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Is The 'Dumb' Money Doing Something Smart?
Submitted by John Rubino via DollarCollapse.com,
At the peak of bull markets, when stock prices have been rising long enough for people who just recently started paying attention to conclude that they always go up — that’s when retail investors traditionally go all-in to snag some of that apparently easy Dow Jones money. That’s also when markets tend to peak and then roll over, once again transferring a sizable chunk of societal wealth from late-to-the-party “dumb money” investors to the pros who have been here before and recognize a peak when they see one.
So it’s interesting to hear that retail investors are departing from the script in 2015. Instead of piling in at the very top, they’ve greeted year six of this steady, robust bull market with a financial slap in the face, withdrawing near-record amounts of money from US equity funds:
Money flees US stocks at highest level since 1993
(CNBC) – The flight of investor money from U.S. stocks has turned into a stampede.
In fact, the $78.7 billion leaving domestic equity-focused funds has been worse in 2015 than it was even during the financial crisis years, when the S&P 500 tumbled some 60 percent, according to data released Friday by Morningstar. The total is the highest since 1993.
Domestic equity funds surrendered $20.4 billion in July alone and have seen $158.6 billion in redemptions over the past 12 months. Even a strong flow of money into passively managed exchange-traded funds has been unable to offset the stream to the exit among retail investors, who generally focus more on mutual funds than ETFs.
The move is all the more unusual considering that it hasn’t been a bad year for the market. The S&P 500 has gained about 1.5 percent year to date and 3.4 percent in total return, though it’s lagged other indexes, particularly those that focus on international stocks. The MSCI-EAFE international benchmark, for instance, is up 4 percent in price and nearly 7 percent in total return.
“Apart from flows following performance, this pattern also hints at investors’ expectations for the future,” Morningstar senior analyst Alina Lamy said in a report. “The consensus is that the United States is in the late stages of its bull market.
“Globally, countries are cheaper on a fundamental level, and Europe and Japan are still actively stimulating their economies. Investors are aware that the United States and Europe are at different points in the economic cycle, and this is reflected in the flows.”
Indeed, international equity funds have flourished not only in returns but also in attracting investor cash. Such funds have attracted $179.3 billion, by far the biggest in all asset classes.
It’s hard to know what to make of this. As the above article notes, the US is tightening its monetary policy while most other countries are still easing, which might be a good reason to move capital overseas. But that’s a fairly sophisticated line of reasoning to attribute to small investors who historically have tended to just buy whatever’s going up.
And there’s of course no guarantee that dumping domestic equities will actually turn out to be smart. A US stock market correction could easily infect other markets and lead to even bigger declines overseas. Or the US bull market could continue, leaving foreign equities in the dust.
Time will tell, but for now it’s fun to see people behaving in unexpected ways.
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Of course we now know who the real dumb money is...
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The herd is getting restless......
I posted this on another thread but it deserves to be here, too.
There is NO market.
With CB’s buying stock it is all a Ponzi until the first CB with big positions wants out.
Then it’s Bernie Madoff all over again.
The proliferation of blog style outlets, such as ZH, has crushed the scam as anyone who can read and has a few brain cells to rub together can figure out the scam.
I leave my retirement in 100% MMMF type stuff (if I can't cash it out completely). And I am not alone!
Regards,
Cooter
"anyone who can read and has a few brain cells to rub together"
I don't know if 20-30 people can do much to crush this scam.
for once the corporate buybacks are helping retail investors get out and leaving the corporations as the bagholders...oh the irony
And one would be suprised what gets the herd collectively restless. On the farm, it is generally an abrupt and severe weather change.
I've worked cattle and sometimes the strangest things set them off......
Horses will sometimes run back into a burning barn, if you aren't careful. They associate the barn with safety, and when panicked, can do exactly the wrong thing.
Anyone see any investor metaphors here?
NOPE
panic says it all
they're getting wise to the fraud and also need money to buy groceries; make ends meet
I think what is very overlooked is the 401k style retirement system in the US which GUARANTEES huge cash flows for the banking system to skim on a payday by payday basis. In the past, I think worker bees just took the growth rate from the prospectus that looked like it would work for them and their retirement date.
But with 99/00 and 07/08, I think this thinking really started to change and folks are more savvy. They just allocate to the lower/lowest risk stuff (if they can't pull their money). Meanwhile there is a patsy shortage, the CBs are propping all they can to bring in the feeder fish, but folks who have been working for 20 years (prime wage earners) aren't going for round three. If QE3 pulled enough retail in, they would have rolled it over to the retail and re-bought after the crash. Do you really think THEY won't pull the plug as soon as they can profit from the crash?
