Another Market Paradox: Wall Street Struggles To Explain Record Equity Inflows Amid Stock Turmoil
Something bizarre is happening in the stock market: for the past three weeks stocks – and especially tech – has gotten hammered, with the Nasdaq briefly sliding into a 10% correction while the S&P has also been hard hit (although one can’t say the same for reflation stocks such as energy which have soared in recent weeks). Some other notable casualties: Apple has tumbled 15% since late January. Tesla has lost more than a quarter-trillion dollars in market value in three weeks, and more than $1.5 trillion has been wiped off the Nasdaq in less than a month.
And yet, despite this hit to risk assets on the back of the recent in surge in interest rates, accompanied by a parallel spike in both the VIX, and its bond market equivalent, the MOVE index…
… on Friday we reported that according to the latest EPFR fund flow data, $22.2Bn in new money flowed into equities last week, following the previous week’s massive $46.2Bn inflow which was the 3rd biggest on record, bringing the total 16 week inflow to $436BN, a stunning burst of inflows as shown in the chart below.
So bizarre has been this divergence – historically, investors have always pulled money during times of stress and heightened volatility, instead they are plowing record amounts of cash into stocks now – that Goldman’s David Kostin dedicated his Weekly Kickstart report to the topic. In a note titled “Rising rate anxiety roils share prices but also supports outlook for strong equity inflows”, the Goldman chief equity strategist writes that as “rates rose, and equities fell, long-duration growth stocks plummeted, but equity funds continued to see large net inflows.”
Equity mutual fund and ETF inflows have totaled $163 billion since the start of February, the largest five-week inflow on record in absolute dollar terms and third largest in a decade relative to assets. Even though the recent backup in rates has weighed on equity prices broadly, the pace of inflows into equity funds during the last few weeks has accelerated compared with the start of the year.
In contrast, weekly flows into bond funds averaged roughly $10 billion in February, 50% less than weekly inflows in January. In addition, money market funds have seen net outflows of $34 billion during the past month.
It is worth noting that retail investors are not indiscriminately plowing cash into all stocks, and instead the rotation into equity funds has most favored strategies that benefit from accelerating economic growth, in other words there has been a rotation of new money from growth and to value. Indeed, when looking in absolute dollar terms, while US equity funds have seen large inflows during the past month (+$62 billion), relative to assets, EM, Value, small-cap, and Materials equity funds have seen the largest inflows, consistent with the outperformance of economic growth-sensitive equities.
And here Kostin makes a curious observation in trying to explain this flood of new capital just as stocks – well, mostly tech and growth stocks – get hammered – according to the Goldman strategist, “history shows that equity funds generally experience inflows when real rates are rising. During the past 10 years, the most favorable backdrop for equity fund inflows has been when both real rates and breakeven inflation were rising (Exhibit 2).”
This, Kostin adds, is intuitive given that the dynamic typically occurs when growth expectations are improving. However, equity funds usually experienced inflows when real rates rose and breakeven inflation fell. In short, equity fund flows have been more clearly delineated by the trajectory of real yields than by inflation during the past decade.
This certainly appears to be confirmed by the data: in his latest “Investor Positioning and Flows” report (available to pro subs), Deutsche Bank’s Parag Thatte also picks up on this divergence and writes that “bond fund flows slowed sharply this week as rates rose, but equity inflows continue to roll in” and like Kostin, concludes that “the rising rates environment continues to propel large inflows into equity funds (+$22.2bn this week)” although as one would expects, “equity inflows this week went heavily towards cyclical sectors and styles, while Growth funds saw outflows”
Whether or not the chart above ends in tears will ultimately depend on just how much capital investors have to throw at reflation assets, oblivious of how painful the high duration crash in growth/tech stocks could be (and since FAAMGs still account for about 25% of the S&P500, it could be very painful indeed).
Alternatively, it may well be that yields, inflation or growth concerns have nothing to do with the massive retail inflows we are observing, and it is all due to tidal wave of Robinhood/Reddit investors who have now habituated to buying every single dip. Indeed, as Bloomberg points out over the weekend, no amount of market turmoil has been enough to rattle retail investors who are now so habituated to Fed bailouts, they have yet to find a dip they won’t buy.
