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The Mystery Grows: Goldman Finds That Virtually Everyone "Sold In May"
The great mystery of the endlessly levitating market continues to confound everyone, even Goldman Sachs. Because while the market soared in May (and has continue to surge in June) contrary to the sell in May mantra, when peeking beneath the market's covers, Goldman has found that most investor groups did just as they are supposed to do for this time of the year: they sold!
From Goldman's David Kostin:
While many investors puzzle over the decline in 10-year US Treasury yields to 2.6% alongside the S&P 500 at an all-time high, recent data suggest they moved flows in the same direction. Mutual fund, futures, and ETF data show a shift away from stocks and towards bonds during the past month. Pension funds have also sold stocks and bought bonds in 1Q. Equity market performance supports a pro-risk stance offset by a muted return outlook given high current valuations.
US equity flows have weakened during the past month with outflows from US equity mutual funds totaling $10 billion since April 30. The outflows have been broad-based with all categories affected other than Equity Income funds. The preference for yield is also evident in continued strong flows into taxable bond funds as well as outperformance by stocks with high dividend yield. Small-cap funds have experienced the largest outflows consistent with Russell 2000 lagging the S&P 500 by 625 bp YTD (5.9% vs. -0.3%).
Flows are also weaker in relative terms as both bond and international equity funds continue to receive inflows. During the past five weeks $12 billion was withdrawn from ICI domestic equity mutual funds. Meanwhile, $7 billion moved into international equity and $11 billion flowed into taxable bond funds. Both hybrid and municipal bond funds also had inflows. Lipper fund flow data shows a similar but less pronounced trend with $8 billion of outflow from domestic funds in May of which $7 billion was small cap funds.
The combination of fund flows has pushed our Rotation Index to its lowest level since June of last year. Recent flows suggest a modest preference for equity allocation but less risk appetite than during the past year or compared with previous bull markets. The index estimates the risk appetite of retail investors based on the mix of their fund flows as compared with their base-line mutual fund allocation across money market, bond and equity funds. Margin balances in retail brokerage accounts have also eased from very high levels implying less retail risk tolerance.
Institutional investors have also reduced exposure to US equities. Net equity futures positions of Institutional and Levered Funds have declined to $68 bn at the end of May from $92 billion at the start of April (Exhibit 4). The shift has been caused by large growth in the net short exposure of levered funds. Net futures sentiment is below average but has rebounded from very low readings last month. Broad-based short ETF exposure also continues to rise across major indices.
Pension funds have also been selling stocks and buying bonds this year but the pace has outstripped our estimates. Yesterday’s release of the Federal Reserve Flow of Funds report showed pension funds sold $42 billion of equities during 1Q ($168 billion annualized). The outflow is already 7x our initial 2014 annual estimate of $25 billion. Public rather than private pension funds dominated the equity selling. Assets shifted to short-term bonds.
And yet:
Changes in positioning do not appear to be driven by event or growth risks and may instead reflect fatigue post strong valuation expansion. The options market does not suggest higher event risk as the VIX fell below 12 last week (5th percentile since 1990) and 1-month skew is at its average level over the past 10 years while realized volatility was just 8.2% in May. Low volatility may persist as the average VIX regime lasts more than 3 years.
What is the conclusion by the firm which has a 2014 year end target of 1900, and whose June 2015 S&P 500 price target of 1950 was just hit on Friday?
Performance at the stock level is consistent with high risk tolerance but high current valuation suggests limited upside. Firms with lower return on capital, high realized volatility, and weaker balance sheets have all outperformed peers by about 200 bp this year. However, stocks with high dividend yield are also outperforming as modest upside and low interest rates make dividend-paying stocks attractive from a total return perspective.
So what's going on? Simple: one massive, ongoing, relentless short squeeze:
Finally, as Zero Hedge revealed, everyone else may be selling (or shorting) stocks, but here is who is buying with zero considerations for cost or value:
Of course, since neither facts, nor news, nor events, nor anything matters in a centrally-planned market, just BTFATH.
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Everybody sold in May and we're up another 2% every day? Obviously the central money printers are bringing stocks much, much higher.
It's free fucking money, whatever that is.
Money has no where to go, and for the moment, the stock market is the pick of a lot of institutions, people, etc. Is it a house of cards? Heck yeah. You have to be willing to exit in a nano-second.
When do you figure the people will see these?
Real Homes, Real Dow
http://www.showrealhist.com/RHandRD.html
Interesting graphs but I think that the situation in housing is far worse than depicted. That first graph would beeven more useful if the percentage of average debt on homes throughout the decades was also plotted.
My Real Homes is just this NYT trace, updated.
http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2....
which includes BOOM TIMES
... return to levels consistent ...
