Complete Fed Failure: Retail Investors Pull Out Most From Domestic Equity Funds In Two Months

Tyler Durden's picture

Just as we had suspected for months, Bernanke's attempt to herd cats and to drive retail investors into equities is now a complete and unmitigated catastrophe. According to just released ICI data, in the week ended September 26, the second full week after the announcement of QE3, retail investors pulled $5.1 billion from domestic equity funds, following a massive $4.8 billion outflow the week prior, and the most in 2 months. This is also the sixth largest weekly outflow in 2012 to date, a year in which over $100 billion has already been pulled from equity mutual funds. And since we now know that Bernanke's only motive for QE3 is to stimulate a wealth effect and to push everyone into the broken casino, where such trading farces as Kraft's flash smash today, as Knight Capital's implosion a month ago, and FaceBook's IPO, not to mention the virtually daily Flash Crash in at least one name, have killed every last shred of faith in equities, it can be safely said that QE3 has failed three short weeks after being launched. As to where the money did go: why taxable bonds of course - not even the "dumb money" is that dumb to go where the Fed tells it to, and instead merely does what the Fed does: it keeps on frontrunning the Fed's monetization of the US deficit, which is now going on for the 3rd year in a row. Eventually "this time may be different." But not yet.

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redpill's picture

Rabbi Benjamin Iosef Shalom Bernanke, I want my financial foreskin back you bastard!

NotApplicable's picture

C'mon Tyler, the idea that Benron is trying to drive retail investors into the market is all a part of the script!

Benron, et al., know full well that retail is dead, and "the market" is nothing but algobots and their resulting systemic destruction. (I mean, it's not like we're the only ones with access to your outflow chart.)

Besides, every buy today will be a sell some tomorrow that they have to deal with. It's far easier to create fake trades that never have to be unwound in order to support the indexes.

ZeroAvatar's picture

He circumsized you while going down a bumpy, dirt road out in the country.

 

You can have your foreskin back, but the damage is done.

Mr. Regression's picture

Ouch.  I puckered right here at the keyboard....

DoChenRollingBearing's picture

Sell those stocks and bonds!  Buy gold!

(or bearings)

redpill's picture

Gold bearings?  They'd wear out kinda quick.

Cdad's picture

LOL!  Average Joe...kickin' ass and selling strength again.

Makes you wonder what the leverage factor in the big banks is just now?  They must be choking on equity positions at this point.  I wonder which TBTF bank will sell first [best]?

Unprepared's picture

Joe ain't selling strength, they are selling because they are cash-strapped.

That they got to liquidating their equity positions tells you all you need to know about their balance sheets and their access to leverage.

Cdad's picture

I was referring to the leverage in the big banks.  Thought that was pretty clear.

With equities being put back to them like they are, the need for Bernanke Bucks is growing every week.  And...Presto...QE3.

Funny how The Bernanke refuses to cede to the will of the people.  Every week, the people vote no confidence in the equity casino, and every month now, the FED props them back up.

Nice Banana Republic.

RiverRoad's picture

The market's propped up like El Cid 'til the election.....

grid-b-gone's picture

I was a selling Joe, mainly because I believe what Bernanke is saying.

1. He said he will keep pumping the stock market above where the free market would otherwise price it. That tells me I will get above-market pricing if I sell while he is pumping.

2. One must print to pump. That tells me he will keep eroding (counterfeiting) the fiat, possibly to the point of official devaluaton some years off. I'm not great at timing, so that makes 'now' a good time to take action.

3. I know the Chairman believes his theories will avoid a Depression, but I think he is probably only hiding one that is in progress already. My ability to see through official obfuscation is about as strong as my timing abilities. Those who weathered the GD entered it with low debt and good cash flow. I'm copying the historical survivors.

4. I also got confused by college loans this summer. They sent me a $150 check in June. Then in July the monthly payment jumped $150/mth. This was after five crony loan administrators were given a piece of this huge pie. I know this was tied to legislation that was a political football all year, but it just told me I really did not understand the details of the loans. Plus, they're non-dischargeable. I was in a position to just get out of them, so I did. 

Of the people, for the people, and by the people is being encroached upon. What the numbers show is nothing short of the people extracting themselves from a system that no longer holds them as the central and singular raison d'etre. 

I'll be a spender and borrower again with an honest 900 S&P before I will be at a vacuous 1,450. 

