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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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Thu, 07/29/2010 - 15:15 | 494660 HarryWanger
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.

Thu, 07/29/2010 - 15:40 | 494745 ATG
ATG's picture

The real question is,

how much of that

12-month equity mutual fund outflow went into ETFs,

including inverse?

Thu, 07/29/2010 - 15:46 | 494765 old_turk
old_turk's picture

We are all Day Traders now.

Buy and hold is so 1998.

Thu, 07/29/2010 - 16:03 | 494815 Jason T
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????

Thu, 07/29/2010 - 16:04 | 494820 thesapein
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?

Thu, 07/29/2010 - 16:46 | 494898 Pegasus Muse
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).

Thu, 07/29/2010 - 16:56 | 494964 thesapein
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? 

Thu, 07/29/2010 - 15:17 | 494667 resipsaloquacious
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. 

Thu, 07/29/2010 - 15:38 | 494743 whatsinaname
whatsinaname's picture

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

Thu, 07/29/2010 - 16:11 | 494844 Mad Max
Mad Max's picture

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

Thu, 07/29/2010 - 16:18 | 494859 seventree
seventree's picture

Now that one's way inside.

Thu, 07/29/2010 - 16:29 | 494888 Mad Max
Mad Max's picture

Expect nothing less on ZH.

Thu, 07/29/2010 - 16:23 | 494870 New_Meat
New_Meat's picture

they thrive on arsenic, phosphorus, and gallium.

Thu, 07/29/2010 - 22:12 | 495446 Cistercian
Cistercian's picture

 And holes.Why is that no surprise?

Thu, 07/29/2010 - 16:33 | 494905 thesapein
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.

Thu, 07/29/2010 - 15:16 | 494669 NOTW777
NOTW777's picture

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

Thu, 07/29/2010 - 16:05 | 494827 RockyRacoon
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?

Thu, 07/29/2010 - 16:24 | 494879 New_Meat
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


Thu, 07/29/2010 - 16:31 | 494894 bada boom
bada boom's picture

Reality = no money + show tickets way too expensive.

Thu, 07/29/2010 - 16:38 | 494912 thesapein
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.


Thu, 07/29/2010 - 22:32 | 495473 StychoKiller
StychoKiller's picture

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

Thu, 07/29/2010 - 15:17 | 494671 Oh regional Indian
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?


Thu, 07/29/2010 - 15:18 | 494677 theone
theone's picture

that means retail sales will be up! rally on!

Thu, 07/29/2010 - 15:20 | 494681 mitack
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...

Thu, 07/29/2010 - 17:30 | 495029 thesapein
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.

Thu, 07/29/2010 - 15:21 | 494683 Young
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...

Thu, 07/29/2010 - 15:22 | 494692 Bankster T Cubed
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

Thu, 07/29/2010 - 15:30 | 494712 Chemba
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.

Thu, 07/29/2010 - 15:31 | 494720 Young
Young's picture

Prop desksr at a bank = bankers

Thu, 07/29/2010 - 15:35 | 494737 Chemba
Chemba's picture

no, prop desk at a bank = trader

Thu, 07/29/2010 - 15:51 | 494766 Bankster T Cubed
Bankster T Cubed's picture

you are an ignorant fool

go back to your dorm room

Thu, 07/29/2010 - 18:00 | 495054 thesapein
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.

Thu, 07/29/2010 - 21:11 | 495373 SamThomas
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. 

Thu, 07/29/2010 - 15:24 | 494699 Pladizow
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?

Thu, 07/29/2010 - 15:32 | 494726 aaronb17
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.

Thu, 07/29/2010 - 15:57 | 494758 ATG
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.

Thu, 07/29/2010 - 15:54 | 494789 old_turk
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'.

Thu, 07/29/2010 - 16:08 | 494838 bada boom
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.


Thu, 07/29/2010 - 17:57 | 495080 thesapein
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.

Thu, 07/29/2010 - 15:30 | 494713 bobcat
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.  

Thu, 07/29/2010 - 15:58 | 494779 ATG
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...


Thu, 07/29/2010 - 15:30 | 494716 realtick
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.






Thu, 07/29/2010 - 15:34 | 494732 TooBearish
TooBearish's picture

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

Thu, 07/29/2010 - 15:36 | 494738 NOTW777
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.

Thu, 07/29/2010 - 16:10 | 494842 RockyRacoon
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?).

Thu, 07/29/2010 - 15:44 | 494760 lieutenantjohnchard
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.

Thu, 07/29/2010 - 16:40 | 494920 Vampyroteuthis ...
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.

