9 ms·

$1T flowed into stocks in 2021, greater than last 20 years combined

116 points by xqcgrek2 5y ago

pphysch 5y ago
I wonder how much is retail vs institutional investors
- crenwick 5y ago
  > Stragetists at JPMorgan also recently commented on the rush into stocks, noting that the flows have been driven by retail investors.
  - errantmind 5y ago
    Which implies retail investors are valuing the shares higher than institutions. What could go wrong? I'll answer that, poverty for millions of people who don't know how to diversify their investments. My opinion is the FEDs actions, while apparently well-intentioned, will backfire spectacularly at some impossible-to-determine point in the future because MMT only works right up until a feedback loop forms between between people and the central bank which destroys the intended effects of the policies. You can see it now if you look. People are shoving everything into risky assets because they are betting on the FED not allowing their investments to tank.. because The FED has stated they think boom and bust cycles can be prevented and are a thing of the past
  - tbihl 5y ago
    With so much froth to ride and so much inflation biting at your heels, you chase returns. No surprise here.
deleted 5y ago
[deleted]
guilhas 5y ago
Inflation bubbles over the horizon Almost a fifth of ALL US dollars were created this year https://www.cityam.com/almost-a-fifth-of-all-us-dollars-were-created-this-year/ https://www.cityam.com/almost-a-fifth-of-all-us-dollars-were...
- imtringued 5y ago
  Can you buy stocks with central bank reserves? I get that QE drives yields down on treasury bonds and this makes them less attractive but are you sure this isn't about regular people selling their bonds and getting stocks instead?
  - ratsmack 5y ago
    I personally cashed in >$1m in CD's and bought stocks because of my fear of being left behind because of inflation. Many of my CD's were callable, so I really had no choice.
    - nomoreplease 5y ago
      Why did you have 1M in CDs in the first place?
      - ratsmack 5y ago
        I already had a bunch in stocks, so having a portion of my money in CD's made me feel all warm and fuzzy.
        arthurcolle 5y ago
        Are there any inflation protected CD's ? I know of TIPS from my time on a trading desk that was a few rows away from the inflation desk, but curious if there are any retail products like a CD with some level of inflation protection
        5y ago
endisneigh 5y ago
How does this end?
- deleted 5y ago
  [deleted]
- iknowSFR 5y ago
  If you’re asking how does it stop, as someone else mentioned: when the government decides to stop participating in the market. If you’re asking what happens when this falls apart, my guess is in hyper-consolidation of wealth. That can mean the decreased wealth of the super-rich but with the far greater decrease of wealth of everyone else.
  - frankbreetz 5y ago
    Why wouldn't the super rich be hit the hardest, aren't the majority of there wealth in stocks? Aren't middle class people more likely to keep there wealth in cash(a larger percentage at least), wouldn't they be the winners here?
    - zarzavat 5y ago
      Depends what you mean by hardest. Is it worse to lose 10 million dollars but still have 15 million dollars remaining to console yourself with, or is it worse to lose your job that pays $50k?
    - tbihl 5y ago
      The wealthiest have minimal need to sell and asset when it's down. So the magnitude of the hit is the biggest, but if you don't use some of your wealth for diversification and the decent financial advice to get you there, you're just squandering wealth.
    - HWR_14 5y ago
      In absolute terms, the super rich would be hit hardest. In relative terms, the super rich can afford to take a lot of probably losing plays that protect their assets. Imagine if the super rich spend 2% of their assets to hedge risk (options, etc.). The average middle class person has most of their assets tied up in their house, and probably cannot afford to lose 2% of their asset base to protect against downturns. Certainly, there are few easily available hedges for a decline in the residential real estate market in (random town/city) as opposed to the easy ones for wealth held in stocks.
amin 5y ago
Central banks have been buying up treasury bonds, thereby lowering the yield. They are basically saying "Hey rich people with cash, if you want to get a return on your money, you have to stop investing in risk-free government bonds, and start investing in businesses in the real economy" The Fed has basically 'pushed' investors out of bonds, and into equities and real estate. This partly explains the absurdly higgh gains we saw recently in those asset classes. But now that inflation is getting out of hand, the Fed might reverse someday it to slow down the economy and keep inflation low.
- errantmind 5y ago
  How much money is flowing into any businesses that matter? I don't imagine shoving more money into the S&P is having that much of an effect on 'the economy'
  - reducesuffering 5y ago