All I need is a true market to be active in one again.

Kreditanstalt's picture

There has to be a price for retail investors' risk-aversion.  Everyone on the 'safe' side of the boat won't end well.  SHOULDN'T.

In a world of not only near-zero returns on fixed-income but of great risk to asset 'values', bonds will sell off viciously one day and slaughter them - hopefully.

We are being forced to embrace RISK. 

But you don't have to do it on the Fed's or the banks' or the government's terms...the future belongs to the nimble day-trader who manages his OWN portfolio.

Alea Iactaest's picture

Why do you think eTrade has a baby in its commercials?

 

 

October 1, 2012: Global hedge funds are putting up some of their worst returns in years relative to the S&P 500 as the market for hedging strategies gets more saturated, says Mary Ann Bartels, technical research analyst at Bank of America Merrill Lynch.

“Hedge funds are up 3.04% year-to-date as of September, 2012, compared to 13.97% for the S&P 500,” said Mary Ann Bartels, technical research analyst at Bank of America Merrill Lynch.

Source: http://business.financialpost.com/2012/10/01/relative-hedge-fund-returns...

Dr. Richard Head's picture

So where the hell did all of the money for Fidelity's assets come from to go into the "bond and money market assets" of $848.9 billion?  Are they managing for the algos now?

LMAOLORI's picture

 

 

I don't know about Fidelity but GE (perhaps others are doing the same)

General Electric ignores $100 billion of cash to borrow $7 billion

snip

The offering allows the company to use the cash it brings in for stock buybacks, dividends and acquisitions. While Immelt seeks to pare debt at GE's finance arm, the offering may boost bonds of the parent by 22% to $11 billion next year. "It's a no-brainer ," Jody Lurie, a corporate credit analyst at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview. 

"It costs nothing to issue, so why would they use cash on hand" to pay off maturing obligations? GE borrows at lower rates than the average for US investment-grade issuers, whose bond yields dropped to an unprecedented 2.85% on Monday, according to Bank of America Merrill Lynch index data. That compares with 2.62% for GE, which includes yields on obligations of its finance arm GE Capital. 

 

davidsmith's picture

This is what fascist corporatism is all about.  Lift your head out of the feedbag and you will see that this is heading directly for "industrial boards" so the stealing can take place without these embarrassing intermediary actions.

LMAOLORI's picture

 

 

Yes I posted something about that on an earlier post. 

 'Economic patriotism': Corporatism dressed as populism

Revealed – the capitalist network that runs the world

http://www.newscientist.com/article/mg21228354.500-revealed--the-capitalist-network-that-runs-the-world.html

Who Runs the World ? – Network Analysis Reveals ‘Super Entity’ of Global Corporate Control

http://planetsave.com/2011/08/28/who-runs-the-world-network-analysis-reveals-super-entity-of-global-corporate-control/

TooBearish's picture

ETFs baby yea yeah!!

LawsofPhysics's picture

At this point I am more interested in what the "retail herd" is buying and what the big money (insiders) are doing.  Is everybody walking away, where are they going?  Mars?

hannah's picture

the retail herd is paying the min payment on their credit cards for all the shit they bought in 2006....

NotApplicable's picture

Winnah!

Let's also not forget that those cards are now nearly ALL variable rate, tied to LIBOR... er... I mean the "Prime Rate."

kornholio's picture

Bullish!!!!!!!!!!!!!!!!!

ziggy59's picture

So who or what is behind the market caps in equities, besides Bens Magical Mystery Monies?

Rainman's picture

Retail muppets don't matter anymore. Institutionals need to stay in the game and work in lockstep. If one big boy spooks they all take a flush. My 2 cents anyway. 

petolo's picture

My shoeshine boy told me to buy AAPL today.

Unprepared's picture

Wait, they have an app for that now? Cool.

ZeroAvatar's picture

Hey, I did a good job on your shoes, didn't I?

I am a Man I am Forty's picture

pulling out of equity funds is a terrible way to measure anything, most people I know are buying individual stocks and have come to the realization that fund managers are a complete waste of skin

LawsofPhysics's picture

Does this not contradict what ZH reported earlier today?

who is "all in" then?

http://www.zerohedge.com/news/2012-10-03/about-money-sidelines-its-all

 

 

Tyler Durden's picture

Institutional: banks, primary dealers, prop desks, hedge funds: anyone with access to $1.7 trillion in excess reserves and/or is one degree or less removed from the discount window.

fonzannoon's picture

Didn't Einhorn say the fed put was really under the bond market?

ekm's picture

We should draw out own conclusions. Einhorn is there to lure his own suckers.