Thu, 07/29/2010 - 17:56 | 495093 andyupnorth
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?

Thu, 07/29/2010 - 15:56 | 494799 -Michelle-
-Michelle-'s picture

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

Thu, 07/29/2010 - 16:01 | 494809 ATG
ATG's picture

2.9903 8=> yer seeing things...

Thu, 07/29/2010 - 16:04 | 494819 -Michelle-
-Michelle-'s picture

Yahoo needs to stop playing tricks with mine eyes.

Thu, 07/29/2010 - 16:01 | 494811 primefool
primefool's picture

Possible sequence:
- really bad GDP number tom
- market sells off big
- No PPT support

- Paves the way for QE2 ( I mean they cant get the public support for QE2 unless there is a "crisis" right?)

- next year when the ill effects of QE start manifesting ( ie. inflation) - the Fed can use their old line ( which worked so well for the TARP) - well things were bad so we had to do it - and moreover OK things are still bad now - but would have been much worse if we had done nothing.

Thu, 07/29/2010 - 16:43 | 494930 Vampyroteuthis ...
Vampyroteuthis infernalis's picture


primefool, I have been stating the same thing over and over. We need an equities crash to hurt the political class before the will to pass QE 2.0 will ever materialize. 

Thu, 07/29/2010 - 16:22 | 494867 rmsnickers
rmsnickers's picture

I actually got a call from a guy at Etrade yesterday who wanted to know why my accounts were all cash.  I told him that I thought the market was BS and I am not playing that game until it gets fixed.  He then tried to tell me that I could actually buy things in my account that go up in value when the market goes down.  Hmmm....considering the market only goes up despite every possible signal begging for a downturn, how does one even begin to attempt to try and make money?  No thanks, I am good in cash for now.

Thu, 07/29/2010 - 16:49 | 494938 iPood
iPood's picture

I am sure I am missing something, but based on a quick view of the chart, it does not appear that peak flows correlate that well with market tops and bottoms. The withdrawn funds, generally allocated to the money market or fixed income funds, can be redeployed. In fact, I have heard that peak fund flows (an indicator of retail sentiment) are sometimes used as contrarian indicators. One thing that seems statistically likely is increased volatility, so maybe the VIX is the place to be ?

We study the dynamic relation between aggregate mutual fund flow and market-wide volatility. Using daily flow data and a VAR approach, we find that market volatility is negatively related to concurrent and lagged flow. A structural VAR impulse response analysis suggests that shock in flow has a negative impact on market volatility: An inflow (outflow) shock predicts a decline (an increase) in volatility.

Thu, 07/29/2010 - 18:05 | 495119 pitz
pitz's picture

The fewer people who own equities, the fewer people who will get rich, and thus, the richer they will become.

Sell equities at your peril.  This is an epic buying opportunity.  Most of these sales are essentially forced liquidations.

Thu, 07/29/2010 - 18:20 | 495146 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Mark to Invalid.

Thu, 07/29/2010 - 18:24 | 495153 nmewn
nmewn's picture


Thu, 07/29/2010 - 21:03 | 495362 Buck Johnson
Buck Johnson's picture

The money is leaving mutual funds because people are getting money out of their retirement accounts and other accounts in order to live.  People who are unemployed or underemployed if they haven't already are going to their accounts that they may have invested in mutual funds or even 401k's that are connected to them to pull out money.  Everyone is having a bad time in this economy and are straddled with debt, even people you thought where in good shape are having to rob peter to pay paul.

Thu, 07/29/2010 - 21:10 | 495371 SamThomas
SamThomas's picture


Thu, 07/29/2010 - 23:36 | 495527 Market Man
Market Man's picture

Hey, this post is very misleading.....    The reality is that for every seller there is a buyer...    except for IPOs and stock buybacks, no new money leaves or enters the market....  all that is happening is that the owners of stocks are changing from mutual fund holders to other people holding stocks directly.

Fri, 07/30/2010 - 12:26 | 496350 iPood
iPood's picture

That's a good point, but I don't think it is exactly correct in this instance. This money is being withdrawn from mutual funds, which may or may not  have been fully invested. To the extent the mutual funds satisfy redemptions out of uninvested cash balances, it arguably represents less sideline money available to fuel stocks (if you believe that the funds truly leave the fund sector and are not just temporaily parked in fixed income/money market funds). In any case, the correlation between outlier fund outflows and increased market volatilty has been statistically proven, but I agree that outflow (inflow) peaks do not correlate that well with market tops (bottoms).

