Equity funds gathered another $15.6 billion in the week through April 7, adding to an astonishing post-US election haul.
Over the past five months, inflows totaled nearly $570 billion.
Absent context or any reference point, you might be inclined to just call that a “big number” and go on about your day. However, as BofA’s Michael Hartnett observed, that’s $100 billion more than global equity funds took in over the past dozen years.
In Q1, funds enjoyed a record $372 billion in uninterrupted inflows (figure below).
It was the largest equity inflow as a percentage of AUM in nearly 15 years.
This hardly makes up for the longer-term trend. Since the financial crisis, bond inflows have more than doubled equity inflows on net, and that’s including the massive haul for stock funds since November.
BofA’s private clients’ allocation to stocks sits at nearly 64%, a record, Hartnett said, in the latest edition of his weekly “Flow Show” series (figure below). ETF flows show a preference for energy, banks, materials, high yield and value. In other words: A pro-cyclical tilt.
As usual, Hartnett reiterated the view that the second half of 2021 will be defined by the “3 Rs” (rising Rates, Redistribution and Regulation). That, he said, will lead to “low/volatile bond and equity returns” necessitating a penchant for “sell[ing] asset overshoots.”
Stocks are neither a “screaming buy” nor an obvious sell relative to bonds, he wrote.
That squares with my contention from last weekend that the “relative attractiveness” discussion has become virtually impossible to sort out.
Finally, it’s with a heavy sigh that I note Hartnett’s use of the following subheader on a chart showing stalled US initial jobless claims: “Not improving…’hidden unemployment’ or ‘new welfare state?'”
Compared to previous, flawed versions of myself (old models of me were subject to near constant manufacturer recalls to fix various malfunctions), I possess the patience of a saint these days, which allows me to very calmly suggest that if, in fact, enhanced unemployment benefits in the post-pandemic world are preventing claims from normalizing by incentivizing people to collect government aid rather than look for a job, one way to ameliorate the situation is to pay workers enough to change the cost-benefit analysis.
This discussion is almost always one-sided. It’s always about whether government is paying the poor and/or the jobless “too much” to stay home. It’s almost never about whether employers are offering to pay prospective workers too little to incentivize them to take a job.
Try this: Offer to pay the baristas and the warehouse workers and the shelve-stockers the median US household income plus a reasonable benefits package and watch how many people line up down the street to make coffee, lift boxes and stock shelves.
If, on the other hand, we keep posting signs on the door that, stripped of the euphemisms, simply offer to put people to work for a paycheck that leaves them no better off than they would have been otherwise, who are the silly folks in that equation? Is it the people who laugh at the notion that they should acquiesce to making your expensive lattes all day just so they can proudly say they’re “employed and poor” as opposed to “unemployed and poor”? Or are we the silly ones for making such a ridiculous offer in the first place?
Here’s another uncomfortable question: Think about what you do for a living. Does the benefit that you provide to society really outstrip the enjoyment that tens of millions of people get every, single day from their morning latte? For some of you, the answer to that question will be an unequivocal “yes.” Maybe you’re an engineer. Or an orthopedic surgeon. But for some of you, if you’re being honest with yourselves, the answer will be “no.” In which case the next question is this: Why do you deserve to make $80,000 per year while the barista makes $20,000?
Great piece!
The last paragraph..so succinct.
Too right, mate. I once had an engineer in my MBA strategy class who told the class about the practice of his (large S&P type firm) that had replaced the typical EOY HR type performance review with a self-prepared report. Each professional and management level employee was required each year to provide written proof, with evidentiary attachments, that in the past year he or she had been personally responsible for adding value to the firm in the amount of two times his or her paycheck. Those who could not do so were fired. My student said he personally had been sweating out that report annually for over a decade. Maybe that barista job is ok after all?
I can imagine such a report for manufacturing or development professionals. But what would project management write, or compliance officers, quality system, quality control, EHS officers? Most of these employees are P grade, but they do not add much value. Honestly, they destroy some.
