Where is all the money going?
By Agvisors LLC
The Investment Company Institute reports every month about the inflow and outflow of money in mutual funds, unit investment trusts and exchange traded funds. As of June 6, $119 billion has been invested in taxable bond funds, while domestic equity funds have seen outflows of $57 billion over the same time frame. This is a clear sign that investors are slowly shying away from risk-based assets and investing in what they perceive to be "safe" alternatives.
The housing markets have shown small amounts of hope each month but the flame continues to be small and in need of much attention. Building permits jumped in 7.9 percent to a 780,000 unit pace, which is at its highest level since 2008.
(See top chart, courtesy of U.S. Fixed Income Strategies.)
Tempering this good news is the amount of new starts in April plunged 4.8 percent to a seasonally adjusted rate of 708,000 units. New home buyers continue to be plagued by a tight credit market, making it tough to qualify for a new home.
This is the program where the Federal Reserve monetizes our debt (which they said they would not do). They create money by moving a decimal point or two over on their balance sheet then buying U.S. Treasuries. This pumps more money into our financial system and keeps rates low. As of June 18 the Fed has purchased $370.466 billion dollars of U.S. debt. This program is set to stop on June 29, but with economic market conditions continuing to falter there is talk it might be extended.
The Federal Reserve reported that as of March 31 the average American has a total household debt equal to 109 percent of his/her annual after-tax income. The good news is that this is down from 131 percent on Dec. 7, 2007. What is not mentioned is how much of this decline is due to bankruptcy or write-offs by financial institutions. Record numbers of foreclosures in the past few years have wiped out money owed to banks and would decrease overall debt. The consumer credit chart shown here (bottom chart above) shows a dip in outstanding consumer credit from September 2008 until August 2010. Since August 2010 U.S. consumers have started their old habits of utilizing credit to fund purchases. We should reach the high water mark by the end of 2012 with no slowdown in site.
Editor's note: Agvisors provides commentary about agricultural markets, including grain, dairy, livestock, equities, financials, and energy, highlighted by a live weekly webinar discussing conditions and responding to questions. For more information, visit http://agvisors.com.