Floyd Norris On The End Of The American Love Affair With Stocks

Tyler Durden's picture

Three weeks ago when we noted the 30th consecutive outflow from US-based equity mutual funds (now at 33 straight weeks), we said: "America's love affair with stocks is over, has bypassed the marriage stage and gone straight to the bitter divorce." Today, we are happy to see that the the NYT's Floyd Norris for repackaging our metaphor in a slightly more palatable fashion: "The love affair of American investors with the stock market appears to have ended." His piece in today's NYT "For U.S. investors, the glow is off domestic stocks" will not be news to anyone who follows our weekly report on ICI data: "The year now ending will be the fourth consecutive year in which mutual funds that invest primarily in American stocks experienced net outflows of funds, meaning that investors as a group withdrew more money than they put in." And yet stocks continue to ramp higher, in big part due to the rapid increase in NYSE margin interest which means the bulk of investors are buying stock increasingly on leverage, but still the question to just who continues to do the actual holding remains unanswered. Indeed, only a few people, Charles Biderman among them, have answered with the response that everyone knows is true, yet most are afraid to utter.

As for Norris' observations, which finally bring broad popular attention to this key topic which we have been hammering on for about 33 weeks in a row, here is the gist:

The accompanying charts show that investors took out $81 billion from such funds so far this year, significantly more than they took out in 2009 but well below the withdrawals of more than $150 billion in 2008, the year that Lehman Brothers failed and the credit crisis blossomed.

The withdrawals this year were partly offset by money flowing into foreign stock funds and hybrid funds, which invest in both stocks and bonds. Investors seem willing to trust in overseas markets more than in the American one, and a growing number are choosing so-called target-date funds, in which fund companies promise to choose the right mix of stocks and bonds depending upon when an investor expects to retire.

The figures come from the Investment Company Institute, a trade group of mutual funds that has been compiling the totals since 1984. They include estimates of trades through mid-December.

Before 2007, there had been net withdrawals from domestic stock funds in only two years, 1988 and 2002.

The first of those years came after the 1987 crash, which scared many investors as the market fell more than 20 percent in one day. But it recovered all of that loss and more in 1988, and many investors learned from that experience that market declines presented buying opportunities, not reasons to sell. The assumption that stocks were sure to rise, at least in the long run, became widely accepted.


For the 10 years through 2010, figures for the final two weeks of the year will determine whether there was any net investment in domestic stock funds. (The estimate for the decade so far is that $4 billion flowed out.) By contrast, in the 10 years before that, Americans put $1.3 trillion into such funds.

In some ways, the current mood is reminiscent of the one that prevailed then. In 1979, Business Week published a cover article on the “Death of Equities,” which it attributed in large part to rising inflation. By 1982, inflation had begun to fall, but the country was in a deep recession. That is when the great bull market of the 1980s began. Few investors seem confident that such a renewal of optimism is likely this time.

But if the bolded sentence is true, it means that everything we hear on CNBC is a lie... After all, if the surge in the market is not sufficient to inspire confidence that the economy is improving, and that in turn is not sufficient to get people to start investing in stocks again, then isn't the whole premise of restarting the virtuous cycle via QE X also fatally flawed? "Give it time" the optimists will say. Any week now there will be an investment in stocks. Fair enough, but that means rates will start to trickle ever higher, and every 1% rise in rates is equivalent to a 10% drop in home prices... Not to mention that the accompanying rise in commodity prices, most notably oil, will wipe out every last fiscal stimulus implemented in the past year and result in a crunch in profit and net income margins, once prices are unable to be passed through, destroying all hopes of an S&P 2011 EPS in the mid 90s. In retrospect we feel bad for Bernanke: at this point even the blind can see just how massive of a catch 22 the Chairman has boxed himself into, whereby every incremental dollar of monetary "stimulus" just raises the sword of Damocles a few inches higher.

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John Law Lives's picture

How long until the resident clowns, Robo and Harry, try to convince us all that things are just ducky.  Start the countdown to the first clown sighting on this thread now...

John Law Lives's picture

Well, it took 38 minutes for Robo to show up with a post cheerleading the market.

Tyler, can we PLEASE get an ignore button for 2011?


Captain Benny's picture

I'd like an ignore button as well.  Robo is bright, but I find that his posts tend to be useless, uninformative, and the boobs are just plain distracting...

