Yardeni Warns "Late In The Game To Be A long-Term Investor" In Stocks

Tyler Durden's picture

Excerpted from Dr. Ed Yardeni's blog,

US Flow of Funds: ETFs Driving Stocks Higher

...the saying that a picture is “worth a thousand words” is attributed to newspaper editor Tess Flanders discussing journalism and publicity in 1911. We have always believed that a chart is worth a thousand data points in a time series. Given our chosen profession, we tend to focus on the data for the equity and debt markets in the Fed’s quarterly statistical extravaganza. Let’s focus on equities:

(1) Supply-side totals. Net issuance of equities last year totaled minus $229.7 billion, with nonfinancial corporate (NFC) issues at -$565.7 billion and financial issues at $269.7 billion. The increase in financials was led by a $283.9 billion increase in equity ETFs, the biggest annual increase on record. The decline in NFC issues reflected the impact of stock buybacks and M&A activity more than offsetting IPOs and secondary issues.



(2) Demand-side total. To get a closer view of the demand for equities, let’s focus now on the quarterly data at an annual rate rather than at the four-quarter sum. This shows that equity mutual funds have been net sellers for the past five quarters, reducing their holdings by $151.3 billion over this period. Over the same period, equity ETFs purchased $266.4 billion, with their Q4-2016 purchases a record $485.4 billion, at a seasonally adjusted annual rate. Other institutional investors have been selling equities for the past 24 consecutive quarters, i.e., during most of the bull market! Foreign investors have also been net sellers over this same period.


The bottom line is that the current bull market has been driven largely by corporations buying back their shares, as I have been observing for many years. More recently, we have been seeing individual investors increasingly moving out of equity mutual funds and into equity ETFs.

Both kinds of buyers tend to be much less concerned about historically high valuation multiples than more traditional buyers are.

We may be witnessing the beginning of an ETF-led melt-up, which may simply reflect individual investors pouring money into passive stock index funds. Lots of them seem to be more interested in seeking out low-cost funds rather than cheap stocks.

In this case, valuation multiples would lead the melt-up, until something happens to scare investors out of those passive funds, which could trigger either a correction or a nasty meltdown.

It is obviously a bit late in the game to start only now to be a long-term investor given that stocks aren’t cheap no matter how valuation is sliced and diced.

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besnook's picture

a sell off needs a trigger. what is the trigger?

Why Bother's picture

Trump's lack of self control is the trigger.

Fed-up with being Sick and Tired's picture

I think you are correct. There is a guise of Control, but something is happening quietly - - we can feel it. They are letting go for a bit and then WHAM-O!

HRH Feant's picture
HRH Feant (not verified) besnook Mar 18, 2017 4:19 PM

The drummers in the deep. Can you not hear the drums of war?

When the lights and Internet and cell phones go dark, do not be suprised. Will it be due to an EMP or a cyber attack? It matters not. The result will be the same.

Got cash? Got PMs? Got food?

Marilee's picture

I think you are correct. BUt a trigger may not be recognized until after the fact. Plus the main thing is that most analysts and even ZH has been incorectly bearish for so long no one trusts them any longer. 

Why Bother's picture

Cyclically adjusted Price to Earnings Ratio is at 31 now  https://dqydj.com/shiller-pe-cape-ratio-calculator/  - there were only two times the ratio was higher in the last 100 years: September 1929 at 32 and September 2000 at 40 (then endless wars and perpetual bubbles).


June 2014 CAPE by developed countries (when in the U.S. it was at 24, only Denmark was higher): 


Altesh's picture

Cant you feel it? Something broke in 2016 and now we are in a completely new world. Call it what you want, paradigm shift, turning of a trend or whatever. There is change in the air, dare I say even hope and optimism and most people haven't adjusted to it yet. 2017 will be one heck of an interesting year. After standing still and trampling on one spot we are finally moving again. The direction where it will take us remains to be seen. 


TheRideNeverEnds's picture

Only time will tell if now is early or late in tha game.

If in five years the "market" is still going up and the DOW is well over 30,000 will 2017 have been a bad time to buy?

Marilee's picture

Exactly. They thought it was too late in the game five years ago.  And look, the Dow has basically tripled since the last sell off. So, if we sold out five years ago we would have lost a whole lot of money. I am all about making the money. 

Why Bother's picture

If you are like me, thinking 8 years of a Domestic stock boom and inflated Real Estate prices are a rarity, you would be looking to beaten down asset classes and shifting into them.


If you are not looking to them and not shifting into them, why the hell not?


My own credibility would be questioned if I tell you which asset classes are undervalued. It's simple research and takes only five minutes using popular financial sites. 5 frigging minutes. It's up to you. Shifting is easy too. You shift within your 401k and IRAs. No taxable capital gain that way.

OCnStiggs's picture

I love the comments here.

Smart people trying to justify their position based on factual data and good common sense. Sorry though: I have a news flash for all of you...


The "laws of financial physics" have been perverted. What should have served as a "trigger" has been forestalled and abated by Federal meddling in the free market. Crisis was averted in 2007 with huge Q.E. and other meddling behind the scenes. NEARLY EVERYTHING YOU KNOW IS WRONG.

The one thing ZH readers know is, the House of Cards is wobbling and despite the Elite's attempts to forestall the inevitable, they now seem bent on crashing the market (like they always do) to benefit themselves. Look at everything from the viewpoint of the Elites. Only then does it start to make sense.

Its like watching the media pundits make excuses for Obama when they should have simply said, "He is doing this because he wants to. Its part of his agenda."

The crash that is coming is inevitable. It has been in the planning stages for decades. The Elites just couldn't let it happen on their "boy's" watch so they went to extreme measure to delay it. Trump is not their guy so expect all hell to unfold in June when the debt debate becomes the topic du jour. Don't forget sub-prime debt or derivatives (banks collapsing) or the other dozen triggers coming our way.

Don't ignore the play on the stage. Just pay more attention to the man behind the curtain...