    It's a good question, but we must consider downstream effects. When one buys SP500, it pushes up the price in price/earnings for those companies, making them slightly less attractive investments and therefore other small companies slightly better investments. When, residually, some of that money flows to increasing the price of a struggling $1b company (efficient market hypothesis), they're now able to be capitalized better in investing in a second factory, or affording their debt as to not go bankrupt and have further knock-on economic effects.
rsj_hn 5y ago
stock market is an exchange, so for every dollar flowing "into" stocks, there is a dollar flowing out. For every buyer, there is a seller. In which case, what possible usefullness can one obtain from counting buyers but ignoring sellers?
- nkmnz 5y ago
  Some sellers create the supply according to the demand, most notably via IPOs, but also when emitting new stock.
  - rsj_hn 5y ago
    This is true, but that is not what this article is about, because in terms of net issuance, the stock market has been negative for some time, with buybacks outpacing new issues.
- Ekaros 5y ago
  What happens to that money flowing out? Is it spend or does it again flow to some other stock?
  - Ariarule 5y ago
    Right, every _share_ purchased is also a share sold (in principle), but that price will not usually be the same price that the current seller originally purchased the share at themselves. As a result, you can have inflow/outflows in dollar amounts. For individuals stocks, with increasing/decreasing market caps, but of course there can be more money in the market overall.
    - tedsanders 5y ago
      You misunderstand. Money doesn't flow into or out of markets on net. Every time a share is sold for $X, a share is bought for $X - they are two sides of the same transaction.
      - 5y ago
timoth3y 5y ago
I'm going to tilt at this windmill because it's important and illustrative of the incredibly poor quality of the financial news media. No money "flows into" or "flows out of" the stock market or the bond market. Every security must be held by exactly one person until it is retired. (Let's set aside new issues, buybacks and mergers for now. They are a small percentage) There is no money in the market at all. When you buy a share of stock, someone else is selling it to you. Your $100 becomes their $100. The effect of recent monetary policy is that we now have a huge amount of zero-interest money sloshing around the economy. So your counter-party needs to do something their new $100. Putting it in zero-interest T-bill is not appealing, so maybe by another stock? Maybe real-estate? Crypto? So we ave all this new money flowing though the system pushing up all asset prices. It's also a big driver of the startup boom. Because not only do startups potential provide good returns, but they actually use the money to create jobs and build things.
- mox1 5y ago
  This kind of ignores IPO's, SPACs and secondary (or whatever they are called) offerings. All of those things introduce "new" stock into the market.
  - eurasiantiger 5y ago
    An IPO is a public exit for the early investors.
    - tommiegannert 5y ago
      It usually increases the share pool too, as otherwise it's a "direct listing". So for the new shares, you are definitely having money flow into the business/stock market.
- jganetsk 5y ago
  There is something called fund flow: https://www.investopedia.com/terms/f/fund-flow.asp https://www.investopedia.com/terms/f/fund-flow.asp If a company issues $1000 of new stock, then that's an inflow of $1000 into the company. And if it buys back $1000 of stock, that's an outflow. This kind of analysis is commonly applied to ETFs, for example, because ETFs will manage their outstanding shares by the issuance/redemption of creation units. https://www.investopedia.com/terms/c/creationunit.asp https://www.investopedia.com/terms/c/creationunit.asp You can certainly apply this analysis in aggregate, and you can also compute the net flow. I don't know if that's what the article posted here is doing. Also, people talk about monetary policy as driving this, and that's wrong. Fiscal policy drives this (we've had a lot of new government debt issued in the last few years). Even though it's orthodox economics to attribute this to monetary policy, it's flat out wrong. Monetary policy does not impact net assets of the private sector. It's neutral in that regard. Fiscal policy definitely impacts net assets of the private sector. If you want to learn more, you can read "Where Do Profits Come From?" https://www.levyforecast.com/assets/Profits.pdf https://www.levyforecast.com/assets/Profits.pdf
mlac 5y ago
I'm not sure on the numbers here but would be interested if others' on the site have input. I'd be interested to know how much the stock increase will come from younger investors putting their inherited wealth into more aggressive mutual funds. If the majority of people with wealth followed the idea to go more conservative as they aged, then it would make sense that as those people died and passed on their wealth it would be invested more aggressively. This would naturally happen over time, but COVID would speed it up.

