The Giant Flow Chart Of Capital

Paul Tudor Jones once said That the economies of the world and markets basically functioned liks a giant flow chart of capital"
 Here is a very simplified version to explain the various shifts.

In this chart, you shift from cash and bond markets into commodity and stock/real estate markets when you have "inflation" and for the reason that people "risk adverse" and scared typically seek bonds and/or cash... And "risk on" as if bonds don't have risk (see the numerous defaults of sovereign and corporate debt throughout history) or cash (see defunct currencies that no longer are used in trade and have been replaced).

The type of inflation is either price inflation (commodity demand), or asset inflation (demand for assets like stocks and real estate and gold is really the wildcard). As such you can anticipate certain shifts in capital.

Then there is "deflation" or "risk off" trade where capital sells it's commodities and/or stocks. When both stocks and commodities sell off it usually is a crisis of confidence in risk and an aggressive shift to cash as DEBT is paid off, rather than expanded, growth slows or goes negative, and transactions and the velocity in which money moves slows down.

In the case of just a stock sell off with rising commodities we call it "stagflation" which usually is accompanied by low growth or "stagnation" and increased costs or "inflation".

In the case of commodity sell off while stocks go higher, we call this a "secular bull market", as prices cost less, usually leading to and accompanied by high growth.

What Paul Tudor Jones meant by the initial quote was capital can go to or from commodities, stocks, bonds and cash and back in any order depending on the condition. You could get much more specific and single out what stocks it will go to and so on, and to what extent and how much and try to narrow out why. The example used a small flow chart and really generalized.  The real chart to map all capital movement would instead show how money is created from either governments or private banks THROUGH the king/queen/supreme leader/dictator/treasury department of the government, and/or the central bank depending on what point in history, how debt creates a promise to pay things back, how that promise results in a FUTURE obligation for capital to be paid off, and how because of interest, new debt must be created for all debt to be paid off and the system to keep going.

That's another story. For now just brainstorm and try to understand the "basic" rotations or "cycles" that occur because capital is shifting between the broad and basic major asset classes and the impact these shifts have and the things that cause them have.