Goldman Sucks's picture

Second that.  Even just an "ignore Robot Trader" button would work for me.

whatsinaname's picture

NYT makes no mention of fact that the 401k / IRA programs started in 1982 and middle class was "schooled" into putting tax deferred savings into the equity slaughterhouse - hence the huge bull run(s) starting 1982 !! Middle class savers were to be taken to the promised land by the equity touting mutual funds. Looking at the chunky profits made by these guys, commercial banks lobbied to jump on the bandwagon thanks to the Glass Stegall repeal.

Oh regional Indian's picture

people who are not earning need to pay their bills. Often, for the fear of the IRS, they even have to pay their taxes.
All this in the face of food/gas and general living inflation and asset deflation.

So darn self-evident, seems strange that it is news. News is something someone reports to you.

This reality, meanwhile, is right there, just outside the glare of the MSM.

Shall we make this an easy prediction for 2011?

The current trend in cash withdrawals in increasing quantity from investment funds shall accelerate through-out the year 2011 and into the coming bust.



openwheel11's picture

How are ETF's accounted for in this study. I would think there is a big shift out of managed mutual funds into indexed and specialty ETF's given the lower expenses and lousy performance of most managed funds.

theondoxazo's picture

Great question!  I've been asking myself the same thing for some time.  I've been on the ICI website trying to get some information on the methodology they use for their surveys, but have been unable to find any info.  Maybe some of the 'older' readers know?

openwheel11's picture

How are ETF's accounted for in this study. I would think there is a big shift out of managed mutual funds into indexed and specialty ETF's given the lower expenses and lousy performance of most managed funds.

openwheel11's picture

How are ETF's accounted for in this study. I would think there is a big shift out of managed mutual funds into indexed and specialty ETF's given the lower expenses and lousy performance of most managed funds.

Mr. Anonymous's picture

Well, more than confirmation of ZeroHedge's outlook on America's Zeitgeist, this article could well prove a significant contrarian indicator.  Unless this time, 'it's different' and the lambs will NOT be led to slaughter (and wouldn't it be ironic if it was the 'smart money' that was destroyed for a change?).  Regardless, we are sure to see this appear on Ritholz's site (as soon as he ceases with this ShoppingNetwork recommendation crap) as the mother of all contrarians. 


I for one, will not, as that looks to me like a lightning storm on the horizon.

TexDenim's picture

Thank God all the signals point to higher equity prices! Whew! I was afraid there might be good news today.

Atomizer's picture

There are many plans in place, here are two.


To G20 Leaders


Message above. NGO's please send us $$, you will see the peasants will change their minds.

PS: We have a kick ass PR commercial on poverty, its destined to run on all network platform channels, just need some more seed monies. We re-opened our paypal account.

Hierarchy and Authority in a Dynamic Perspective: A Model Applied to Donor Financing of NGO Proposals


Since they like to play games, let's play the game of locating and listing NGO sponsors.

RobotTrader's picture

Bear markets do not last forever.

What happens when the public returns to stocks in droves?

Dow 20,000?

Surely 5 posters here on Zero Hedge can't be the only ones benefiting and profiteering from a rising stock market.

Mr. Anonymous's picture

Sure.  But then it took the Dow 25 years (and a world war we won) to return to its 1929 highs. 

Phineas Gage's picture

RP knows this.  He's been at it for 10 whole years.  He's seen it all and then some.  Don't listen to Cashin, Hussman, Taylor, Rosenbeg and others.

thepigman's picture

Robo's just a trend trader. Trend
traders have no core beliefs aside
from the direction of the tape. That's
why they're so irritating. The minute
the trend changes, Robo will change.

Phineas Gage's picture

He talks a bigger game than he plays, which makes a piker in my book.

markmotive's picture

I wish I was around to buy stocks in 1932. I would have loved to ride that 25yr recovery.

Problem Is's picture

LOL. You may get your 2nd 1932 chance of a lifetime in 2012...

Riding? Happy Trails!
A 25yr snail recovery with slime trails courtesy:

Dimon, Blankfein, Moynihan, The Bernank, Timmay, Obummer et al...

markmotive's picture

Just under 10% annualized price appreciation from 1933-1954 ain't bad at all.

Add dividends to that and you're laughing.

