What's Up With TINA?

TINA has been around the block a few times during the current bull market, which started in 2009. The acronym stands for “There Is No Alternative.” The simple concept is that stock prices have advanced mostly because there is no alternative asset class worth buying.

Presumably, TINA made more and more sense as bond yields mostly declined since 2009, falling to record lows since the pandemic. The 10-year US Treasury bond yield was 2.82% during March 2009. It has been below 2.00% since August 1, 2019 (Fig. 1). The yield on the high-yield corporate bond composite fell from the low double digits to under 5.00% since November 17, 2020 (Fig. 2).

This might explain why equity ETFs have attracted record net inflows of $658.2 billion over the past 12 months through September (Fig. 3). But that explanation doesn’t jibe with the other relevant flow-of-funds data. Consider the following:

(1) Equities. The record inflow into equity ETFs was offset by a significant net outflow of $387.7 billion from equity mutual funds over the 12 months through September. As a result, the net inflow into equity mutual funds plus ETFs was $270.5 billion over the past 12 months through September. That was the best since February 2018. But this series has been in positive territory during only the past four months through September following 23 months of negative readings. This suggests that retail investors have been mostly late to the party, missing much of the dramatic doubling of the S&P 500 from March 2020 through August 2021.

(2) Liquid assets. Undoubtedly, many retail and institutional investors have quarantined themselves in the money markets since the pandemic started. Since the start of the pandemic during February 2020 through September of this year, M2 is up $5.6 trillion to a record $21.0 trillion (Fig. 4). Eyeballing the chart, we conclude that M2 is currently about $3.0-$4.0 trillion above the pre-pandemic trend line.

The demand deposits component of M2 is up $2.9 trillion to a record $4.5 trillion since February 2020 (Fig. 5). Demand deposits accounted for 21.5% of M2 during September, the highest reading since July 1975 (Fig. 6). Over the past 20 months through September, personal saving has totaled a record $2.8 trillion (Fig. 7).

(3) Bonds. Meanwhile, money has been pouring into bond mutual funds and ETFs (Fig. 8). Indeed, the 12-month sum of these net inflows rose to a record high of $1.0 trillion during April of this year. This series remained significant during September at $821.5 billion, with bond mutual funds attracting $617.8 billion and bond ETFs attracting $203.6 billion.

(4) The Fed. While the demand for bonds remained surprisingly strong since the start of the pandemic, the Fed has been reducing the supply of bonds. Since the last week of February 2020 through the last week of October, the Fed has purchased $4.2 trillion in US Treasuries and agency bonds (Fig. 9).

The Fed’s purchases have boosted demand deposits at commercial banks at the same time as loan demand has been flat (Fig. 10). As a result, commercial banks have purchased $1.4 trillion in US Treasuries and agencies since the last week of February through the October 20 week.

(5) Foreigners. Also reducing the supply of US Treasuries and agencies have been foreign investors. Over the past 12 months through August, they barely purchased any Treasuries, but they did snap up $441.2 billion in agencies (Fig. 11). By the way, foreigners’ net purchases of US equities totaled $243.8 billion over the past 12 months through August.

(6) Bottom line. So there have been alternatives to stocks after all, namely bonds and liquid assets.

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