For Every Seller There’s a Buyer

Whenever you see “money going into/out of XYZ”, your bullshit detector should go off — it usually indicates a lack of understanding of markets.

Day-to-day, bonds and stocks and currencies TRADE. That is why many are on exchanges — the word is not an accident, as securities CHANGE owners.

Now, foreigners can buy (be going into) Korean equities in a given day or other time period. The equivalent and necessary condition is that locals are selling (reducing their net exposure).

Likewise, EPFR looks at mutual fund flows, so you can see “outflows from bond funds”. But that means someone else bought those same bonds — they do not cease to exist.

The exception is issuance, buybacks and maturities, which must be matched by new money (fresh buying) in the first instance, and reduction in exposure in the latter two as investors are handed cash.

So what will 2012 bring in terms of flows? Pretty obvious: the US and corporates will issue a couple of trillion in bonds (net) and firms will buy back hundreds of billions in stocks. Facebook notwithstanding, IPO’s probably won’t match those repurchases. That means we’ll see INFLOWS into bonds (including the Fed, which may mop up MBS or more USTs) and OUTFLOWS from equities.

That tells you almost nada about the direction of prices, which are determined in the continuous two-way auction a.k.a. “The Market”. From a supply perspective, the above dynamic will push yields and the S&P higher, but sentiment and expectations are much stronger forces.

One Response to "For Every Seller There’s a Buyer"

  1. David T. Nowakowski   March 30, 2012 at 11:47 am

    By the way this post was spurred by an FT article "Bonds and equities face a plate-shifting moment" (, but I see such references to money "flows" into or out of things all the time.