116 points by xqcgrek2 5y ago

pphysch 5y ago

I wonder how much is retail vs institutional investors

crenwick 5y ago
> Stragetists at JPMorgan also recently commented on the rush into stocks, noting that the flows have been driven by retail investors.
- errantmind 5y ago
  Which implies retail investors are valuing the shares higher than institutions. What could go wrong? I'll answer that, poverty for millions of people who don't know how to diversify their investments. My opinion is the FEDs actions, while apparently well-intentioned, will backfire spectacularly at some impossible-to-determine point in the future because MMT only works right up until a feedback loop forms between between people and the central bank which destroys the intended effects of the policies. You can see it now if you look. People are shoving everything into risky assets because they are betting on the FED not allowing their investments to tank.. because The FED has stated they think boom and bust cycles can be prevented and are a thing of the past
- tbihl 5y ago
  With so much froth to ride and so much inflation biting at your heels, you chase returns. No surprise here.

deleted 5y ago

[deleted]

guilhas 5y ago

Inflation bubbles over the horizon Almost a fifth of ALL US dollars were created this year https://www.cityam.com/almost-a-fifth-of-all-us-dollars-were-created-this-year/ https://www.cityam.com/almost-a-fifth-of-all-us-dollars-were...

imtringued 5y ago
Can you buy stocks with central bank reserves? I get that QE drives yields down on treasury bonds and this makes them less attractive but are you sure this isn't about regular people selling their bonds and getting stocks instead?
- ratsmack 5y ago
  I personally cashed in >$1m in CD's and bought stocks because of my fear of being left behind because of inflation. Many of my CD's were callable, so I really had no choice.
  - nomoreplease 5y ago
    Why did you have 1M in CDs in the first place?
    - ratsmack 5y ago
      I already had a bunch in stocks, so having a portion of my money in CD's made me feel all warm and fuzzy.
      - arthurcolle 5y ago
        Are there any inflation protected CD's ? I know of TIPS from my time on a trading desk that was a few rows away from the inflation desk, but curious if there are any retail products like a CD with some level of inflation protection
        5y ago

endisneigh 5y ago

How does this end?

deleted 5y ago
[deleted]
iknowSFR 5y ago
If you’re asking how does it stop, as someone else mentioned: when the government decides to stop participating in the market. If you’re asking what happens when this falls apart, my guess is in hyper-consolidation of wealth. That can mean the decreased wealth of the super-rich but with the far greater decrease of wealth of everyone else.
- frankbreetz 5y ago
  Why wouldn't the super rich be hit the hardest, aren't the majority of there wealth in stocks? Aren't middle class people more likely to keep there wealth in cash(a larger percentage at least), wouldn't they be the winners here?
  - zarzavat 5y ago
    Depends what you mean by hardest. Is it worse to lose 10 million dollars but still have 15 million dollars remaining to console yourself with, or is it worse to lose your job that pays $50k?
  - tbihl 5y ago
    The wealthiest have minimal need to sell and asset when it's down. So the magnitude of the hit is the biggest, but if you don't use some of your wealth for diversification and the decent financial advice to get you there, you're just squandering wealth.
  - HWR_14 5y ago
    In absolute terms, the super rich would be hit hardest. In relative terms, the super rich can afford to take a lot of probably losing plays that protect their assets. Imagine if the super rich spend 2% of their assets to hedge risk (options, etc.). The average middle class person has most of their assets tied up in their house, and probably cannot afford to lose 2% of their asset base to protect against downturns. Certainly, there are few easily available hedges for a decline in the residential real estate market in (random town/city) as opposed to the easy ones for wealth held in stocks.

amin 5y ago

Central banks have been buying up treasury bonds, thereby lowering the yield. They are basically saying "Hey rich people with cash, if you want to get a return on your money, you have to stop investing in risk-free government bonds, and start investing in businesses in the real economy" The Fed has basically 'pushed' investors out of bonds, and into equities and real estate. This partly explains the absurdly higgh gains we saw recently in those asset classes. But now that inflation is getting out of hand, the Fed might reverse someday it to slow down the economy and keep inflation low.