Fri, 07/30/2010 - 01:06 | 495589 pamriallc
pamriallc's picture

it is the idea that the price of money will probably "go down" and not really so much that the market will "go up" so remember this in consideration of "why  stocks now?"

I'd take a portfolio of XOM, CVX, COP, KO, PEP, JNJ, PFE, MRK, INTC, CSCO, MSFT, MCD vs T-10 any day of the week.  There's little doubt that in 10 years you'd have more principal and more current cash flow.

over a long enough timeframe, cash is the only asset guaranteed to be worthless.  shawn mesaros, pamria llc

Fri, 07/30/2010 - 03:13 | 495638 No More Bubbles
No More Bubbles's picture

I'm confused why anyone thinks that outflows should mean "the market" will go down.  This "THING" is completely rigged.  What will happen is it will drop precipitiously after it gets people BACK IN!

So far, folks have been trimming exposure only to feel stupid later as this pig climbs more.  I know a few people who sold near the March 2009 lows.  They are in tremendous pain and feel complete fools for missing all the gains.

The higher it goes, the more these people feel they MUST get back in.  The crooks know this and will push it as high as it must go to accomplish this feat. 

The most simple way to look at "the market" is to really consider what it is:


When you start reading about big fund inflows, THEN YOU GET SHORT IN SIZE!

Fri, 07/30/2010 - 03:32 | 495644 Kreditanstalt
Kreditanstalt's picture

NOT completely 'rigged': a well-disciplined trader can make a go of it.  I made $850 this week in FAZ alone.  But next week I may have to sit on my hands, of course...

Getting out of stocks and into fixed income is going to be a recipe for beggarization when either a)traditional cost-push, growth-derived inflation returns (admittedly unlikely) or b)currency depreciation coupled with stagnant incomes and lower asset values bring about inflation in essentials and imports, a la Weimar.

This is just the time one SHOULD embrace market risk!  The music IS playing and we do have to dance the speculation dance.  It's that, accept higher risk, or survive on mediocre-to-zero returns.

Long months ago I noted we were all being forced to self-manage our investments.  Dump funds, drop expensve advisors, exit fixed income purgatory.

In a slow-to-no growth world, risk MUST be accepted.  It's a dog-eat-dog investment climate out there and the masses fleeing equities will for them mean LOWER LIVING STANDARDS.

But for those of us prepared to be risk-takers and penny-chasers, opportunity.

Fri, 07/30/2010 - 12:40 | 496437 No More Bubbles
No More Bubbles's picture

Sure, as long as you understand you're just gambling and trying to pick up the crumbs (ie- $850) that the crooks drop off the table while battling amongst themselves.....

All the fools sitting in funds for the "long term" are dead meat.......

Fri, 07/30/2010 - 12:54 | 496474 thesapein
thesapein's picture

I'm all about risk. The greatest things in life involve risk, even falling in (and out) of love.

However, that said, you sound like you're trying to convince yourself that your gambling habit is a good thing. You really want to increase your risks and rewards? Go to Vegas! Seriously, you can win a lot more in a shorter amount of time. So, by your reasoning, that's where you should be headed. Don't tell me you're too afraid of losing it all. It's just more risk. So what's stopping you?

Fri, 07/30/2010 - 21:27 | 497356 Kreditanstalt
Kreditanstalt's picture

What's stopping me?  Well, in Vegas the odds ARE stacked in favour of the house and I KNOW IT.  In the markets all we can do is SUSPECT that SOME odds are against us.  But there undeniably is money to be made if you guestimate right. 

Though the masses love dearly to believe it, as justification for their falling livings standards and investment failures, the markets are NOT completely "rigged".

And - except in gold - I'm still in the red myself.

Fri, 07/30/2010 - 23:33 | 497479 No More Bubbles
No More Bubbles's picture

I hear what you are saying and partially agree.

I don't believe going to Vegas is the answer.  Price & Time is the trick, also limiting losses.  Vegas doesn't really give you that option whereas the stock market does.

People mostly lose money because they think THEY KNOW the price something should be and that it will go there.  The market doesn't give a damn about your opinion or anyone elses.  It's ALWAYS irrational no matter what it's doing. 

I like to ask both Bulls & Bears what the right price for something is.  They'll give it (usually reluctantly) - at which point I ask them if they would BUY or SELL it at said price.  That usually stumps them. 


As an example -  Someone might think AAPL is a buy at $200, but yet, if (when) it falls there from it's current 257-ish price to $200, they will then"reassess" and be thinking the "right price" is actually $150 and not buy at $200.  It really is all about guessing and trying to out-guess the other guessers.........


Good luck!

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