The "household sector" plug in the Fed's Flow of Funds reports provides some very crude and often inaccurate fund flow data when it comes to the US consumers, but at least one can often get a sense of which way capital is flowing. As we continue spreading the data from yesterday's Z.1, we have initially focused on 'household" financial assets, which at a total of $45.5 trillion, represent two thirds of the total household sector's assets of $68.5 trillion (the balance is tangible assets which actually declined by $67 billion to $22,994 billion: as America gets wealthier, it is increasingly based on intangible "wealth"). The key components of Financial Assets consist of Corporate Equities, Corporate and Foreign Bonds, Treasury Securities, Total Deposits, and Pension Funds Reserves. Below we present the change in time over these asset holdings.

A casual glance at the change in the non-seasonally adjusted household financial assets reveals something strange: even as every tracker of mutual fund flows has repeatedly indicated that US investors are not only not investing in stocks, but are now increasingly redeeming funds from domestic corporate equities, the Fed will have you believe quite the opposite. According to the Z1, the household sector increased its Corporate Equity holdings by $329.4 billion, even as Corporate and Foreign bonds declined by $58.1 billion. Of course, the truth is completely the opposite: non-institutional investors have been taking money out of stocks and investing it in bonds. When one notes that Pension Funds allegedly also saw a $396.8 billion increase in assets, and then the lie is just complete. The question is why is this "plug" category so far off.

If one assumes that households were really at best flat, if not negative, participants toward stocks, then the Fed is essentially saying there was a vacuum of at least $330 billion that came from somewhere. It sure did not come from retail investors!

Continuing with the other imaginary NSA data, Treasury securities (ex. savings bonds) increased by $148.4 billion in the quarter. This is at least a marginally credible number. We will provide the other contributors to the Treasury category shortly. What is most disturbing for banks is that Total Deposits, after increasing by $101.3 billion in Q4 2009, fell by $104 billion in Q1 2010. Summing across these five categories, Equities, Corporate Bonds (decline), Treasury Securities, Total Deposits (decline) and Pension Fund Reserves, and we get a change of $712 billion in Q1 alone. What the source of this three-quarters of a trillion in new capital in the Fed's dummy category is, is yet another secret that the Fed will never disclose. In this market it is best not to ask questions: just take it for granted that somehow almost $1 trillion in purchasing power came in and lifted the market.



Below is the total notional of these abovementioned asset categories:

And below is the quarter over quarter change of categories in which the Fed needed the help of a dummy category to balance capital flows.