From JPMorgan’s Thomas Lee, some interesting observations about how funds are being shifted around.
It turns out that high-yield bond managers took in more money (as a percentage of their total AUM) over the last 4 weeks than in any period before in history.
Of course, as you can see, this came after a few weeks of heavy outflows, but then, most huge months have been like this.
According to Lee — who does tend to shade bullish in most environments — these kinds of inflows have historically augured very well for stocks.
So why is money flowing in?
According to Lee, there’s a huge disconnect between the implied probability of corporate defaults (as measured by the spread of high-yielding debt to risk free) and the actual pace of defaults.
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