First Level of Capital Flow Analysis : continued
Explaining Flow of Funds Accounts
The First Level of Analysis
In this example, by examining the principal applications of funds in the 'Last Quarter Summary' pop-up window, we can see how Households were using the net proceeds from the sale of equities.
This data refers to Q4 2004, a period in which the trend in equity prices was upwards. Therefore, we do not classify Households as 'motivated sellers'.
Some other sectors must be driving the price.
- From the full sector table for Households we note that individual investors still purchased mutual funds, although these purchases did not exceed 10% of total applications.
- From the 'Last Quarter Summary' pop-up for Equities, we see that mutual funds were the second largest net purchasers of equities, in a rising market.
Households were contributing to the rise in equity prices through their purchases of mutual funds, but, because of their emphasis on net sales of directly-held equities with investment of proceeds in consumer durables, residential real estate, and savings deposit, we might conclude that enthusiasm for the stock market was not compelling for U.S. investors in Q4 2004.
The switch from directly-held equities to mutual funds ( essentially, diversified portfolios of securities), savings deposits, and tangibles (real estate and consumer durables) suggests a conservative mind set.
From the 'Last Quarter Summary' pop-up for Households, we also note that the other principal source of funds was home mortgages. Clearly, in Q4 2004 U.S. individual investors were focused more on their homes and residential real estate than on the stock market.
Before proceeding, check your progress:
Self-Test
In Q4 2004, Households were not motivated sellers of equities because:
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In Q4 2004, the primary net sources of funds for U.S. Households were:
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In Q4 2004, Households sold equity and bought mutual funds. This might indicate:
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