 

This is a pyramid scheme, about to collapse.

fonzannoon's picture

I hear you EKM. It's the "about to" part that I still have trouble reconciling....

ekm's picture

It's metaphorical, but do you know anything about Pyramid Schemes? Like Maddof one?

ekm's picture

(Reposting)

 

 

 

Pyramid scheme

Forced buying

 

When newscomers stop coming, the only thing the Pyramid can do is spend its own money until:

- Nothing left to spend

- Somebody else calls 'margin' (remember JPM and MFG?)

S&P at 400 is INEVITABLE

 

There is absolutely only 1 thing that can save 1 or 2 primary dealers from a collapse: APPEARANCE OF A SUCKER.

However the Sucker-in-Chief or otherwise known as Federal Reserve, will they be allowed to buy stocks from the primary dealers?

 

fonzannoon's picture

My problem is I think the fed is already in there buying securities now. I have no doubt they are doing it in fact. How they are doing it and how they are hiding it is beyond me. It will eventually be exposed. But if I am right Ben can technically prop this thing up indefinitely.

ekm's picture

Ok, let's assume the Fed is buying stocks, thus being the sucker-in-chief.

There's nobody else left to buy from the Fed. It would practically be the real end of the Fed.

fonzannoon's picture

You are saying the fed eventually owns everything..I hear you man. I really do. I also know not to talk in absolutes. There still is plenty of seeking alpha ass clowns out there salivating over their next dividend paying stock purchase. Their still are people buying weekly in their 401k's. But I agree with your math, and it's end point. Completely.

LMAOLORI's picture

 

 

Not necessarily the Fed has lot's of tricks it can pull out of it's sleeve for instance


 HOT: Fed Hides Major Accounting Change

snip (in full at link)

But they are averting asking the Treasury for money in the future by an accounting gimmick that will simply dump the debt off the capital part of the balance sheet, so it won't be reported as a loss, and make it a liability to the Treasury. More from Reuters:

[According to]Raymond Stone, managing director at Stone & McCarthy in Princeton, New Jersey, "An accounting methodology change at the central bank will allow the Fed to incur losses, even substantial losses, without eroding its capital." 

The change essentially allows the Fed to denote losses by the various regional reserve banks that make up the Fed system as a liability to the Treasury rather than a hit to its capital. It would then simply direct future profits from Fed operations toward that liability...

 "Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible," said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer. 

"The timing of the change is not coincidental, as politicians and market participants alike have expressed concerns since the announcement (of a second round of asset buys) about the possibility of Fed 'insolvency' in a scenario where interest rates rise significantly," Smedley and his colleague Priya Misra wrote in a research note.

Bottom line: We all knew the Fed was going to have to do some kind of monkey business to deal with all the junk securities it purchased, here it is: Negative liabilities. Yes, only at your local Fed.

 

ekm's picture

Only the Fed can help the primary dealers now by buying stocks from them.

Will the Fed be allowed to do it? That's the question.

 

It would be the practical end of the Fed. The gov will practially own the means of production - marxism.

lakecity55's picture

Well, isn't that the Goal?

Communism for everyone!

Xcept barry and hillarity.

Unprepared's picture

So how long can the Casinos remain open playing against each other's Houses?

AurorusBorealus's picture

As long as the casinos keep playing with the "house money" that the fed provides by purchasing all their underperforming assets.  In a poker game, the house takes a rake (read the investment banks / fund managers).  Over a period of time, a few players win, most players lose.  What keeps the game going is the in-flow of new players and new money from "producers" (people who make money doing something other than playing poker).  If new "producers" fail to continue to show up for a game, then the good players sit playing with each other, and often none of them are able to gain much of an advantage.  As a result, the house would end up with all of the money via the rake.  Typically, however, once the easy money has left the table, the good players leave also, as they know that the house is going to end up being the only winner if the game continues. 

ekm's picture

Pyramid about to collapse.

No more newcomers.

I bet on Morgan Stanley. It's going down.

Zombie Investor's picture

Is there any way to know where the money is going?  Bonds, ETFs, individual stocks, fast food, mattresses?