Economic Charts

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Wednesday, December 1, 2010

Weekly Fund Flows

This weeks Fund flows is starting to show a disturbing trend (need more data in weeks to come to establish a trend).  Money seems to be pouring out of municipals faster than it came in.  I think figure 1's startling chart sums it up pretty well.
Figure 1.

It makes you really wonder, what is going on in municipals.  Somebody knows something is up in the municipalities.  Could it be that they are drowning in debt (CA, NY, IL and etc) and need a bailout or must default? (obviously this has been stated for months now, if not the last year).  This action has to make you wonder if something is coming sooner than later, to make such a turn in municipal bonds.  In two weeks we have almost wiped out all that was put in since July 28th 2010.  The municipal sell off has distorted the chart in Figure 2, so reference Figure 4 for a better picture of Bonds as a whole.
Figure 2

Again, domestic stocks continue to get hammered with $2.585 billion dollars leaving the market bringing the total to $52.097 billion since July 28th of 2010.  Foreign stocks seen a slowdown this week with only $141 million going into them.  You might wonder, well if all this money is coming out of the market why is the stock market continually going up and where is the liquidity coming from?  Well that is explainable, liquidity is most certainly being well served by the HFT (High Frequency Trading) systems and the money is coming from the FED POMO purchases to the primary dealers (click the blue highlighted text for more details).  The money the FED feeds to the Primary dealers then go into the market to hold it up and to create profits on free money for the primary dealers, while the U.S. tax payers fund the whole operation.
Figure 3.

As shown in Figure 4, Taxable Bonds continue to be purchased while municipals are experiencing a sell off right now.
Figure 4.

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