But that didn't pan out, did it? What if the retail dumb money has walked away - how does Wall Street profit?
The big sharks are going to have to find smaller sharks to feed on ... cause my ass stays on the beach and I am NOT going back into the water.
Regards,
Cooter
Just last week we started the process to shit-can an old IRA. I bet a lot of these low risk categories with names like the "conservative, moderate, sensible fund" are actually populated with crap like sub-prime auto and student loans with absolutely zero collateral. Who the fuck in their right mind would invest in shit like that?
It's just another well thought out scam, on top of that you gat whacked with early withdrawal "penalties". Never again.
Bingo! Wall Street has always operated in this manner, even 100 years ago, it is just that the lessons are forgotten between generations.
Regards,
Cooter
The smart money is being traded by HfT crooks.
Where is the cattle call coming from to buy international stocks?
gotta go against retail. they are still dumb money. if the the dollar breaks the market will soar.
their ultimate goal is get everyone out of the markets to insure zero volume all the time
What if the script has been rewritten and they are being fooled again.
Are they buying PMs as protection against the fed? No, then they aren't being smart with their fiat.
It is my understanding PM's are selling at record pace.
Selling, or being bought? Or is it short covering?
"No one could have seen this coming." I'd love to see that testimony before Congress. 'We anticipated papering this over with Muppet money, but they punched out before we could. Pls gib moneys to save the the innocent and valuable financial system.'
How can corporate buybacks be dumb money? On balance they are indistinguishable from dividends. Are dividends also dumb money?
Dividends are the pass through of excess capital to shareholders. Buybacks are being done for financial engineering of earnings and to reward insiders. Companies rarely, if ever, buy their stocks at lower prices, they buy at the top of the market to support their share price, and eventually issue shares later when capital runs out.
probably a sign that crack-up bubble top is yet to come ...
US tightening????
hahahahhhaaa...vague jawboning is not tightening
Thanks vote_libertarianparty...I read this:
"As the above article notes, the US is tightening its monetary policy"
And thought "what fucking US is he talking about". Jeebus what a crock of shit!
Retail investor? They've been extinct since 2008.
if the muppets are wising up that is a bad sign for the maggots
Wall Street runs a CON Market that's designed to impoverish the poor and middle class while further enriching the Richie Rich. I'll love seeing every stock on the CON Market crater towards $0. It couldn't happen to a more evil group of people even if God emptied Hell of the worst of the worst!
I read an article about a year ago, written by Josh Brown (The 'reformed broker') in which he stated that approximately 75 percent (75%) of the entire amount of money in the stock markets these days is comprised of 401(k) plans and IRAs, and he postulated that is why these markets continue to stay relatively stable and the corrections are relatively mild.
The article made a lot of sense to me, because I don't see that many people cashing in their 401(k)s.
I don't know how many is "that many", but I know I am one of them. So are a few others I know, also with none of us contributing any longer. It would seem there are other, more tangible items that have lately become more important.
Fooled me once, shame on them. Fooled me twice, shame on me. I am not sticking around for a third go at it, only with the hope that someone else has my best interests at heart.
I now believe in "investing" in myself, as ridiculous as that sounds. But then, I enjoy physically laboring and enjoy having the means and tools to do so with. I daily see the return on my "investments". Quality of life has vastly improved, my health and mental/physical well-being have improved, I get plenty of sunshine, exercise, etc.
I feel good about it all, sleep well, and don't fret about the future anymore.
Perhaps I should have summarized the above with the thought that if 75% of the money in the markets are people who currently own 401k plans, and these people call them savings plans --- but they all begin to notice they aren't exactly saving any money anymore, then we may be in for a heap of trouble.
And let's not forget that the gov as a plan in place to replace all money's and stocks in IRA's and 401K's with gov bonds. For our safety, of course.
So if the "dumb money" is already selling, and everyone is operating in the mindset of extreme fear... perhaps this means a crash WON'T happen.
Maybe the market will stay at these levels for several more years, while everyone is afraid that it's going to crash "any day now."
I know everyone here won't like to hear this... but this may mean stocks are about to go WAY up, despite all the obvious reasons it should not.
so put your money where your send button is.
QE 5 until the proles know their role
LOL The people making the rules will simply change them so the little guy can not win. We need a new govt even if Trump is the catalyst
Maybe I need to check my assumptions, and the groupthink I'm in. ***This is one of the few indicators possibly signalling a bullish I have heard in a while. ***Who here knows other indicators signalling bullishness for the markets? ***Also, who knows a great Bullish blog to go with our Bearish ZH?