Fund Inflows
vs Outflows vs Cash/MMFs; Anarcho Capitalist in
Argentina
By the
Curmudgeon with Victor Sperandeo
Markets this Week:
The S&P finished the week just 0.7% below its 2023
closing high of 4,588.96 set on July 31 and less than 5% from its all-time high
of 4,796.56 set on Jan. 2, 2022. The S&P 500 is up 8.7% this month, while
the Nasdaq Composite has climbed 11%. Hedge funds betting on a decline in U.S.
and European stock markets have suffered an estimated $43bn of losses in a
sharp rally over recent days.
U.S. bonds were flat for the week with the 10-year U.S.
T-note yield at 4.472% on Friday, but thats down from ~5% on October 23rd.
Conundrum - Fund Inflows vs Outflows:
Following the huge run up this November, investors are
plowing cash into speculative stocks and bond funds at a record rate.
l Invescos QQQ exchange-traded fund, which tracks the
tech-heavy Nasdaq-100 Index, reported its largest weekly inflow in history the
week of November 13th.
l Funds that track high-yield bond indexesthe higher risk
portion of the corporate bond marketreported their two highest weekly inflows
on record in the middle of November.
Thats despite estimated mutual fund OUTFLOWS of
$16.51 billion for the week ended Wednesday, November 15th. Please
refer to this table from the Investment
Company Institute:
Source: Yardeni Research
.
Cash on the Sidelines:
Meanwhile, a record $5.7 trillion is parked in brokerage
cash accounts and money-market funds, many of which are yielding above 5%,
according to the Investment Company Institute.
For the first time in a long time, cash is a competitor,
said Ali Dibadj, chief executive of Janus
Henderson Investors. But I think as soon as short-term rates start to tick
down, youre going to see large flows to other assets.
.
Retail brokerage firm Webull
began offering a 5% yield on cash held at the brokerage earlier this year to
remain competitive with money-market funds. The offering attracted deposits,
resulting in much-higher-than-normal cash allocations for Webull
customers that Denier said only began to shift this month.
David Littleton, chief executive of asset manager F/m
Investments, said he thinks the record sum in money-market funds is
contributing to the velocity of the rally in beaten-down assets like
small-caps.
With the new inflation outlook, people either got greedy or
they got fearful they were going to miss out on a rally, and you saw a 5% up
move in the index, said Littleton. Theres definitely some cash waiting for
these moments, but I dont think youll see it all move overnight.
David Kelly, chief strategist at J.P. Morgan Asset
Management, says he isnt expecting a mass exodus from money-market funds
soon. What I see here is a growing realization on the part of individuals and
even institutions that there are just better yields to be had in a money-market
fund than bank accounts, Kelly said.
.
..
Narrow Stock Market in 2023:
Another huge conundrum is the narrowness of the U.S. stock
market advance. While S&P 500 SPX is up more than 18% for the
year to date, just 272 of the 500 stocks
in the index were higher on the year through Fridays close, according to
Dow Jones Market Data. U.S. equities are now overly reliant on big-cap
tech, with the top 10 stocks in the sector now accounting for 35% of the
S&P 500 market cap.
Market breadth (advances
vs declines) is the lowest its ever been in a year thats seen a gain of more
than 15%, while U.S. stock dominance of global indexes has hit new highs, said
a team of analysts led by Manish Kabra at Sociιtι Gιnιrale, in a note last
week.
.
.
Victors Market Comments:
The S&P 500 P/E ratio is currently 24.59 (source: YCharts.com),
while the NASDAQ 100 (QQQ ETF) P/E is 31.76. Think thats high?
Well, the average P/E of the Magnificent 7 stocks is 60.5! Certainly,
the market is tricky in that the valuations are historically way higher than
normal. More at the end of the
month.
Victor on the new Anarcho
Capitalist President of Argentina:
Worthy of note is the November 19th election of
Javier Milei as the next President of Argentina. He is the first Libertarian (self-described Anarcho Capitalist as per Murray Rothbards quotes below)
leader ever to be elected anywhere in history!
When Milei announced his entry into politics in 2020 he said
it was a bid to
"blow up" the system.
Before entering politics, Milei gained notability as an
economist, as the author of multiple books on economics and politics, and for
his distinct political philosophy as a vocal proponent of the Austrian School.
He critiqued the fiscal policies of various Argentine administrations and
advocates reduced government spending. For more on Mileis background and
philosophy please read this
interview with the Buenos Aires Times which is titled, The more people are
against the ropes, the more they will embrace freedom.
Milei seems crazy in his personality actions, but he is a
serious man whose agenda makes Donald Trump look like a Cub Scout.
Milei wants to end the central bank of Argentina, ditch the Peso,
and use the U.S. dollar as the countrys currency. Professor Steve Hanke [1.],
who has helped Montenegro and Ecuador peg their currencies to the U.S. dollar,
says he is "involved in Argentina as an informal advisor, but Im not a
formal part of his campaign." Hes
interviewed on that topic in this
video.
Photo credit: Wikimedia Vox Espaρa
Inflation in Argentina is in triple digits. In the video,
Steve Hanke said it was 220%. However,
the country's statistics office said on November 13th that
annualized inflation in Argentina was 142.7% as of October. Nevertheless, Milei plans to bring inflation
down substantially with radical economic policies once he takes office.
Note 1. Im a very big Fan of
Hanke who is a free market monetarist like Milton Friedman. He can surely help and can end inflation
academically in Argentina if Milei can win over the powers that be.
.
..
You can bet every central banker is gunning and will try to
undermine this man. Milei will be watched closely and highly criticized. If he
is successful, it is likely to change the world.
End Quotes:
1. The State is, and always has been, the great single enemy of
the human race, its liberty, happiness, and progress.
2. The natural tendency of government, once in charge of money,
is to inflate and to destroy the value of the currency.
Murray Rothbard was an
American economist of the Austrian School, economic historian, political
theorist, and activist. Rothbard was a central figure in the 20th-century
American libertarian movement, particularly its right-wing strands, and was a
founder and leading theoretician of anarcho-capitalism, which is now
being embraced by Argentina president-elect Javier Milei.
.
..
Be well, keep active, and try to be objective in this age of
disinformation and propaganda campaigns.
Till next time
.
The Curmudgeon
ajwdct@gmail.com
Follow the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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