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Floyd Norris On The End Of The American Love Affair With Stocks
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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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...
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?
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...
Second that. Even just an "ignore Robot Trader" button would work for me.
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.
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.
ORI
http://aadivaahan.wordpress.com/2010/12/24/where-do-we-fit/
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.
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?
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.
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.
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.
EVERYBODY BACK IN THE POOL!
I for one, will not, as that looks to me like a lightning storm on the horizon.
Thank God all the signals point to higher equity prices! Whew! I was afraid there might be good news today.
There are many plans in place, here are two.
To G20 Leaders
http://www.financialstabilityboard.org/publications/r_101109.pdf
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
http://www.imf.org/external/pubs/ft/wp/2003/wp03157.pdf
Since they like to play games, let's play the game of locating and listing NGO sponsors.
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.
Sure. But then it took the Dow 25 years (and a world war we won) to return to its 1929 highs.
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.
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.
He talks a bigger game than he plays, which makes a piker in my book.
I wish I was around to buy stocks in 1932. I would have loved to ride that 25yr recovery.
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...
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
Two assumed good years and we haven't touched, let alone tested, the 2000 high of 11722. We still have some rough sledding.
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.
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?
http://www.hark.com/clips/jzzznnzrjm-heart-monitor-with-flatline
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'.
Agreed.
I loved that last sentence. Wish more folks could see it your way. I backed off also.
Will you be changing your name?
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.
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).
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.
You make some interesting claims and I follow your posts and charts. It's an education.
Ahh... more of the, "just buy the f#^king dip, you f#^king moron...".
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.
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!
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?
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.
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.
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.
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.
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.
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%.
...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.
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 .
http://www.dailyfx.com/files/January_Effect_2010.pdf
The hint has been made QEIII is The Beard buying minis.
Any corruption is legal now in this pathetic country.
dup
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.
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.
You are absolutely correct. This was a stealth attack on Social Security.
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.
Hummm, this is interesting. Has anyone put "real numbers to paper" and "tested" the assumption to see if it holds true. You know, someone like Reggie Middleton?
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Some elected folks that lied to the US public will face a public law proceeding. Wait until the military finds out, protecting the US dollar/Petrol dollar recycling is all but a rogue. The plans for global currency are spelled out explicitly.
Watches J6P drama while enjoying my popcorn.
Link is to a paid subscription with McGraw Hill... your claims are but foolish rhetoric, how about providing sources that can be "verified". I junked you because I don't appreciate people wasting my time. I don't read these blogs to be "hustled" by amateurs!
I know who's buying equities: the companies that issued them.
Buybacks exceeded new issues in 3q10 by about $20b ($82b annualized as per Z1). Low interest rates are encouraging listed companies to borrow money to buy back their shares.
And there were a few other equity buyers in 3q: ETFs for about $25b, foreigners and offshores about $36b, life insurers about $15b.
Buy them back, wait til the algos pump the price higher then off load the shares into dark pools. Instant profits.
>This mystery is further intensified by one Fed spread sheet showing that the largest Wall Street firms deposited a total of $2.1 trillion in stocks as collateral in order to obtain liquid funds from the Fed. Depositing stocks as collateral began on the day Lehman died and was done in large size by Lehman Brothers, Morgan Stanley, Merrill Lynch, and Citigroup. Raising additional red flags, tens of billions of dollars in stocks were posted as collateral by the London operations of Morgan, Merrill and Citi.
Was this publicly traded stock from the firms’ proprietary trading desks, otherwise known as the in-house casino? Was it illiquid private equity in which the firms had their money tied up? Was it equity tranches from the dubious Collateralized Debt Obligations (CDOs)? If it was either of the latter, how could it have been properly priced as collateral? The Fed describes the equity as follows: “Securities representing ownership interest in a private corporation….” Without knowing the details of these securities, or the other unspecified junk bonds used as collateral, we don’t know the extent of the trash the Fed was swapping for cash with Wall Street. <
http://www.zerohedge.com/article/tax-payers-tab-cool-9-trillion-and-then...
Right.
"find out what off balance sheet entity is buying equities" would mean auditing those banks, follow the money... Will Ron Pauls Fed audit show us anything more (if he isn't blocked) ?
Ummm...I'm sorry, while Robo doesn't need me to defend him, still I like accuracy. He isn't a champion of the market, he's a shrewd analyst of what fed intervention is doing. He seems, from what this dim bulb can discern, to recommend not fighting the fed. On a longer timeline, he does not defent their policies as ultimately maintainable. If I have read him right.
Merry Christmas.
Yep, IWM RECOVERED almost all losses and the SPY up 4% per month for 20 months for 85% gain. Sure nobody likes stocks ?
Someone likes stocks...the Fed.
We have revolutionaries here and a few stock traders. I haven't gone long anything but PM and inverse SP500 ETFs all year and made a good year of it. Any intelligent man who has studied what is going on must feel repugnance; but you can't indulge in that emotion of contempt because it will leave you out of big moves or shorting it (as I did, sustaining my losses; all 2010 and all of 2009 lost big short).
If you sit down at a poker table with an idiot who is betting the farm, do you take his money or not? This chest-pounding about morals is empty. As Jello Biafra said, "Trash a bank if you have real balls."
In sum: If you are smart enough to see what is going on, take the fucking money or sit at the keyboard and pound your chest.
Sorry about your losses....it certainly took a while for most people to realize the extent of the manipulation that was/is occurring. Despite your losses, your opinion is troubling to say the least, and it represents the Machiavellian nature of the market manipulation decisions that have been made over the last few decades....."lets make a profit and f*ck the consequences"......"just give me my big bonus, and f*ck the consequences"...."just get me re-elected, and f*ck the consequences"!!!!! It's time to stop this insanity for the good of mankind. Wake-up my friend because the time of price discovery has ended, and the time of consequence discovery has begun.
T.E.I.N. everyone!