Friday, September 03, 2010

Reply From Kokanart: Have Times And People Really Changed?

Comments received:

  • kokanart said...
    "In a striking shift, small investors flee stock market" for the bond market.

    So small investors are underweight in the stock market.

    And the US stock markets have declined during this period of selling - as you show in the indices graphs.

    Therefore the small investors' decision to underweight have proved to be correct - in your opinion?

    This is surprising since small investors are not considered to be savvy investors, who sell at the top and buy at the bottom. We are told to do the opposite of what the small investor does, since they are usually not the smart money.

    Well, have times and people changed?
Obviously, time do change and people do change. I do believe in that. But we are really not into such intense talk, are we? I know I am not. :D

Ah.. perhaps I might be wrong but it does appear to me that perhaps you are seeking for answers you would like to hear.

Which unfortunately I don't think I am capable.

  • And the US stock markets have declined during this period of selling - as you show in the indices graphs. Therefore the small investors' decision to underweight have proved to be correct - in your opinion?

Now I am not here to pass judgement on these 'small' investors decision to withdraw their money out from their equity market. Who knows, they could be correct, they could be incorrect.

And even if I were to pass judgement, which time frame should I based on?

Yes, I am sure you are aware that in the short term, the markets are pretty much unpredictable. As much as they could rocket into orbit, they could also do a deep sea dive.

Now the data I tracked is from 28th April 2010.

On 28th April 2010, SP was 1191.36. On 1st July 2010, the SP hit a low of 1010.91.

Now if I were to pass judgement based on this data ALONE, then the investors who withdrew money out on 28th April 2010, they would be looking mighty smart.

But... if I use a different time frame. Take week of 1st July 2010, Americans took out some 4.176 Billion from the equity markets. SP hit a low of 1010.91 but recovered to close at 1027.37. Now SP today closed at 1090.10. I could call them wrong because those investors that pulled out from the equity markets missed a 80 point rally from 1 Jul 2010 low.

So from April 28th 2010 to now, investors pulling money out of the market could look smart and they could also look silly depending on the time frame I use. And furthermore, who knows, some who pulled out money earlier could put some back in. It might happen, who knows, yes?

I could be wrong but I think this is an exercise which benefited no one. Hence, I do not like to pass judgement. It's not me to make the call if they are right or wrong.

Now back to the time frame we are in.

From 28th April 2010 to the period ending 25th Aug 2010.

Fact is some 58 Billion was withdrawn from the stock market.

Let's look at the chart again.... if you do not have access or if you are afraid my chart could be inaccurate, try verifying the data from link during this period. ( please do check, sometimes I could err. :P )

In the chart above, I have put the chart into 6 time boxes coloured in pink and green.

Let's look at the first period..

1. from 28th April to 8th June.

SP on 28th April was 1191.36. It closed on 8th June at 1062. ( It hit a low of 1042 on 8th June).

Now would you agree that during this 'time frame' or 'period', the SP declined?

So how much was withdrawn from the equity funds?

Some 29.8 Billion was withdrawn out during this period.

2. from 8th June to 21 June 2010.

SP on 8th June was at 1062.00 On 21st June 2010, it closed at 1113.20 (it hit a high of 1131.23 on 21 Jun).

From 8 June, SP rallied some 51.2 points or 4.8%.

What did the Americans do during this period?

They took out some 3.1 Billion out from their equity funds.

Market down, they withdrew. Market up, they withdrew also!

3. from 21 June 2010 to 2nd July.

The market plunged during this period and the SP fell from 1113.20 to 1022.58. A lost of 90.6 points.

And the Americans, they continued to pull money out from the market.

Some 4.459 Billion was withdrawn from the equity markets!

Where's the buy on dip?

4. From 2nd July to 9th Aug 2010.

This is the bigger movement..... UP.

SP rallied from 1022.58 to a closing of 1127.79 on 9th Aug 2010.

A 105.21 point rally!

Was there any money flowing back into the equity during this GRAND run?

Sadly no! Americans pulled out 11.055 Billion out from the equity markets!

(ps: the exact money pulled out might not be that accurate because the time frame the market went up and down did not coincide with ICI closing weekly data. Any weekly data that was mentioned in my previous time frame period was omitted to prevent double counting)

5. From 9th Aug to 31st Aug 2010.

SP fell from 1127.79 to 1049.33. A loss of 78.46 points.

And the ICI data showed...

