. What Lipper and none of the hysteria stories mentioned was that selling reached a 4 year record high in December, and at $8.2 billion in net outflows for the week ended January 2, was even  at a higher rate than the December average of around $6 billion per week.  So I don’t put much “stock” in these stories.

Equity Mutual Fund Flows - Click to enlarge

Equity Mutual Fund Flows – Click to enlarge

In fact, the only “sentiment” that matters is Primary Dealer sentiment, and the Fed is stuffing their accounts with $120 billion in cash per month. This is as great as the liquefaction of the Primary Dealers that took place under QE 1 beginning in March 2009, and we know what happened then. So I’m not to worried about this ridiculous story about the surge in mutual fund flows. Using that information as a signal for market direction is like looking at the gamblers’ betting patterns in the casino for a clue as to who will win and who will lose. Obviously, we already know the answer. The House always wins. In this case the Primary Dealers are the House. They own the casino. They are flush with a tidal wave of cash, and will continue to be flush for months to come. I’ll place my bets accordingly .

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also provide analysis and charts for David Stockman's Contra Corner which I developed for Mr. Stockman. I’ve had a wide variety of finance related jobs in the past 44 years, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today.