Blogged last Thursday: 65 Billion Outflow From Long Term Equity Funds
This issue is getting highlighted in the press.
On LA Times blog: Stock mutual fund cash outflows hit 3-month high
- September 8, 2010 8:13 pm
Investors pulled money from stock mutual funds in late August at the heaviest pace since late May, new data show.
Bad timing: Many of the sellers were exiting just as the U.S. market was hitting seven-week lows -- and just before it rebounded at the start of September.
No wonder so many people feel so frustrated by the stock market, and that they’ll never get it right.
Net cash outflows from domestic equity funds totaled $7.6 billion in the seven days ended Sept. 1, the Investment Company Institute reported Wednesday. That was up from $4.3 billion the previous week and the biggest outflow since $13.4 billion left the funds the week ended May 26.
Mutual fund net cash flows are total purchases minus redemptions.
Gloom over the U.S. economy thickened in late August, driving two closely watched stock-investor sentiment gauges to their most bearish levels since March 2009 -- which was the month the market finally hit bottom after the 2008 crash.
Severe negativity often is the best clue that the market is primed to stage at least a short-term rally, confounding the majority view. Of course, what seems like severe negativity can always get worse. It’s clear only in retrospect when sentiment has hit bottom.
The Dow Jones industrial average closed at 9,985 on Aug. 26, its lowest since July 6 and down 6.7% from the summer peak of 10,698 reached Aug. 9. Given September's reputation as the worst month of the year for stocks, historically, no wonder some investors were anxious to exit.
But after trading in a narrow range the last few days of August, the Dow surged 433 points, or 4.3%, from Sept. 1 through 3, boosted by some relatively upbeat economic data.
On Wednesday the Dow added 46 points to 10,387.
Although domestic stock funds’ latest net cash outflow was the largest since May, it just continues the pattern: The funds, which now hold about $3.6 trillion in assets in all, have suffered net redemptions every week since the end of April -- which was just before the May 6 “flash crash,” when the Dow plunged nearly 1,000 points intraday thanks to short-term traders (and their computers) run amok.
Wall Street has done a fine job of driving average investors away, many of them probably forever.
-- Tom Petruno
Regarding the bad timing statement.
- Bad timing: Many of the sellers were exiting just as the U.S. market was hitting seven-week lows -- and just before it rebounded at the start of September.
Nah.. I am not buying that statement.
Check out this posting: Reply From Kokanart: Have Times And People Really Changed?
Look at the charts posted. In regardless of whether the markets were going up or down, the investors were simply redeeming their money from their equity funds!
For example, 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). SP rallied some 51.2 points or 4.8%. And the net redemption during this 'hot' period was some 3.1 Billion.
And then from 2nd July to 9th Aug 2010. 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? Nope! The investors redeemed another 11 Billion!
My flawed view?
It does not matter if the markets is going up or down, the investors just want out of their stock mutual funds!
Here's another article: http://www.onwallstreet.com/news/schapiro-flash-crash-2668667-1.html
- "Retail broker-dealers have told us that individual investors have pulled back from participating in the equity markets since May 6. Indeed, according to mutual fund data, every single week since May 6 has seen an outflow of funds from equity mutual funds,” Schapiro said. “The trend is troubling.”
Schapiro then talks about the HFT! ( Finally! )
- However, echoing a recent report from Ned Davis Research, the SEC chairman lay much of the blame for the massive outflows on the credit crisis.
As a result, besides revisiting circuit breakers, the SEC is considering requiring high-frequency traders and dark pools to bring liquidity to the market in times of great stress.
Schapiro noted that a decade ago, 80% of U.S. equities were traded on the New York Stock Exchange, while today, the NYSE handles a mere 26% of that volume—with the balance split among 10 public exchanges, 30 dark pools and more than 200 proprietary trading desks at broker/dealers.
“Nearly 30% of volume in U.S.-listed equities is executed in venues that do not display their liquidity or make it generally available to the public. The percentage executed by these dark, non-public markets is increasing nearly every month,” Schapiro said.