According to Bloomberg, even though the market peaked almost a month ago, retail traders have plowed cash into U.S. stocks at a rate 40% higher than they did in 2020, which was a record year. Yet one way retail capital allocation differs from the charts above, is that “they’re opting for parts of the market that have suffered the most, doubling down in arguably risky ways with triple-leveraged tech funds and options galore.”
Could it be that nothing but sheer stupidity and/or certainty in yet another Fed bailout is behind the record inflows? And is Powell to blame?
Retail traders, many of them newbie investors, have consistently held strong, buying virtually every dip during what’s been the best start to a bull market in nine decades. But now the world is wondering how much it’ll take for them to call it quits, especially after a year in which retail traders were right way more often than wrong.
“Historically it’s been a bad signal that retail investors are piling into the market and a signal of a top,” said Art Hogan, chief market strategist at National Securities Corp. And yet, as he admits in the very next sentence, “every time we tried to call a top in 2020 because of retail participation, it was wrong.”
Just how aggressive has retail buying been? According to data from VandaTrack, which monitors retail flows in the U.S. market, retail investors snapped up an average of $6.6 billion in U.S. equities each week, up from an average $4.7 billion in net weekly purchases in 2020 even as stocks swooned over the last three weeks.
They’ve doubled down on areas of the market that have been hit the hardest. Apple, which has plunged 15% since late January, was the most-popular retail buy this past week. NIO Inc., the electric-vehicle maker down almost 40% since Feb. 9, was the second-most popular. Next up were exchange-traded funds tied to the Nasdaq 100, the Invesco QQQ Trust Series 1 (ticker QQQ) and a triple leveraged version (ticker TQQQ).
Because in a centrally-planned “market” where the Fed guarantees no losses ever, why not buy any and every dip? Sure enough, that’s what they did and boy did they buy the dip:
On Thursday, when the Nasdaq 100 fell as much as 2.9%, almost 32 million bullish call options traded across U.S. exchanges, the fifth-most on record. The other four have all occurred within the last four months.
There is one fundamental reason why retail investors are buying: the just passed $1.9TN Biden stimulus ensures lots and lots and lots of stimmy checks are about be deposited to daytraders’ checking accounts:
“There’s a lot of excess liquidity and we just had this $600 check going to many families in January,” said Jimmy Chang, chief investment officer of Rockefeller Global Family Office. “We’re going to get an additional liquidity injection in the $1,400 check and part of that money is going into risk assets.”
Incidentally, the question of how much of Biden’s $1.9TN stimulus will end up in the market is one we discussed last week in the context of a recent Deutsche Bank survey:
“Given stimulus checks are currently penciled in at c.$405bn in Biden’s plan, that gives us a maximum of around $150bn that could go into US equities based on our survey.
Obviously only a proportion of recipients have trading accounts, though. If we estimate this at around 20% (based on some historical assumptions), that would still provide around c.$30bn of firepower – and that’s before we talk about any possible boosts to 401k plans outside of trading accounts.”
Clearly, frontrunning that number is enough to get retail daytraders to flood the market with yet another round of dip buying for the likes of Karim Alammuri, a 31-year-old marketing strategy manager, who is one of many retail investors who’s been snapping up stocks. In recent days, he bought shares of fuboTV Inc. and SPAC Churchill Capital Corp IV. Fubo TV has plunged more than 50% since a December peak. Churchill Capital has lost almost 60% of its value in 11 trading sessions. He is not giving up however:
“I plan on sticking around because I don’t want to take a loss,” he said by phone from New York. “A lot of very attractive stocks are on crazy discount right now, so I’m just looking to see how I can re-shuffle things to be able to buy them.”
Naturally, with an army of retail investors standing ready to buy any dip, those declines have grown shallower and shallower. As shown in the chart below, the S&P 500 has gone without a 5% pullback since early November, or 83 straight days, the longest streak in a year. The end result of this persistent dip buying, as Bloomberg notes, “is a market with little downside. At its lowest closing level of 2021, the S&P 500 was only down 1.5% year-to-date. That’s the smallest drawdown at this time of a year since 2017.”
