EPFR which tracks fund flows writes of the past week: “Investors pulled $7.49 bn out of equity funds and committed a net $4.2 bn to their bond fund counterparts. The YTD inflows is the extension of a remarkable two-year stretch for bond funds [which] have seen mammoth inflows of $486.4 bn compared to outflows of $153.3 bn from all equity funds tracked.”
Bond funds are also taking money away from money market funds. In fact, some would argue that the rush into bond funds is a new bubble. For example, Adam Carr of Macquarie, the Oz brokerage, writes:
The rally in treasuries continues, pushing ever more into bubble territory. In fact the Investment Company Institute suggests the amount of cash flowing into bonds is getting close to what was recorded during the dot.com bubble. They also suggest that retail investors have put more money into bond funds than equities for 30 consecutive months.
Whether you believe this is a bubble or not, be relaxed about one thing, GFC MkII (Global Financial Crisis Mark II) the basic gist being that a worse crisis is yet to come as governments struggle to pay back their debts. I’m in full agreement that worse is yet to come – just not yet. Ultra low rates have been and will continue to be a scourge. The Fed and other central banks who adopt such policies are gravely misguided and, in my opinion, don’t really seem to understand what they are doing.
Indeed many Fed members, even now, still don’t seem to understand that low rate settings under the Greenspan Fed were directly responsible for GFC Mk I. History has shown that the outcome of continued ultra low rates won’t be good. So don’t worry, if like me, you missed this bond bubble. There is money to be made on the way down and of course there are a whole bunch of other assets to profit from when they they bubble up. And they will – the trick being to pick ’em.
Ultra low rates mean that governments will be able to service their debts – I don’t think they’ll struggle at all – this underpins my medium term bullish stance. And I am very bullish. This is also why I think inflation is inevitable, because central banks, like the BoE, have shown they simply will not raise rates – despite already high inflation and strong growth – this will be of enormous help to governments with high debt levels (ie in keeping interest repayments low). But it also explains my long-term bearishness. Inflation will get to a dangerous level and central banks will be forced to hike aggressively, thus bringing the global economy to a standstill. A very lengthy and policy induced global recession will follow.
Here are some items for paid subscribers from Canada, Australia, China, Israeli, Brazil, Greece, Switzerland and more. An ipo is planned with Maxim Group brokers for Lizhan Environmental Corp, a Tongxiang Chinese textile maker with 82 employees which earned all of 21. mn in sales last year. China has many small companies which would like to raise funding on Wall St.