For the period ending 11 Aug to the period ending 25 Aug, another 9.206 Billion was withdrawn from the equity markets.


I could be wrong but my opinion is simplistic.

Since 28th April 2010, it matters NOT what the equity markets are doing.

It could be moving up or it could be moving down. The only objective the Americans have is to get out of the equity markets.

That's what I wrote in my past posting: 58 Billion Reason Why Americans Thinks Their Stock Market Sucks!

  • Yeah.. in regardless if their markets is UP or DOWN... they just WANT OUT!

Posting on 19th Aug 2010: Stocks Rally And US Equity Investors Rallied To Get Out Of the Equity Markets

Here's the market wrap for 13 Aug 2010, last Friday. Stocks end lower for 4th straight day

  • "It's low-volume season, also known as August," said Kim Caughey, senior equity analyst at Fort Pitt Capital Group. "Traders are on vacation, and we get some pretty crazy reactions -- or lack of reactions -- because of that."

Yup, and the main media keep selling to the investing to the investing public all summer long that it's the low volume season.

Traders were on vacation... waka waka time perhaps... blah.. blah.. blah...

But do they acknowledge the issue that perhaps the volume is LOW because the investing American public had continued to withdraw money at a staggering pace since 28th April 2010?

Talking of low volume. On ZH: Houston, We Have No Problem... Or Volume

Think about it again... why no volume? Could it be that their customers are diminishing each week?

Yeah, Nic Lenior from ICAP:

  • Big picture there remains nothing to be ubpbeat about: there is no decoupling and Chinese numbers are bogus, the only thing holding US equity markets is the certainty that the government will not let them fall, we are still running deficits and accumulating debt we someday will have to default on. Cheers!

And aslo from ZH: Can You Hear Me Now? 17th Weekly Fund Outflow As Equity Fund Redemptions Accelerate

  • This is just getting silly: perhaps the next update on ICI mutual fund flows should occur if there is an inflow for once...ever again. In the meantime, ICI reports we have just recorded the 17th consecutive weekly outflow from domestic equity mutual funds, and what's worse for mutual funds' depleted liquidity ratios, it is now accelerating, hitting a total of $4.3 billion, a more than 50% increase from last week's $2.7 billion. YTD outflows have now hit $54 billion, as ever more capital is going into far safer fixed income instruments. As a reminder, here is what Rosenberg said on the issue yesterday: "As for liquidity ratios, equity funds portfolio manages have theirs at an all-time low of 3.4%, down from 3.8% in June. Tack on the fact that there are really not very many shorts to be covered – since the market peaked in April, short interest is 4.3% of the S&P 500 market cap (in August 2008 it was 6%) and there’s not a whole lot of underlying fund-flow support for the stock market here." As for this being a contrarian signal, hopefully all those who see this as a buying opportunity can also find a way to make the now retiring baby boomers about 10 years younger and force them away from fixed income capital reallocation. Oh, and fix the broken market and restore investor confidence that the casino is only modestly rigged.

    In the meantime, no matter what the market does (and somehow it has been flat during the entire period of record redemptions: good to know someone is putting capital into stocks), on a short-term basis, nobody wants to touch it with a ten foot pole. Retail is no longer fascinated by speculating and day trading: after all why should they - they get better odds in Vegas... where the decor puts the aging CNBC female anchor crew to shame.

So back to that NY Times article and the comments highlighted in the posting Americans Pulled USD 53.279 Billion Out Of The Equity Markets

  • “For a lot of ordinary people, the economic recovery does not feel real,” said Loren Fox, a senior analyst at Strategic Insight, a New York research and data firm. “People are not going to rush toward the stock market on a sustained basis until they feel more confident of employment growth and the sustainability of the economic recovery

yeah... what if that's the clear simplistic answer? Yeah, what if there is no economic recovery in the US of A. Things are as bleak as before. Perhaps it even worst.


ali said...

one question, if the american pulling out from their equity market, who is the buyer? got seller must also have buyer right?

Moolah said...

The posting is about Americans pulling money out of their long term equity mutual funds.

Do refer to this posting:

Quote: As Americans have become more responsible for their own retirement, they have poured money into stocks with such faith that half of the country’s households now own shares directly or through mutual funds, which are by far the most popular way Americans invest in stocks.

ali said...

okay, then isn't that the mutual fund have to sell shares to pay off the investor who redeemed right? who bought the shares?