Stunner: 12th Sequential Domestic Equity Outflow (And $11 Billion In July Alone) Invalidates Volumeless July Stock Surge

Tyler Durden's picture

The latest update from ICI is a doozy: in the week ended July 21, domestic equity mutual funds saw a 12th sequential outflow of $1.5 billion. Even as the market has surged 10% in the last three weeks, just under $10 billion have been redeemed from mutual funds, completely invalidating the move and further justifying the skeptics who see absolutely no reflection to reality in the volumeless ramp orchestrated by a few momentum HFTs and a couple of Primary Dealers with some excess leftover Discount Window change. Not to mention that 12 weeks in a row of outflows pretty much marks game over as far as retail participation is concerned in stocks. Regardless of what the market does, where it close, how high it ramps, etc, retail just pulls money indiscriminately from the market, without any regards for what the fraudulent and fabricated current level of the DJIA may be: all mom and pop just want is to get the hell out of stocks stat and get into fixed income. The market is now completely disconnected from fund flows, and the only thing potentially keeping it in the stratosphere in addition to deranged binary concoctions are various "self-fulfilling prophecy" high gamma ETFs, which continue to push stocks away from fair value to the tune of several standard deviations. However, just like on May 6, the rubberband will, sooner or later, snap, and make May 6 seem like a dress rehearsal.

While technical difficulties prevent us from posting the latest Domestic mutual fund flow-SPY chart, below we have recreated last week's  - fell free to use your imagination and fill the July 21 data point.

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HarryWanger's picture

With machines trading machines and no retailer involved, they can run it up to the stratosphere if they would like. Problem is, it does become musical chairs. When one machine doesn't want to participate in such thin volume, the flash crash destruction would be immense.

In cash waiting so it would actually be fun to watch. I keep throwing out bids at ridiculously low prices awaiting such an event.

ATG's picture

The real question is,

how much of that

12-month equity mutual fund outflow went into ETFs,

including inverse?

old_turk's picture

We are all Day Traders now.

Buy and hold is so 1998.

Jason T's picture

Who in their right mind wants to participate in this parasitic market?


Parasite: Per wike: Parasitism is a type of symbiotic relationship between organisms of different species where one organism, the parasite, benefits at the expense of the host.

Benefits at the expense of the host.... holy crud when do we riot????

thesapein's picture

Aren't you concerned about holding cash? You're probably fine for now as we wait and see, but finding a physical chair to actually sit in may be a lot harder after any big moves. Do you think any alternatives, like sitting on physical bullion, might be less risky and have more potential to the upside? You don't have to be gold bug to consider this option, no?

Pegasus Muse's picture

I sought refuge at the bottom of Exeter’s pyramid.

 When the financial system collapses, the banks shut their doors, and no one accept phony baloney fiat holders of physical will be OK (or at least a lot better off than those without).

thesapein's picture

I keep seeing that pyramid, but don't quite get it. Why not start with basic elements at the bottom and then build with derivatives of derivatives of derivatives? Why are diamonds near the top while gold is at the bottom? Where is oil that forms the petro-dollar? Where is silver? Why are some items specific while others are general? 

resipsaloquacious's picture

Actually, no.  It does not invalidate the stock surge.  That actually happened.  It does call into question the confidence of the carbon based investor. 

whatsinaname's picture

thats a nice one the carbon based investors versus the silicon based investors..

Mad Max's picture

The reason that the silicon based investors are so dumb?  They're all really doped up.  Can't function otherwise.

seventree's picture

Now that one's way inside.

Mad Max's picture

Expect nothing less on ZH.

New_Meat's picture

they thrive on arsenic, phosphorus, and gallium.

Cistercian's picture

 And holes.Why is that no surprise?

thesapein's picture

It may be sound, in a self-consistent way, but not a valid measure in regards to the economy. That's the message I'm getting from ZH. Something can be sound, without being valid.

Though I'm not convinced of its soundness, either. It could be self-defeating in the end.