I am encouraged for the validity of the series by the available interpretation that since the late 1950s, Real Homes has been flat, except for three temporary bubbles -- the third not yet finished.
Shiller has the strong view that USA, nationally, is NOT land-limited, so home prices, nationally, can rationally follow CPI-U.
you see, what they do here is claim its all rigged and will blow up any second.
and 5 years later they are still saying it, and claiming they told you so.
zh for trading, useless as tits on a bull market
"Useless"????
Any indicator that is religiously consistent as ZH is as good as inside information shared by few.
Just use it as an invert.
What they don't want you to know about why the market is going up.
Let me explain, it is true that in the past buyback ks were used to allow key shareholders to exit on time before bad news had to be disclosed. But now there is another huge market distortion introduced by the Fed. The cost of capital, something that any decent CFO watches all the time. This cost is given by WACC the weighted average cost of capital
WACC = (E/(E+D) x (Rf - Beta x MR) + (D/(D+E) x I) x (1-t)
E is equity, D is debt, Rf is the risk free return, MR is the market return, t is the tax rate and I is the interest paid on debt. Well if you KNOW that Rf is going up and you borrow to the hilt now you save yourself a ton of money in terms or cost of capital since you know that equity will soon become a lot more expensive than debt, and you can't lock in the cost of equity but you certainly can lock the cost of debt.
Another unforeseen effect of the Fed tampering with the markets is that it has increased the cycle inventory of ALL companies by artificially lowering the cost of holding goods in inventory. Any supply chain manager will calculate lot size using the simple formula
Q = square root of (2 x S x D/ h x C)
where S is the fixed cost of placing an order, h is the holding cost, that depends on the cost of capital, artificially lowered by the Fed, D is the demand and C is the cost of of the goods being purchased.
The inventory is typically Q/2. Meaning it has gone up industry wide due to h going down. When interest rates go up the market will not only face demand going down due to higher prices but inventories marching down at the same time. The impact will be collosal, and will mostly affect small cap and subprime companies, whose holding costs will suddenly skyrocket up.
What you are describing then is how the central banks counterfeiting bypasses the "real economy" and instead pumps up the stock market.
+1000000
This is a quite interesting expose...Except that IT DOES NOT WORK and DOOMS a Corporation to BANKRUPTCY when THERE IS NO MARKET NOW NOR WILL THERE EVER BE A MARKET IN THE FUTURE..
The rise is Stock Prices due to a Corporation buying back its own shares of stocks to demonstrate "growth" when there IS NO MARKET for the goods and services which they have not produced...
(Of course this is due to LACK OF CONSUMER DEMAND...BECAUSE THE CONSUMER HAS NO CAPITAL AND IS TAPPED...THE CONSUMER IS BURIED IN DEBT...)
...IS CANCEROUS TO THE CORPORATION.
I would fire any IRRESPONSIBLE CFO who attempted to demonstrate that the Corporation has VALUE, who is lying about GROWTH, who is PURPORTING A FRAUDULENT IMAGE RATHER THAN HONEST SUBSTANCE, for INCOMPETENCE.
Are you fucking serious??? (not you personally...but...) Is THIS what it boils down to? Is this scene what the entire "markets" are all about?
Profits are more important than PRINCIPLES???
Image is more important than substance???
Then WE ARE FUCKING DOOMED.
Keynesian Economics DOES NOT WORK!!!
I guess that I will be WISE and need not expect any truth from Corporate CFOs and will be wise toavoid the FRAUDULENT MARKETS. Thanks for your expose.
What we are now seeing is simple exploitation. There is liquidity NOW and it will rise, so the thing is to use cash and own stocks. to Sept. Then Time to dump bonds in the heat of august and go to cash waiting to buy stocks in November. For god's sake get a calendar and play the game. Tepper is not wrong, just slow.
Point o' Odor!!
If that is the case, then, 1) why just use cash, 2) why use it to buy stocks??
Shouldn't one 1) use margin, 2) buy calls on Triple Index like TNA, 3) mortgage the house, the kids, the Pings, Beemers, and Teslas, max out the cash portion of credit cards, and buy more calls??
USA Inc buys back all the equity and the Fed buys back all the Treasury issuance.
Banks make a fortune simply letting the money sit and do nothing at the Fed, the middle class is obliterated and Government declares war on Russia.
Sounds like a perfect response to 2008.
Nothing wrong here.
So, the reason why the VIX is where it is, is because there are only 6 or 7 major players left. Everyone else has left. Only the machines are trading with each other, waiting for some sucker to come through the door so they can crush him.
What a sham.
My Advice; turn the channel when they talk about how high the Dow, Nasdaq or whatever, its fake.
ZH, please continue to explain how this is all a put on designed to give the image of prosperity.
Conclusion:
The collapse already happened.
The collapse already started.
The collapse is far from over.