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5 comments:
Ongoing deleveraging at all levels, wealthy individuals included. The most worrying aspect of this is while the individual is poorer, proprietary speculative trading by big instituitions and hedge funds, is driving up prices of commodities leading to some kind of stagflation unseen before. Malaysia is not spared. Good luck everybody.
I am not sure if you had read or followed this posting on ZH, where there were some serious debate.
http://www.zerohedge.com/article/guest-post-how-hyperinflation-will-happen
from that posting ......
The first of the asset managers or TBTF banks who are out of Treasuries will look for a place to park their cash—obviously. Where will all this ready cash go?
Commodities.
By the end of that terrible day, commodites of all stripes—precious and industrial metals, oil, foodstuffs—will shoot the moon. But it will not be because ordinary citizens have lost faith in the dollar (that will happen in the days and weeks ahead)—it will happen because once Treasuries are not the sure store of value, where are all those money managers supposed to stick all these dollars? In a big old vault? Under the mattress? In euros?
Commodities: At the time of the panic, commodities will be perceived as the only sure store of value, if Treasuries are suddenly anathema to the market—just as Treasuries were perceived as the only sure store of value, once so many of the MBS’s and CMBS’s went sour in 2007 and 2008.
It won’t be commodity ETF’s, or derivatives—those will be dismissed (rightfully) as being even less safe than Treasuries. Unlike before the Fall of ’08, this go-around, people will pay attention to counterparty risk. So the run on commodities will be for actual, feel-it-’cause-it’s-there commodities. By the end of the day of this panic, commodities will have risen between 50% and 100%. By week’s end, we’re talking 150% to 250%. (My private guess is gold will be finessed, but silver will shoot up the most—to $100 an ounce within the week.)
Of course, once commodities start to balloon, that’s when ordinary citizens will get their first taste of hyperinflation. They’ll see it at the gas pumps.
If oil spikes from $74 to $150 in a day, and then to $300 in a matter of a week—perfectly possible, in the midst of a panic—the gallon of gasoline will go to, what: $10? $15? $20?
So what happens then? People—regular Main Street people—will be crazy to buy up commodities (heating oil, food, gasoline, whatever) and buy them now while they are still more-or-less affordable, rather than later, when that $15 gallon of gas shoots to $30 per gallon.
If everyone decides at roughly the same time to exchange one good—currency—for another good—commodities—what happens to the relative price of one and the relative value of the other? Easy: One soars, the other collapses.
When people freak out and begin panic-buying basic commodities, their ordinary financial assets—equities, bonds, etc.—will collapse: Everyone will be rushing to get cash, so as to turn around and buy commodities.
So immediately after the Treasury markets tank, equities will fall catastrophically, probably within the next few days following the Treasury panic. This collapse in equity prices will bring an equivalent burst in commodity prices—the second leg up, if you will....
...This sell-off of assets in pursuit of commodities will be self-reinforcing: There won’t be anything to stop it. As it spills over into the everyday economy, regular people will panic and start unloading hard assets—durable goods, cars and trucks, houses—in order to get commodities, principally heating oil, gas and foodstuffs. In other words, real-world assets will not appreciate or even hold their value, when the hyperinflation comes.
This is something hyperinflationist-skeptics never quite seem to grasp: In hyperinflation, asset prices don’t skyrocket—they collapse, both nominally and in relation to consumable commodities. A $300,000 house falls to $60,000 or less, or better yet, 50 ounces of silver—because in a hyperinflationist episode, a house is worthless, whereas 50 bits of silver can actually buy you stuff you might need.
Right now, I’m guessing that sensible people who’ve read this far are dismissing me as being full of shit—or at least victim of my own imagination. These sensible people, if they deign to engage in the scenario I’ve outlined above, will argue that the government—be it the Fed or the Treasury or a combination thereof—will find a way to stem the panic in Treasuries (if there ever is one), and put a stop to hyperinflation (if such a foolish and outlandish notion ever came to pass in America).
Uh-huh: So the Government will save us, is that it? Okay, so then my question is, How?
