“A Sea Of Fed”: Record Outflows Confirm “Policy Mistake”

Friday, December 21, 2018
By Paul Martin

by Tyler Durden
ZeroHedge.com
Fri, 12/21/2018

One week after record redemptions from virtually all risk assets including loans prompted Bank of America’s chief investment strategist Michael Hartnett to conclude that markets are “losing the plot”, the record pace of outflows have continued with the strategist’s assessment this time, coming after the Fed decision, is that these are “policy mistake flows.”

Hartnett then proceeds to layout his recap of “2018 in a nutshell” which he summarizes by the events in the past 24 hours as “9 central bank meetings, 5 hikes (Fed, HK, Saudi, Sweden, Mexico), 4 holds (BoJ, BoE, Czech, Indonesia), 0 cuts”, indicating that central banks are again the #1 catalyst this year. And echoing what he said three weeks ago, Hartnett is convinced that the “Big Low” in risk assets in 2019 will coincide with end of tightening.

That said, we are already well on our way to said “Big Low” with 2011 global stocks currently in a bear market, and as Deutsche Bank showed earlier, virtually all assets – except the USD and cash – down for the year as follows: US dollar 5.3%, cash 1.8%, govt bonds -1.2%, HY corporate bonds -2.6%, IG bonds -3.4%, global equities -8.6%, commodities -9.0%.

Meanwhile, the loss in global stock market cap since the January peak has been a remarkable $16.7 trillion, the size of the GDP of the EU.

Looking at only the US, already some 1406 stocks are in a bear market; other assets are not doing much better with global IG bond losses of -3.4% equal to the third largest since ’91, while the price of oil has plunged -40% in 55 trading days.

Going back to fund flows, Hartnett describes the recent record redemptions as “Policy mistake flows” – with the Fed hiking for the 9th time, we have seen record redemptions in bank loans ($2.9bn), record outflows from financials ($3.3bn), the biggest government bond inflows since Jan’16 ($5.0bn) and massive IG outflows ($5.5).

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