The latest monthly allocation reading from the AAII showed a continued jump in bond allocations as small investors continue to look for safe income. Although the continual Quantitative Easing policies have intended to push investors out on the risk curve they remain hesitant to stretch beyond fixed income. Here are the details from AAII:
“Fixed-income allocations rose to a seven-month high last month, as equity and cash allocations declined, according to the September AAII Asset Allocation Survey.
Stock and stock fund allocations declined 0.4 percentage points to 60.1%. The drop puts the September’s equity allocation near the historical average of 60%.
Bond and bond allocations rose 0.5 percentage points to 21.9%. This is the largest allocation to fixed income since February 2012. It is also the 39th consecutive month that fixed-income allocations are above their historical average of 16%.”
Source: AAII
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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Tom Brown
Cullen,
A bit off topic question but I’m when Bernanke says QE ensures liquidity is not a problem. What is liquidity and is their a relationship to liquidity and reserves? ANd does QE do this – and if so how?
I think QE ensures liquidity to the extent that it avoids deflation. So for instance, in 2008 the Fed put a floor under the market. This brought buyers back to the markets and avoided further deflationary trends. So QE doesn’t operationally add net financial assets to the system, but it is inflationary to the extent that it avoids deflation.
So I’m clear, do you mean both that the Fed’s QE inspires investor confidence that drives liquidity for stocks and other assets.
Or that the buying of MBS creates demand and floor for those assets (and prevents mortgage debt deflation held on investors balance sheets)?
Right. It causes a portfolio rebalancing by moving investors out of some assets and forcing them into others. It also adds a layer of confidence though I’d say this has diminishing returns when assets are priced the way they currently are. This is much more effective when assets are declining in value.
Japan has been doing QE and maintaining zombie banks since 1991. Japan has kept unemployment rates stable and has has a slowly declining market over 2 decades, punctuated by bull markets that lasted for several years before declining again. We have allowed more unemployment than Japan has, and have slightly better demographics than Japan has, but are otherwise following the same policy — QEternity + no TBTF (other than Lehman) is ever allowed to fail. So Cullen, what do you expect the US markets and economy to look like 10 and 20 years from now?
Yes – avoids deflation in financial securities. But nearly everything else is deflating.
So – in the real world, deflation continues in many areas.