Let’s take the Fed: How could they stop a run on Treasuries? Answer: They can’t. See, the Fed has already been shoring up Treasuries—that was their strategy in 2008—’09: Buy up toxic assets from the TBTF banks, and have them turn around and buy Treasuries instead, all the while carefully monitoring Treasuries for signs of weakness. If Treasuries now turn toxic, what’s the Fed supposed to do? Bernanke long ago ran out of ammo: He’s just waving an empty gun around. If there’s a run on Treasuries, and he starts buying them to prop them up, it’ll only give incentive to other Treasury holders to get out now while the getting’s still good. If everyone decides to get out of Treasuries, then Bernanke and the Fed can do absolutely nothing effective. They’re at the mercy of events—in fact, they have been for quite a while already. They just haven’t realized it.
Well if the Fed can’t stop this, how about the Federal government—surely they can stop this, right?
In a word, no. They certainly lack the means to prevent a run on Treasuries. And as to hyperinflation, what exactly would the Federal government do to stop it? Implement price controls? That will only give rise to a rampant black market. Put soldiers out on the street? America is too big. Squirt out more “stimulus”? Sure, pump even more currency into a rapidly hyperinflating everyday economy—right . . .
...This sell-off of assets in pursuit of commodities will be self-reinforcing: There won’t be anything to stop it. As it spills over into the everyday economy, regular people will panic and start unloading hard assets—durable goods, cars and trucks, houses—in order to get commodities, principally heating oil, gas and foodstuffs. In other words, real-world assets will not appreciate or even hold their value, when the hyperinflation comes.
This is something hyperinflationist-skeptics never quite seem to grasp: In hyperinflation, asset prices don’t skyrocket—they collapse, both nominally and in relation to consumable commodities. A $300,000 house falls to $60,000 or less, or better yet, 50 ounces of silver—because in a hyperinflationist episode, a house is worthless, whereas 50 bits of silver can actually buy you stuff you might need.
Right now, I’m guessing that sensible people who’ve read this far are dismissing me as being full of shit—or at least victim of my own imagination. These sensible people, if they deign to engage in the scenario I’ve outlined above, will argue that the government—be it the Fed or the Treasury or a combination thereof—will find a way to stem the panic in Treasuries (if there ever is one), and put a stop to hyperinflation (if such a foolish and outlandish notion ever came to pass in America).
Uh-huh: So the Government will save us, is that it? Okay, so then my question is, How?
Let’s take the Fed: How could they stop a run on Treasuries? Answer: They can’t. See, the Fed has already been shoring up Treasuries—that was their strategy in 2008—’09: Buy up toxic assets from the TBTF banks, and have them turn around and buy Treasuries instead, all the while carefully monitoring Treasuries for signs of weakness. If Treasuries now turn toxic, what’s the Fed supposed to do? Bernanke long ago ran out of ammo: He’s just waving an empty gun around. If there’s a run on Treasuries, and he starts buying them to prop them up, it’ll only give incentive to other Treasury holders to get out now while the getting’s still good. If everyone decides to get out of Treasuries, then Bernanke and the Fed can do absolutely nothing effective. They’re at the mercy of events—in fact, they have been for quite a while already. They just haven’t realized it.
Well if the Fed can’t stop this, how about the Federal government—surely they can stop this, right?
In a word, no. They certainly lack the means to prevent a run on Treasuries. And as to hyperinflation, what exactly would the Federal government do to stop it? Implement price controls? That will only give rise to a rampant black market. Put soldiers out on the street? America is too big. Squirt out more “stimulus”? Sure, pump even more currency into a rapidly hyperinflating everyday economy—right . . .
Mr.Moolah dear... I am looking for 5 or 10 stocks, which will provide me with fantastic returns over the long term, in my portfolio.
One should focus on investing in individual stock, rather than the overall market. Adopting such a philosophy and strategy allows one to ignore the flow of funds and other asset classes which one may be less knowledgeable in. Don't waste time on what is not-knowable.
Can anyone predict where the interest rate will be next year? What about the rate of inflation? ...etc. etc.
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