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Record month for January makes experts increasingly nervous

Record month for January makes experts increasingly nervous

US-domiciled equity and mutual funds welcomed record inflows of $77.4 billion (£44.18 billion) during January, but the wave of cash pouring into stocks has left liquidity experts feeling nervous.

The TrimTabs Weekly Liquidity Review for January is the latest in a string of reports to confirm equity inflows hit a peak at the beginning of the year, and surpassed the previous $53.7 billion record for inflows set in 2000 by a whopping $23.7 billion.

While the figures are no doubt welcome news for the providers of the all-equity mutual funds and exchange traded products tracked by TrimTabs, it is feared support for stock prices has grown fragile even though investors seem oblivious to the underlying, building trend.

'We do not believe most investors realise just how much money has poured into equities this month.  These unprecedented flows should concern contrarians because the stock market tends to perform poorly after such heavy buying,' said the consultancy's chief executive officer David Santschi.

Santschi said that despite risk of losses, investors' enthusiasm for equities is unlikely to change over the near-term, pointing to strong ETF buying, with only leveraged funds - used to express short-term tactical bets - sceptical of the rally.

Faber is selling

In contrast, Marc Faber last week announced he had started to sell equities on fears the rally may be headed down the drain and at the end of January he began positioning for a correction.

Faber (pictured) argued that at a macro level very little had changed, with Europe still facing its problems and in the US the debt ceiling and fiscal cliff negotiations had only been partially resolved.

'I am reducing positions because there is euphoria building up,' Faber explained, adding that against this gloomy backdrop corporates were bound to disappoint.

Despite this, stock markets have held up fairly well and in the face of a contraction in growth America's S&P and Dow Jones last week clung on to its gains. UK markets have been slightly less resilient to bad news, and on Monday shed more than 70 points on fears about the government's bank segregation plans, pulling the FTSE 100 down from its four and a half year high.

Confidence was also knocked as 10-year Spanish bonds crept up.

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