Saw a book the other day titled "Trim Tabs" and it explains what the author calls "Liquidity Theory". Seems to make sense. Does anybody here use them? Some delayed public information available at: http://www.trimtabs.com/pdf_files/Weekly_Liquidity_Review.pdf Apparently, they are 100% bullish on US equities.
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Do you have access to mutual fund inflows and outflows? I dont have any source. But logically if there is lots on inflow then we can expect market to go up because fund managers have to put that money to work.
From the data they present on their website, they say that retail investors are skiddish and are not placing much money into funds. However, they do say that a large amount of money from the retail side is making its way into global ETF's. What makes them bullish is that corporate America is net buying stocks now (stock buy backs, insider buying .. ie..employee and executive stock options etc..). I 'think' they also mention hedge funds as net buyers right now. They refer to this as a leading indicator. Only ones left out are individual investors. The data is delayed, so I don't know what they would say about the last few weeks.
It is a very good indicator. Maria B used to talk about it all the time on CNBC. A lot of mutual fund investing is done automatically through deductions from payroll etc. She would talk about inflows vs. outflows. SteveD
If Maria thinks something is valuable, I generally run in the other direction. I've also heard major fund managers comment that the info was not useful, and that he would never disclose his inflows/outflows to anyone in near-real-time, which makes complete sense. According to their website, they supposedly track funds that hold 15-20% of total mutual fund assets. It's hard to imagine that there is any requirement for those funds to be truthful in their reporting to a research company, and hard to see whether the data might actually extrapolate to the total fund universe. Even if it did, what the data actually means seems to depend on how you view "the madness of crowds". Anyone play with correlations of their historical data?
That 15-20% representative sample of mutual fund flows might be enough to extrapolate. If the sample is 'random' and it is statistically significant, then it would work. As for correlating their indicators against actual returns, I have not done. I only picked it up and skimmed the book for 15 - 20 minutes at the store. Their hypothetical/actual returns seem good to me. I guess itâs another 'tool' to use. As for stocks, the best I've found is Investors Business Daily IMO. This Trim Tabs is just new to me.
Quote from granville: That 15-20% representative sample of mutual fund flows might be enough to extrapolate. If the sample is 'random' and it is statistically significant, then it would work. That's the crux of my (and others') argument, though. The sample is not random. I'm concerned that it's composed of managers that appear to be either foolish or manipulative enough to report their supposed daily flows.
To be fair, they don't just rely on inflow/outflow data of MFs (in any case, re the quality of this data, there are other firms doing the same analysis which provides for good cross checking). The whole point of liquidity theory is to look at all the variables of incoming and outgoing cash from the market and get an idea of which is greater - the money coming in or the money going out. MF flows are only a small part of it. To answer the originator's Q they are good for very long term swing trading but (iow asset allocation) I don't think they have any real value for short term traders. I think they have a 'portfolio' which monitors their mkt outlook by switching from cash to futures and shows how well they do. They've got decent performance but again, its just to showcase their signals.
You people make this stuff too difficult!!! If the inflow is greater than the outflow into mutual funds that is a very bullish signal, DUH. This info is fairly public The mutual fund HAS to put the money to work, DUH!!! How do they put the money to work, boys and girls. They buy big liquid stocks. And, by the way, Maria and most on CNBC know more about the market than 99% of the so called "traders" on ET. But they are not there as traders, but as the business of the market and how it relates to the economy overall. SteveD