Ah, It doesn't seem like its happened. I feel its happened because the old rules don't apply anymore.
The key is to keep it hidden. Prop up the financial institutions, keep lending, and keep the illusion going. Phony ISM Data, CPI, etc, falsify, obfuscate.
Monetize massively. Make sure QE money flows into the markets, though the primary dealers, through whatever. keep those numbers up. Markets are not for price discovery anymore.
Reward the institutions that participate. No criminal prosecutions that result in closure. Any fines are really token, because the money will be channeled back anyway. Provide the illusion of a controlling authority.
Sell as much gold as possible. Same for other asset classes. Remove any legal obstacles. Sell to overseas interests, Asian Indian, Russian, whomever will buy make sure they get their skin in the game.
We are suffering the effects from a system that has already collapsed, and yes, more to come.
Next up:
The dollar will loose its reserve currency status. Confiscate gold if manipulation fails and put currency controls in place. Limit bank withdraws or declare a Bank Holiday to keep banks from collapsing outright if QE or other forms of monetization fail.
When you have only a few large buyers I'd say you're in stage 1 of the collapse.
I will never forget the day Paul Kanjorki got on CSPAN. He looked like he was going to re-soil his pants in front of the camera.
Well Paul, I think we have already crossed the Rubicon on that one.
Look at Europe, China, Japan. Tell me if you dont see Zombieland when you look at their banking system.
Now Paul's biggest concern is his beloved political system of which he is a part of. He could care less about everyone else. That is what they are desperately trying to save, and if you observe carefully, theres not much difference between the democrats and republicans.
They both want a tyrannical system in place, where personal freedom and privacy does not exist. They continue to pay lip service only to get re-elected, but will work together to destroy any political movement that tries to usurp their power.
Think of the system like a power plant that has exploded. The lights are still on because we are running on generators, and were being told that everything is just fine.
Interesting times indeed.
It would be interesting to see that chart of company buying (to improve their eps obviously) over laid with a chart of insider selling (which is at a record).
The question is less about who sold in May, but rather about who Bought in May with the market at near high levels. Given the large number and variety of sellers, the long awaited correction will come when these buyer(s) run out of money.
Too bad you don't know enough about the English language Sparky to properly use adjectives and contractions. But, for sure, your constructive criticsm is certainly appreciated; fuck you very much.
If the Squid knows almost everyone "sold", then what's to stop the Squid from ramming the bid up everyones ass?
I'll bet most of the sellers were institutional and the Squid is speaking of general volume. (pension funds and managed money taking profit)
It's pretty simple: Yellen is buying.
The cabal keeps trading back and forth to keep the market levitated. The wealth effect must be preserved.
I don't think prices give a good ratio of what buyers/sellers do. Low volume, algos that trying to press the prices into channels between resistance- and support-levels and a timing that regularly tries to spoil options expectations short before the expiration. But hey, we all KNOW that there's not an ounce of manipulation in this markets...
The "ramrod" is still going strong, based on the Asian currency market open. (so 1987ish)
Not everyone is confounded. The question is often asked, how can the market rise with decreasing volume? The answer is not hard for the few who cannot ignore what they see. There is no magic. With organized support, it is highly possible but only in conditions with low volume and low volatility. When the market needs to clear, the only way to keep it moving higher is to cultivate low volume and low volatility. With that, corporate buybacks and running stops provide enough demand. The cost of this system is the eventual destruction of first the world’s capital markets, then the general economy and eventually our political system. Without affirmative action, the market cannot go up in the way it has.
The task is made easier because the leverage of derivatives creates an incentive to buy derivatives and manipulate underlying securities higher. Who needs to trade stocks directly? Those who believe there is liquidity in this market will be surprised at the magnitude of the crash when it comes. There is no significant trading in common stocks. When it is clear that the economy has been destroyed actual stock will come on the market and derivatives will be of no use in stopping the decline. All market manipulation is temporary. Get ready!
3 major financial markets of the world touched rounded numbers in last week....usa, london and germany......DOW JONES touched 17.000.....FTSE touched 7.000 and DAX touched 10.000 points.......bull-markets in theses markets are very close of the end...
See here: http://pracompraroupravender.blogspot.com.br/2014/06/guardem-os-atuais-p...
Where did the money come from that has brought the markets to their highs?
Is it based on real earnings? Maybe a few thousand 1's and 0's conjured up in a computer somewhere that was tranferred to other computers around the world?
Angry opening line! Some bold. Accuse somebody of something. Fuck the FED.
Closing catchy line.
That's the pattern, shore nuff. Can you add value?
Is it "irrational exuberance" yet?
What are the lines in those bloomberg graphs? Standard behaviour here to publish some scare story and accuse others of disinformation without having the ability to add anything except "the train is about to come off the tracks".