The Great Rotation

Long time readers of this blog know that I'm a proponent of the "Great Rotation" thesis.  That theory says that longer term as interest rates stay low and as the crash of 2007-09 recedes in the public memory that a sizable amount of the dollars stashed away in money market accounts or bond funds will find their way back into equities.  I've talked a bit about this here and here.  

Where I perhaps differ from the herd is that I think this will be a longer process than perhaps many of the gurus that are its biggest advocates.  I think it could be a 5-10 year event and will be prone to periods of volatility where the money rapidly flees the markets for the perceived relative safety of cash or bonds.  

I think the market has less to worry about a financial bubble from an intense period of market speculation as long as so much money sits locked up in bond funds and money markets.  It's when that balance again gets skewed heavily towards stocks that I think we'll have to worry.  I saw evidence that I might be right when I found this twitter post by a fellow named Matthew Phillips.  Here's his link and below is the chart from Deutsche Bank that he posted showing the amount of money that fled the equity markets on January 13-14th.  

This chart tells me that we are a long way from the irrational exuberance type of environment that usually precedes a catastrophic market decline.  Not saying we can't have one or see a significant market correction.  But the public remains wary of the equity markets and as long as that "wall of worry remains in place, the less likely we are experiencing financial euphoria.