errantmind 5y ago
How much money is flowing into any businesses that matter? I don't imagine shoving more money into the S&P is having that much of an effect on 'the economy'
- reducesuffering 5y ago
  It's a good question, but we must consider downstream effects. When one buys SP500, it pushes up the price in price/earnings for those companies, making them slightly less attractive investments and therefore other small companies slightly better investments. When, residually, some of that money flows to increasing the price of a struggling $1b company (efficient market hypothesis), they're now able to be capitalized better in investing in a second factory, or affording their debt as to not go bankrupt and have further knock-on economic effects.

rsj_hn 5y ago

stock market is an exchange, so for every dollar flowing "into" stocks, there is a dollar flowing out. For every buyer, there is a seller. In which case, what possible usefullness can one obtain from counting buyers but ignoring sellers?

nkmnz 5y ago
Some sellers create the supply according to the demand, most notably via IPOs, but also when emitting new stock.
- rsj_hn 5y ago
  This is true, but that is not what this article is about, because in terms of net issuance, the stock market has been negative for some time, with buybacks outpacing new issues.
Ekaros 5y ago
What happens to that money flowing out? Is it spend or does it again flow to some other stock?
- Ariarule 5y ago
  Right, every _share_ purchased is also a share sold (in principle), but that price will not usually be the same price that the current seller originally purchased the share at themselves. As a result, you can have inflow/outflows in dollar amounts. For individuals stocks, with increasing/decreasing market caps, but of course there can be more money in the market overall.
  - tedsanders 5y ago
    You misunderstand. Money doesn't flow into or out of markets on net. Every time a share is sold for $X, a share is bought for $X - they are two sides of the same transaction.
    - 5y ago

timoth3y 5y ago

I'm going to tilt at this windmill because it's important and illustrative of the incredibly poor quality of the financial news media. No money "flows into" or "flows out of" the stock market or the bond market. Every security must be held by exactly one person until it is retired. (Let's set aside new issues, buybacks and mergers for now. They are a small percentage) There is no money in the market at all. When you buy a share of stock, someone else is selling it to you. Your $100 becomes their $100. The effect of recent monetary policy is that we now have a huge amount of zero-interest money sloshing around the economy. So your counter-party needs to do something their new $100. Putting it in zero-interest T-bill is not appealing, so maybe by another stock? Maybe real-estate? Crypto? So we ave all this new money flowing though the system pushing up all asset prices. It's also a big driver of the startup boom. Because not only do startups potential provide good returns, but they actually use the money to create jobs and build things.

mox1 5y ago
This kind of ignores IPO's, SPACs and secondary (or whatever they are called) offerings. All of those things introduce "new" stock into the market.
- eurasiantiger 5y ago
  An IPO is a public exit for the early investors.
  - tommiegannert 5y ago
    It usually increases the share pool too, as otherwise it's a "direct listing". So for the new shares, you are definitely having money flow into the business/stock market.
jganetsk 5y ago
There is something called fund flow: https://www.investopedia.com/terms/f/fund-flow.asp https://www.investopedia.com/terms/f/fund-flow.asp If a company issues $1000 of new stock, then that's an inflow of $1000 into the company. And if it buys back $1000 of stock, that's an outflow. This kind of analysis is commonly applied to ETFs, for example, because ETFs will manage their outstanding shares by the issuance/redemption of creation units. https://www.investopedia.com/terms/c/creationunit.asp https://www.investopedia.com/terms/c/creationunit.asp You can certainly apply this analysis in aggregate, and you can also compute the net flow. I don't know if that's what the article posted here is doing. Also, people talk about monetary policy as driving this, and that's wrong. Fiscal policy drives this (we've had a lot of new government debt issued in the last few years). Even though it's orthodox economics to attribute this to monetary policy, it's flat out wrong. Monetary policy does not impact net assets of the private sector. It's neutral in that regard. Fiscal policy definitely impacts net assets of the private sector. If you want to learn more, you can read "Where Do Profits Come From?" https://www.levyforecast.com/assets/Profits.pdf https://www.levyforecast.com/assets/Profits.pdf

mlac 5y ago

I'm not sure on the numbers here but would be interested if others' on the site have input. I'd be interested to know how much the stock increase will come from younger investors putting their inherited wealth into more aggressive mutual funds. If the majority of people with wealth followed the idea to go more conservative as they aged, then it would make sense that as those people died and passed on their wealth it would be invested more aggressively. This would naturally happen over time, but COVID would speed it up.