So is this time different?
Well, as we reported earlier today, Morgan Stanley’s Michael Wilson believes that the selloff has more room to go before it’s over. Bloomberg agrees and notes that “if past is precedent, that could mean the sell-off has more room to run. Retail investors tend to buy the initial dips, and it’s not until they capitulate and sell that markets ultimately bottom, according to Eric Liu, co-founder and head of research at Vanda Research. The firm’s data show that was the case in both selloffs in 2018, as well as roughly a year ago during the Covid crash.”
To Victoria Fernandez, chief market strategist for Crossmark Global Investments, their continued presence in the markets likely means elevated volatility will persist. Still, that doesn’t mean retail investors’ efforts are misguided.
“Is there some dumb money in retail trades? Yes. But not all of it,” she said. “Some of these people are doing their homework, looking for opportunities and trying to take advantage of it. Some win, some lose — it’s really not that different than what professionals do on an institutional basis.”
Maybe there is dumb money in retail, but that’s hardly what matters. What does matter – in our view – is what we reported earlier today, namely that last week we saw the biggest shorting among hedge funds since last May. And with the squeeze having started on Friday and clearly continuing on Sunday, the upcoming “mega squeeze” (which we predicted earlier today) is all that matters.
As such while Wall Street ruminates about the cause (and reflexive effect) of the current record capital inflows into equity stocks amid growing market turmoil, the only thing that matters for this broken, illiquid market is positioning and right now the “max pain” is higher. A lot higher, especially since the Fed will have no choice but to step in if stocks continue to fall as all the careful centrally-planned work of the past 12 years would implode with a massive bang if it does not.
Sun, 03/07/2021 – 18:40
Stocks, Crude, & Crypto Explode Higher As Asia Opens
Brent crude futures are above $70 and WTI is above $67…
And Small Caps are leading the surge in equity futures – now up a stunning 6% from the European close on Friday…
Bonds are being sold…
And the dollar is weaker against the JPY and EUR.
Elsewhere, Ethereum is also bid (EIP-1599 approval) back up near $1700…
And Bitcoin is bid, presumably on the $1.9 trillion malarkey that is just about to hit the US markets/economy…
The question is – will any of this hold until the cash open tomorrow?
Sun, 03/07/2021 – 18:18
Classrooms in the second-largest school district in the nation will continue to be dark for the immediate future after the powerful United Teachers of Los Angeles voted “overwhelmingly” not to return to in-person learning until they deem work conditions to be safe.
The UTLA announced on Friday that its “members have voted overwhelmingly to resist a premature and unsafe physical return to school sites.” Of the UTLA members, 91% voted not to return to classrooms until certain “safety criteria” are met.
The teachers refuse to return to classroom learning until Los Angeles County is out of the purple tier. According to California’s “Blueprint for a Safer Economy” restrictions, purple tier regions are areas that have “widespread” COVID-19 infections. In order to get out of the purple tier, a county needs to have fewer than seven coronavirus cases per 100,000 and less than 8% of positive COVID-19 tests. Most of the state of California is in the purple tier, and has been for months.
The Los Angeles teachers union also states that they won’t reopen schools until “staff are either fully vaccinated or provided access to full vaccination.” California entered Phase 1B of its COVID-19 vaccination effort this month, which allows coronavirus shots for individuals who are age 65 and older, those who work in agriculture, food, emergency services, childcare, and education.
Before they return to classrooms, the United Teachers of Los Angeles also demanded that “safety conditions are in place at our schools including PPE, physical distancing, improved ventilation, and daily cleaning.”
“This vote signals that in these most trying times, our members will not accept a rushed return that would endanger the safety of educators, students, and families,” said UTLA president Cecily Myart-Cruz said.