The dumb money bought in 1929, 1930. The smart money bought when the world hated stocks around 1932/3

dukeness's picture

Two assumed good years and we haven't touched, let alone tested, the 2000 high of 11722.  We still have some rough sledding.

cosmictrainwreck's picture

11722 ?? dude, that's only 149 points = ONE DAY. I'm sure the bernank and friends target 14K. Wait, that's only 20% up, and a measley "also-ran" v. Oct 2007..... 16,000, there ya go. No prob. POMO.

Atomizer's picture

The Government generated Stimulus plan runs out in June 2011. What do you expect to transpire by keeping the derivative fraud market from hitting a heartbeat flatline?


traderjoe's picture

Robo - you and the PigMen can have at it. I've closed all of my accounts at any TBTF bank/brokerage and am withdrawing my consent from the global Ponzi. I will not profit off a system that intentionally and systematically destroys the wealth and savings of the middle class for the benefit of the parasitic 'money-changers'. 

merehuman's picture

 I loved that last sentence. Wish more folks could see it your way. I backed off also.

markmotive's picture

Will you be changing your name?

hardcleareye's picture

The corruption is to deep and the power to consolidated.  Even if the vast majority of American citizens followed your example, it would NOT be effective in changing this system at this time.  These are also the same reasons "armed conflict" won't bring about a "change", just end up with a lot of innocent people dead.

Bearster's picture

How can anyone just ignore what's happening and try to pick "contrarian indicators" or look at previous cycles to figure out how to time what is "surely" a cycle this go around?

Folks, and even RT, you've seen that graph of unemployment that Calculated Risk keeps updating every month (and despite the measurement of unemployment being revised numerous time in the past 30 years to make the number look better).  You've seen virtually every government borrowed into a deep, deep hole of debt from which they cannot dig out.  You've seen unprecedented government actions at every level, from continually extending "emergency unemployment" to printing trillions etc.  You've seen short-term interest rates forced to zero--the trick that has always seemed to work in cycles past--epic fail this time.

While it's certainly possible that people get suckered back in to the great stock market ponzi, en masse, I don't think there is a lot of reason to expect they will.  For one thing, their incomes are falling.  This is not just about construction workers, but doctors (especially those who perform elective procedures), salesmen of every type, businessmen of every stripe, etc.  I think the reason they are pulling capital out is they need it--to eat.

This does not bode well, as this is a capital crisis characterized by insolvency, not a liquidity crisis characterized by whatever it is that is "fixed" by central bank easing.

And watch out for municipal bonds, first losing market value, then defaulting, then mass layoffs by every level of government (except federal) and including vendors and contractors.  And watch out for more cases like Prichard, AL defaulting on their pension obligations.

I think market expectations are binary at this point.  I am not aware of anyone who thinks fair market value for equities is +/- 10% from current levels.  Some are calling for a collapse.  Others believe Bernanke can print his way to DOW 100,000.


P.S.  Robot: if you work for a bank or other sophisticated firm, then enjoy it while it lasts.  Otherwise, you are an arrogant fool to think that you can beat those with more computing power, more math PhD's, more bandwidth, and lower latency.  I think the era of individual day traders consistently beating the market over the long run is dead (if it ever existed).

banksterhater's picture

My next door neighbor is a gastroenerologist, he built a clinic at Tri City Hospital in 2008 for colon testing, and hired a doctor. He told me nobody has the $200 copay! He's driving to Scripps La Jolla to perform some on weekends, not that he is hurting but symptomatic of doctors here in San Diego anyway.

I had good architectural biz for 20 yrs, went back to grocery stocking nights (wife cancer), and got laidoff, Albertsons is trying to sell off, food biz is hurting bad, they hope to gut all the unions I am sure you'll bag ur own some day.

lilimarlene1's picture

 You make some interesting claims and I follow your posts and charts. It's an education.

hardcleareye's picture

Ahh... more of the, "just buy the f#^king dip, you f#^king moron...".

RKDS's picture

Except the market, from my viewpoint, has been more or elss stagnant for the last year.  If I were a speculator, I guess I could hop around and day trade my way to riches.  Stupid me, investing in companies that provide real value and pay a small dividend now and then.  It;s difficult for me to justify not pulling out to play the day trade game if that's all that matters.