NOTW777's picture

the average person is not buying the "show" because they deal with reality

RockyRacoon's picture

So much for "cash on the sidelines".  When will this goofy meme die?

When will the "consumer is 70% of the economy" die as well?

New_Meat's picture

When will the "consumer is 70% of the economy" die as well?

Expressed in % terms, not soon.  In absolute terms, stand by.

- Ned


bada boom's picture

Reality = no money + show tickets way too expensive.

thesapein's picture

I see no evidence that the average person deals in what I think of a reality. My guess is that they wouldn't be leaving the market had they not been burned.


StychoKiller's picture

The "Average" person could also be bailin' out because they need the FRNs to buy food, etc.

Oh regional Indian's picture

Now that is telling. Especially since funds have been all squirrely about giving peoples money back (lot's of redemption delays).

Hmmmm..... who is playing then?

Has the market finally moved from some semblence of sex between the willing to just sad ol' glad-handing?


theone's picture

that means retail sales will be up! rally on!

mitack's picture

Sorry for the offtopic.

The sharade is not just alive and well, it is expanding:

Wanted: "High Frequency Trading Research & Development Engineers":

Just in case someone wants to apply...

thesapein's picture

Not off topic in the least!

These companies are obviously looking for only the best and brightest from computer engineers to physicists and promise many rewards in return.

Sometimes it only takes a small team to make a game changing breakthrough. Last year, 3 guys were able to find a way to "cheat" the uncertainty principle, by adding another dimension and then spreading the uncertainty, basically, breaking the sound barrier but in terms of information processing. See:

It wouldn't surprise me if equally brilliant minds with bigger budgets were making their own breakthoughs but keeping them as trade secrets.

What I'm getting at is that, well, unless you're a brilliant scientist with a super computer at home, maybe stay away from this game as an individual trader and only participate on a major league team.

Young's picture

We've had to stomach a lot the last couple of days. Kellogg, Colgate, crashing today, useless job report. Still, the market is green. Are there any exchanges that aren't affected byt the U.S. I'll go play there instead, sick of this fucking socialist ponzi scheme...

Bankster T Cubed's picture

today's currency-linked programmed markets are pure farce

100% pure farce

all of it is total bullshit

the stinking bankers orchestrating it all are fucking criminals

Chemba's picture

uhhm, "bankers" are not market participants.  Commercial bankers lend to corporations against collateral.  Investment bankers provide equity and credit, secured and unsecured, to corporations, raising the funds through sales to public or private markets.

Investors and traders, HFT or otherwise, are not "bankers", "banksters", or whatever other childish, ignorant name you want to place on them.

Young's picture

Prop desksr at a bank = bankers

Chemba's picture

no, prop desk at a bank = trader

Bankster T Cubed's picture

you are an ignorant fool

go back to your dorm room

thesapein's picture

Once upon a time, banks stored money for a fee.

Then they started lending for a fee, merging with lenders.

Then they started investing, merging with investors.

At first, they were playing with bank deposits.

Then they started playing with receipts of deposits that weren't there.

Now, they're just investors who play with paper.


Thus, I would not call them bankers either.

SamThomas's picture

Your definitions make a lot of sense...if this were 1961.  Alas, it is not, and giant financial conglomerates, wielding unheard-of influence--frequently malign--do in fact resemble criminal enterprises;  hence, the affectionate moniker of:  "bankster."

Disclosure:  I have worked for two of the biggest players for 25 years. 

Pladizow's picture

I've seen several charts through out the years illustrating how when mutual fund redemptions by the public are at there highest, this marks the exact wrong time to be selling and markets have pushed higher.

From a contrarian point of view, should one buy?

I am fully aware and agree with ZH views on this and most other posts but I would like an explanation - Anyone?

aaronb17's picture

The only difficulty with this chart as a contrarian indicator is that it lags by a week, so you can't trade short-term with it.   But other than that, yes, it does appear to be a bullish indicator, as I noted last time ZH posted this.