On Thursday, both chambers of California’s Legislature nearly unanimously passed a school reopening. The bill does not require schools to reopen, but holds back approximately $2 billion in grant money until districts return for at least part-time in-person learning by March 31. The school will lose 1% of the grant money for every day after April 1 that there is not in-person education, according to the Daily Wire.
The United Teachers of Los Angeles responded to the reopening plan by labeling it as “a recipe for propagating structural racism.”
“If you condition funding on the reopening of schools, that money will only go to white and wealthier and healthier school communities that do not have the transmission rates that low-income black and brown communities do,” Myart-Cruz said. “This is a recipe for propagating structural racism and it is deeply unfair to the students we serve.”
“We are being unfairly targeted by people who are not experiencing this disease in the same ways as students and families are in our communities,” the UTLA president added. “If this was a rich person’s disease, we would’ve seen a very different response. We would not have the high rate of infections and deaths. Now educators are asked instead to sacrifice ourselves, the safety of our students, and the safety of our schools.”
The Los Angeles Unified School District has over 600,000 students in kindergarten through twelfth grade at over 1,000 schools.
The Centers for Disease Control and Prevention released guidelines on how schools should reopen in February, which clearly stated that school reopening should not be conditional on having teachers and faculty vaccinated.
In July, Dr. Robert Redfield, then-director of the CDC, cautioned about the psychological damage that lockdowns and remote schooling could inflict on children.
“But there has been another cost that we’ve seen, particularly in high schools,” he said. “We’re seeing, sadly, far greater suicides now than we are deaths from COVID. We’re seeing far greater deaths from drug overdose that are above excess that we had as background than we are seeing the deaths from COVID.”
The former CDC director also said in July that he would “100%” have his grandchildren go back to school.
Last month, the nation’s fifth-largest school district proclaimed that it wanted to reopen as “quickly as possible” after a rash of student suicides. Clark County School District in Nevada experienced double the number of student suicides in nine months this year compared to all of last year.
Following a worrying number of child suicides and suicide attempts, the city of San Francisco filed a lawsuit against its own school district to reopen.
Betting The Farm On Moonshots
Ashley Revell of London had a mad itch he needed to scratch.
The year was 2004. The initial tickle came from a casual drinking conversation with a friend. Revell couldn’t let it go.
The idea, in short, required Revell to liquidate all his possessions, travel to Las Vegas, and ‘bet it all’ on one spin of the roulette wheel. The idea was sheer lunacy. Yet Revell was just crazy enough to go through with it.
Revell sold off all his possessions over a six month period and traveled to the Plaza Hotel and Casino in Las Vegas. Then, one Sunday morning in April 2004, with his mom and dad standing behind him, along with a film crew, Revell placed $135,300 on red.
What happened next? Here’s Revell’s account:
“That spin was the most amazing moment of my life. It is a cliché but time did stand still. It was just complete calm because I had done all the hard work.
“Everything had all been sold. I had no possessions. I had decided whether to go red or black. There were no more decisions to make – it was a complete feeling of freedom.
“The ball sort of bobbled around and then landed in what I thought was red but it disappeared slightly from view. I looked around and, as the wheel spun back into view, there it was resting in number seven. Red.
“There were a few people watching and they erupted. They cheered and I just cheered. Somebody ran on with a bottle of champagne and everyone was celebrating. My friends and family were there going wild. I had won £153,680 [$270,600]. It was just a crazy time of complete happiness.”
Revell, no doubt, was extraordinarily lucky. He could just have easily lost it all on this high stakes wager. Then what would he have been?
He would have been an instant fool without a dollar to his name.
Speculative manias always gain momentum through the expansion of money and credit. A look back at past manias tells this story with familiar rhythm.
For example, the mania for tulips in Holland in 1636 and 1637 was intensified by personal credit. At the peak, sellers had no bulbs…yet buyers, lacking cash, made down payments in personal possessions or commodities.
John Law’s Mississippi Bubble from 1718 to 1720 was puffed up by paper notes issued by his Banque Générale, later the Banque Royale. The mania for residential real estate from 2003 to 2007, much like today, was made possible by low interest rates and the expansion of credit through mortgage backed securities.
