Wednesday, June 9, 2010

Very Bearish: Mutual Fund Outflows Continue

 ICI  is reporting  the fifth consecutive week of domestic equity outflows, which while not as bad as last week's unprecedented $13.4 billion in redemptions was still a massive $1.1 billion in outflows, says ZeroHedge. This amounts to $25 billion in redemptions in the past 5 weeks alone, and increasing pressure for already cash-strapped mutual funds to accelerate liquidations of positions in a feedback loop.

Clearly, the demand to hold cash is accelerating, again. While the PIIGS crisis is having no direct impact in the states, investors are treating as something to be concerned about. Further, the lack of Fed printing means that there must be pockets of money drain from people who simply need the cash.

On another point, while my goldbug friends are smiling these days and I recognize the panic nature of the flight into gold, there are more and more signs that we are headed for a serious liquidity crunch. I don't think that, at such time, the price of gold will survive at current levels, from what is likely to be heavy forced gold selling from those caught one way or another in the liquidity crunch.

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