United States Fund Flows as Foreign Central Banks Are Running on Empty

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.
[ECB Building]

The S&P 500 is trading at a new all-time high as earnings season is taking on the tone of a “glass half full” after the first full week of Q2 results. This is too bad for investment houses like Morgan Stanley, which have turned bearish on stocks and have thus taken their global equity rating to its lowest level in five years. Andrew Sheets, the Chief Cross-Asset Strategist for Morgan Stanley, who looks all of 29 years of age, somehow holds court over all the houses of JP Morgan. He has proclaimed a recession and, ultimately, a steep correction loom. That’s a bold call considering the alternatives.

Advertisement.

Just for the record, when there are few places in the world to put vast amounts of institutional money (hundreds of billions of dollars) where there is also at least a positive return on bond yields, an economy with a strong pulse and a solid bid under the currency, why try to call a market top? Again, it’s a bold call and one they hope to generate fame and fortune from. However, it’s probably early.

Quite frankly, the strong money flows into U.S. equities are more of an affirmation that the domestic economy is maintaining steady growth in light of slower growth around the globe. Most institutional money managers keep to themselves in edgy markets, preferring to stay nimble and not make vocal directional calls on the market. It’s tough going on record to predict the future when there is no historical playbook by which the world’s most powerful central banks are operating by.

Exclusive  Seven Reasons to Use a Trading Room

It was only back in early December, when the Fed raised the Fed Funds Rate by a quarter point, that the market went into a full-blown hissy fit and corrected by a full 20%. Within the past two weeks, the Fed has reinforced their commitment to sustaining the economic expansion, and thus the bull market, by all but ensuring a rate cut in two weeks.

Advertisement.

It is fascinating to see how the global stock markets tell the central banks to provide stimulus on demand. But we’re now into a decade of global quantitative easing (QE) and investors have become highly accustomed to, and expect, central bank stimulus to support a healthy stock market. Based on the latest narrative, this remains the case for monetary accommodation at the upcoming Federal Open Market Committee (FOMC) meeting.

Going back to pre-recession 2007, it is remarkable to compare the performance of the S&P 500 against that of the emerging markets, Europe, China and Japan. Since emerging markets are literally at the same level today that they were back in 2007, investors in these markets have made no money. Europe’s market is trading 30% below its best 2007 level. Japan’s market has gained 27% during these past 12 years, averaging 2.25% per year. Investors long the Chinese market are down a whopping 50% from 2007 levels while investors long the S&P are up roughly 150% and averaging about 8.5% per year.

<img class=”alignnone wp-image-26509″ src=”https://www.bryanperryinvesting.com/wp-content/uploads/Perry-1.png” alt=”” width=”500″ height=”255″ /> <img class=”alignnone wp-image-26510″ src=”https://www.bryanperryinvesting.com/wp-content/uploads/Perry-2.png” alt=”” width=”500″ height=”255″ /> <img class=”alignnone wp-image-26511″ src=”https://www.bryanperryinvesting.com/wp-content/uploads/Perry-3.png” alt=”” width=”500″ height=”255″ /> <img class=”alignnone wp-image-26512″ src=”https://www.bryanperryinvesting.com/wp-content/uploads/Perry-4.png” alt=”” width=”500″ height=”255″ /> <img class=”alignnone wp-image-26513″ src=”https://www.bryanperryinvesting.com/wp-content/uploads/Perry-5.png” alt=”” width=”500″ height=”255″ />

Exclusive  Is It Time to Cut Interest Rates?

<em>All charts courtesy of Barchart.com</em>

Advertisement.

So, if all the QE of the past decade can’t get these ex-U.S. indexes off the mat, I’m not sure what will happen with regards to where we are in the economic cycle. All the Federal Reserve’s efforts to restore inflation to a 2% rate of constant growth have pretty much come up short. This makes the notion of deflationary forces that much more threatening in the global economic downturn that the folks at Morgan Stanley and others claim is just ahead.

A rising fear that the world outside the U.S. is entering a deflationary period is a big part of the reason that 25% of total global debt is currently sporting negative yields. By definition, negative interest rates are intended to incentivize banks to aggressively lend money, since they are being charged negative interest. However, negative interest is also considered a last-ditch effort to boost economic growth when conventional fiscal policy tools have failed.

So far, negative yields have yet to stimulate loan demand from businesses and consumers at a level that will spur sufficient levels of investment and spending so that the central banks can dial back QE. It’s a quandary that has foreign institutions hoarding money, willing to pay the bank to keep it safe while also pouring capital into U.S. Treasuries and equities.

To somehow determine this pattern of money flow is going to somehow come to an abrupt end doesn’t really add up from my perspective. I believe that last week’s market surge is a testament that foreign capital is quickly running out of patience and is in desperate need of being put into strong dollar-denominated stock and bond assets to maximize yield and total return. And as long as this condition continues to persist, the higher the U.S. stock market is likely to go.

Advertisement.
share on:

Like This Article?
Now Get Bryan's FREE Special Report:
Top Monthly Dividend Payers

Get paid every single month by some of the world’s biggest companies.

Get Access to the Report, 100% FREE


img
share on:

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader
LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader
LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener
LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program
LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader
LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor
LEARN MORE HERE

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle
LEARN MORE HERE

DayTradeSPY

DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops
LEARN MORE HERE