Stuck on Zero's picture

If the Fed calls all of its Wall Street friends together and says that for the next two years it will use all of its financial clout to keep the stock market rising monotonically higher then there is an infinite amount to be earned from the market.  The smaller the margin the more you earn.  Borrowing at 1% interest to buy options trading hedge funds on 5% margin will give you a good x1000 gain on the market gains.  Everyone wins!

merehuman's picture

wrong, when you empower a monster or a lie.Have you no class? No moral compuntion? Would you seek profit even if it meant someones death or misery? Where do you draw the line?


thepigman's picture

We'll return to stocks, Robo, as soon
as the Fed quits jacking them to double
the multiple of where they belong.
Who in god's green earth knowingly sits down at a rigged game where all the other players are cheats?
For chrissakes, even Tepper has had
enough and is scaling out.

thepigman's picture

And when anybody figures out what kind
of an off-balance sheet entity is
actually holding all those equities, please let us know. Assange can't be
expected to do everything.

Lucius Cornelius Sulla's picture

Could it be that US investors have figured out that most corporations are managed by a bunch of kleptomaniacs?  Most tech companies steal by diluting shares through options.  Most finance companies rob the treasury through inordinate cash bonuses.  IMO, US investors will require that corporations "show them the money" vis a vie generous dividends before they return.  By the look of current yields we are very far away from mean reversion, much less a bear market bottom.

rolo's picture

I have no doubt I will get flamed and junked for this but this kind of stuff makes me so bullish it's ridiculous.  I don't think the time is right just now, but these types of things along with the equity mutual fund outflows are exactly the kind of setup you need for a secular bull.  As I say, I think we may be a year or two away from it but IMHO 666 was a generational low on the S&P 500.

thepigman's picture

Since I REALLY am a pigman, let me
disabuse you of your naive bullish notions. This time is different
and I've never said this time is
different before.

Lucius Cornelius Sulla's picture

Dividend yields hit 3.5% when the S&P500 was at 666.  No bear market in history has ever ended without dividend yields hitting a minimum of 6%.  Furthermore, if you do not take the historic stock mania of the late 90s onward into consideration, dividend yield averaged about 4%.

Miles Kendig's picture

...at this point even the blind can see just how massive of a catch 22 the Chairman has boxed himself into, whereby every incremental dollar of monetary "stimulus" just raises the sword of Damocles a few inches higher.

Absofuckin'lutely  As max distortions related to central planning, and the faith based governance premised upon it, exert themselves.

Ferg .'s picture

Interesting piece from DailyFX . Basically it relates that price action ( S&P 500 ) in January has a high probability of predicting direction for the rest of the year .

 My own personal opinion is that what will begin as a correction of an overextended market early in 2011 will subsequently develop into a bear trend as a result of further financial deterioration in the eurozone , Chinese efforts to cool inflation and continuing problems in the US residential property market . Oh and the small issue of insolvent municipalities of course . Also , the Fed's ability to continue it's current policies will be curtailed by a GOP dominated Congress , fierce domestic/international criticism and a new more hawkish Board of Governors .



banksterhater's picture

The hint has been made QEIII is The Beard buying minis.

Any corruption is legal now in this pathetic country.

sharkbait's picture

It is simple demographics.  From the 80's till the last couple of years the boomers where stuffing money into 401k's, IRA's etc.  the market had to go up and all the asset managers couldn't help but grow assets.  ( As a former Fido employee, I can vouch for the amazing institutional, our sh!t don't stink, hubris when all they were doing was riding the demographic tidal wave).

That tidal wave has passed and outflows will rule the world for a long time.  Baby boomers are becoming retirees and they need that money.  Short term sentiment has very little to do with it.  

This will be a stock pickers market, blind asset allocation is death.  Be good at finding real value or stay away.


banksterhater's picture

The criminals on Wall St and Congress who they own are looking for EVERY avenue to gain hold of SS funds to replace the outflows, the 2% payroll tax was no doubt planned, that will not be paid back from the general fund, this is a HUGE change in the funding, targeted to weaken Soc Sec, this has not been talked about, this is a stealth move by the most powerful mafia to introduce private accounts again, watch.

weinerdog43's picture

You are absolutely correct.  This was a stealth attack on Social Security.

banksterhater's picture

The criminals on Wall St and Congress who they own are looking for EVERY avenue to gain hold of SS funds to replace the outflows, the 2% payroll tax was no doubt planned, that will not be paid back from the general fund, this is a HUGE change in the funding, targeted to weaken Soc Sec, this has not been talked about, this is a stealth move by the most powerful mafia to introduce private accounts again, watch.