I’ve been an engineer for nearly 20 years and I’m not sure if any of my work outstrips latte happiness.
I make my own French press……but I absolutely can get behind doubling the salaries of our teachers!! If our country does not have knowledge and skills, everything else could end up in ruins.
Then why not pay them $500,000 or even $5 million per year? How much is too much to avoid a scenario where it all ends up in ruins?
We alsready do but only when they can coach their teams to big championships, like Nick Sabin and his millionaire assistants.
For example: I see plenty of professional athletes saying things like “I’ll donate $5 million to build a new gym or school in my hometown” or “I’m committed to spending $2 million to fund after school programs for kids in disadvantaged communities” or “I donated $400,000 to this or that scholarship fund.” But how many professional athletes do you know who say: “You know what? I’ve got $75 million in cash in the bank, 3 mansions, $4 million in jewelry and 14 cars. I will never need anything else and neither will my kids or their kids. So, from now on, 95% of the money from my contracts and endorsement deals will go to lifting as many teachers as I possibly can above the $100,000 per year threshold.”
Nobody ever does anything like that. Nobody.
And I mean, everybody likes sports, and sure, kids are inspired by stars, but give me a break. Do we really need to pay MLB pitchers $100 million to throw a ball around once a month? How much money does an NBA point guard really need? Is it not enough to pay — I don’t know — James Harden $10 million for one season? Or $20 million? Or $25 million? Does he need $41 million for one year? Come on.
None of that is to say that I don’t like watching James Harden as much as the next person (I do) or that I don’t think Jamie Dimon should make more money than a random seventh grade social studies teacher (I do).
It’s just that we’re nowhere near any kind of equilibrium that makes sense anymore. Maybe the seventh grade social studies teacher gets $150,000 and great benefits, while Dimon gets $4 million and a bunch of stock options. I’m fine with that. That can be justified. He runs the biggest bank in the world. It’s a tough job. But why does he need $37 million for 12 months while the social studies teacher has to worry about whether he/she could afford a new refrigerator if the one in the kitchen were to break?
Good point. The treatment of teachers in the GOP strongholds of Oklahoma & Kansas showed the short-sightedness inherent in the GOP ideology.
Eventually even some of them begrudgingly came to realize that low taxes alone are not sufficient to attract anything but the lowest-paying/highest polluting industries. More and more businesses require a literate workforce. Whodathunit?
The last paragraph has always been true. If it is not food,shelter,clothing,healthcare you are a luxury provider or you are a rentier/consumer.
I do wonder if pension plans/insurance companies will be forced to change their allocations between stocks and bonds- and increase the allocation to equities due to such low interest rates for bonds.
Or if they will just wait, hoping for a rebound in rates? The truth was- they made a lot of capital gains on their bonds over the past 15 years- and it does not look like that will be able to be achieved going forward.
All I can add is ten years ago very few people I knew invested or even contributed to their company’s matched 401k. Now days it’s hard to find anyone not falling over them selves to buy Bitcoin or purchase Apple stock. Truly an odd time when the Sp500 is so over priced and new investors are betting the bank.
It’s like the line from “Unforgiven”: “Deserves got nothing to do with it.”
Employers could hire more people and pay them more if there weren’t any payroll taxes. Hey, how about a wealth tax instead? Heresy!!!
“For it is not two doctors that associate for exchange, but a doctor and a farmer, or in general people who are different and unequal; but these must be equated. This is why all things that are exchanged must be somehow comparable. It is for this end that money has been introduced, and it becomes in a sense an intermediate; for it measures all things, and therefore the excess and the defect-how many shoes are equal to a house or to a given amount of food. The number of shoes exchanged for a house (or for a given amount of food) must therefore correspond to the ratio of builder to shoemaker. For if this be not so, there will be no exchange and no intercourse.”
Aristotle, Nicomachean Ethics (Chap. 5.5)