Objects of speculation – from canals, to railroads, to IPOs, to electric vehicles – may change. But the mania follows a similar boom to bust trajectory. One perennial object of speculation, which produces some of the more entertaining episodes, is art.
In 2006, for instance, at a time when cheap credit was abundant, there was the “$40 million elbow” incident. That was the approximate cost incurred by casino magnet Steve Wynn when he inadvertently stuck his elbow through the canvas of Picasso’s “Le Rêve.” After the distinct ripping sound Wynn muttered, “I can’t believe I just did that.”
Now cheap credit has delivered something called digital NFT art. The NFT, pronounced ‘nifty’, stands for non-fungible token. And they’re all the rage.
The “WarNymph” NFT collection by Grimes, of Elon Musk fame, recently sold for $5.8 million. And a group of crypto evangelists just live streamed the burning of a print of Banksy’s “Morons”. Then they created a NFT, called “Burnt Banksy”, to represent the artwork – the recorded burning – on the Ethereum-based OpenSea market place.
The individual who delivered the flame explained the rationale:
“The reason behind this is because if we had the NFT and the physical piece, the value would be primarily in the physical piece. By removing the physical piece from existence and only having the NFT, it makes sure the NFT due to the smart contract on the blockchain will ensure that no one can alter the piece, and it is the true piece that exists in the world.
“By doing this the value of the physical piece will be moved onto the NFT and being the only way you can have this piece anymore. The goal here is to inspire, we want to inspire technology enthusiasts and we want to inspire artists. We want to explore a new medium of artistic expression.”
Are you inspired?
At the time of this writing, the auction for “Burnt Banksy” is still open. We put the over/under at a million bucks. What side of the wager do you take?
Betting The Farm On Moonshots
Betting your life savings on the turn of a roulette wheel – or digital NFT art – is remarkably dumb. Yet after a decade long bull market that has now inflated into a real McCoy bubble, anything is possible.
Millions of Americans are taking similar risks to what Revell took. Only they’re using their retirement savings. Moreover, they’re betting they can do much better than just double their money. And they don’t even have to go to Las Vegas.
Presently, thanks to a seemingly endless supply of cheap credit courtesy of the Federal Reserve, speculation is rampant. What’s more, there are countless vehicles for speculation that one can access from the comfort of their own home.
Technology stocks, small-cap stocks, bitcoin, special purpose acquisition companies (SPAC), digital NFT art – you name it. Indeed, the late stages of a credit expansion compels people to do insane things.
The current spirit of the moment is not to just double your money. A mere double is weak. Today’s speculators expect much bigger returns. They’re after moonshots. They’re after overnight 10x and even 100x returns.
People have watched their friends and neighbors quickly 10x their money in cryptos and technology stock moonshots – like Tesla. They want moonshots too.
But what’s this? After hitting $900 on January 25, shares of Tesla have dropped over 30 percent.
Is this just a short bear market for Tesla before Congress’s new stimmy checks inflate shares to new highs?
Time will tell. But we wouldn’t bet the farm on it.
