Ask Vendit Off Topic Questions

[August]

Hello my friend.

I don't mean to keep looking down.

From your article:
>>"They liked Nasdaq at 5,000 and now they hate it near 2,000. <<

I don't think they hate it just yet. Their still hopeful. Hope needs to turn to dispare.

It appears that funds are starting to buy as of last week.
<<

How can a bear market occur with all the money flowing into mutual funds?


This is a common, widespread question, and you're right, we should revisit this myth. A simple answer would be, "In the same way the bear has wiped out $2 trillion in wealth over the past 10 weeks in spite of net mutual fund inflows."
Stocks don't rise on mutual fund inflows... they rise on soaring expectations. For every $1 that goes into a mutual fund and the fund invests in a stock, someone else must sell that $1 of stock. Money doesn't flow "into" or "out of" the market except in the case of new issues, secondary offerings, or cash takeovers. Money flows through the market - and it's rising or falling expectations that drive stock prices.

Proof lies in historical fact. The chart below shows the cumulative inflows into equity mutual funds over this past bull market - a total of $1,287 billion. It also shows how much the market has increased in capitalization - $10,711 billion. It's a fallacy to think that $1,287 billion created the entire $10,711 billion increase in stock value. The majority of that increase came in rising valuations fueled by soaring expectations.

http://www.bearmarketcentral.com/stackqanda.htm
This is a good read from a bearish perspective, FWIW.