ATG's picture

Robert Farrell, Perennial Institutional Investor All American Merrill Chief Technical Analyst, wrote an interesting essay, Weep Not for the Individual Investor. It was published in Business Week, famous for its Death of Equities cover near the 1982 bottom of the market, the BW cover a classic market signal for contrary opinion investors.
In his carefully researched article, Mr Farrell pointed out Merrill cash accounts outperformed margin accounts, something Mr Buffett referred to as not relying on the kindness of strangers.
Mr Farrell and Mr Buffett showed Individual accounts could outperform professional institutional investors.

old_turk's picture

Under the old 'normal', you are correct that this would seem to indicate a buy signal to contrarians.

However, there's no such road map in the new 'normal'.

Do what you need to do to sleep well at night.

Just sayin'.

bada boom's picture

According to the ICI data, there were huge withdrawals in 2007 and 2008. The biggest three months for 2008 were Jan, Sept, Oct.

The masses were not wrong then and I don't thing they are wrong now.


thesapein's picture

I see no reason why it can't just completely detach from the economy and keep going up. Maybe the only thing that limits this growth, even in an abstract world, is that as the big winners get bigger while the rest get burned and run, eventually there will only be several players left, and then two, and then one. And then what?

Keep in mind, even as the market climbs, the few big players will find ways to prey on the lesser players the entire way up. Going up and going down, either way, the shakeout continues.

bobcat's picture

I think that some of the 'liquidations' are taking the place of the "Mortgage Equity Withdrawl" of 2004 - 2007.  As long as the NYSE is open, investors will settle for what they get......earning 0.00% on deposits, no liquidity in housing, adjustable gross income falling (ask any charity how they are doing:  want the absolutely best short in this market:  the 2nd and 3rd highest priced "development officer" at a top charity or university.  They took FULL CREDIT for the monies that rolled in......currently, they are "explaining away failure" as to why gift giving is down dramatically.  I just called one of my kids college this week and asked about a 'pre-paid tuition plan'.....I asked what the 5 and 10 year tuition inflation statistics were......answer: between 4 and 8%.  I said that I was only looking for 1 number.....not a range!"  The point is that 'selling equities' is the easiest way for most families to raise cash...that includes IRA's as well.  

ATG's picture

" the absolutely best short in this market:  the 2nd and 3rd highest priced "development officer" at a top charity or university."

Amherst College this year raised the second most money in its entire history, with 57.7% participation...


realtick's picture

Here's a sobering thought: maybe May 6th was the grand finale of volatility, that it's all ramp all the time from now on until the end of the world.






TooBearish's picture

No volume = up , HIgh volume = down then up after high volume sales come out - HFT 101 

NOTW777's picture

how about something more simple - people need cash to survive. shelter, food and survival are priorities over gambling in a corrupt casino.

RockyRacoon's picture

True that.  It's amazing how much money goes POOF when in a deflationary environment.  Money is not so much moving as disappearing.  That money which survives is spent as you say, on debt reduction, tangible goods, and real wealth (need I say the dreaded "gold" word?).

lieutenantjohnchard's picture

when it's said that the public is out of the market we're talking about 10% of the country that owns 90% of the equity. so if the the 10% wealthiest in the country are pulling out, and if the correlation (just for talking purposes) of brains and wealth mean anything, then that says alot about what people think about equities. i'm not buying the "rebound." i don't see the animal spirits in my circle of friends and acquantances. when i go to social gatherings i make it a point to count the percentage of people working. it's low, and my circle is best described as upper (not counting me) middle class, people who've had a great career and cashed out.

Vampyroteuthis infernalis's picture

Lieutenant, your observation holds true. I would guess those with a great career were most likely forced out, not voluntarily cashed out.

andyupnorth's picture

Here's a humble guess:

Many, many poor people are taking what little they have out of their mutual funds and placing it into the stock market.

In other words, this market movement is due to little people, not large hedge funds...

Are there any reasons this wouldn't make sense?

-Michelle-'s picture

Am I seeing things or is the 10 yr really at 2%?

ATG's picture

2.9903 8=> yer seeing things...