Sun, 03/07/2021 – 18:00
Planned #WW3 Is Coming (Not A Question Of If But When)…. US will strike ‘at a time and place of our choosing’ after rocket attacks on bases in Iraq, Defense Secretary Austin says https://t.co/ekFnH7ib9Q — Infinite Unknown (@SecretNews) March 7, 2021 * * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in … Read more
Kissinger: Biden Must Uphold Trump Administration's "Brilliant" Policy In The Middle East Kissinger likened Donald Trump’s diplomatic achievements in the Middle East to Nixon’s opening of China in 1972…https://t.co/pTxS2Cl4Vn — Infinite Unknown (@SecretNews) March 7, 2021 * * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
(Click on image to enlarge.) This still astounds me pic.twitter.com/KYE6RWLSwG — Heather Taylor (@Heachy_1979) March 6, 2021 * * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
In Bombshell Statement, NY Senate Majority Leader Demands Cuomo Resign "For The Good Of The State" "Everyday there is another account that is drawing away from the business of government."https://t.co/Ic21SdrIUn — Infinite Unknown (@SecretNews) March 7, 2021 * * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
Aufgedeckt: von Bill Gates finanzierte Firma sammelt heimlich DNA aus Corona-Testkits!#COVID1984 #COVID19 #Agenda21 #NWO #BillGates https://t.co/4u1xiVqaQP — Infinite Unknown (@SecretNews) March 7, 2021 * * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
* * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
"It's Systemic": Coffee Consumers Face Soaring Prices As Shipping Costs Surgehttps://t.co/zmHgheORI5 — Infinite Unknown (@SecretNews) March 7, 2021 * * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
Swiss voters support ‘burqa ban’ that outlaws wearing of facial coverings in public places https://t.co/WcLfcUtmB1 — Infinite Unknown (@SecretNews) March 7, 2021 * * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
* * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
500 injured, at least 15 killed after multiple explosions level military base in Equatorial Guinea’s largest city (VIDEOS) https://t.co/yiWSqruaa6 — Infinite Unknown (@SecretNews) March 7, 2021 Federal Workers Scoring Massive Perks In COVID Relief Billhttps://t.co/9HuNUfRo3c — Infinite Unknown (@SecretNews) March 7, 2021 Kroger Opens Fully-Automated Ohio Fulfillment Center As Fears Mount Of Rising Technological Unemployment … Read more
* * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
Coinbase CEO To Make Million Dollars Per Day For Decade After IPO "The astronomical award…" https://t.co/LpQ9jyK0se — Infinite Unknown (@SecretNews) March 7, 2021 * * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
Urban Dictionary Bans "Blue Anon" Entry Defining Liberal Conspiracy Theorists; Google Censors Search "I have never even heard of a word being banned from @UrbanDictionary…"https://t.co/ABswROams7 — Infinite Unknown (@SecretNews) March 7, 2021 * * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
Billionaire Olivier Dassault, France's 9th Richest Man, Dies In Helicopter Crash French billionaire and National Assembly member Olivier Dassault has been killed in a helicopter crash in the northern Calvados town of Toques.https://t.co/a994MVWRRE — Infinite Unknown (@SecretNews) March 7, 2021 * * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
MEDIA: Are you comfortable having to limit the direct payments?BIDEN: YES.MEDIA: What do you say to the 12 million Americans who won’t receive checks anymore? (Ignored).BIDEN: Thank you all for coming. pic.twitter.com/XaTNylXcYw — ??Maggie VandenBerghe?? (@FogCityMidge) March 4, 2021 * * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
Spot the difference: pic.twitter.com/Yi6Tp9k1jb — Robbie Jaeger ? (@RobletoFire) March 7, 2021 "showers money"…wow https://t.co/vQfD7yCPz8 — Whitney Webb (@_whitneywebb) March 7, 2021 * * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
It's now simply deceitful to deny the power of the Israel lobby. Obama aide Ben Rhodes has recalled how members of Congress complained about AIPAC threats to shut down their fundraisers if they didn't vote right on legislation affecting Israeli interests. https://t.co/slN7NgMPQ6 — Gareth Porter (@GarethPorter) March 6, 2021 * * * PayPal: Donate in … Read more
* * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
The new German national anthem… * * * PayPal: Donate in USD PayPal: Donate in EUR PayPal: Donate in GBP
The Aksumite Empire was an ancient kingdom that existed in Ethiopia from 100 CE to 940 CE. Centred on the ancient city of Axum/Aksum, the nation grew from the proto-Aksumite Iron Age period around 400 BCE to its height around the 1st century CE. At this time, the empire extended across most of present-day Somalia, Ethiopia, Djibouti, Sudan, Eritrea, Yemem and even Saudi Arabia. Aksum became a major commercial player in the trade routes between the Roman Empire (Later the Byzantine Empire), India and the Mediterranean – exporting ivory, tortoiseshell, gold, emeralds and minerals. The Manichaein Prophet Mani (216 CE – 274 CE) even regarded Axum as one of the four great powers of his time, alongside Persia, Rome, and China.