The Santa rally into the year end was taken good advantage of by retail America. As ICI reports [4], in the week ending December 28, investors pulled another $3.988 billion out of domestic equity mutual funds (and $1.2 billion out of foreign equtiy funds). This represents the 19th consecutive outflow since a tiny inflow in mid-August, which if excluded would mean 36 consecutive weeks of outflows beginning in late April, or roughly the time when the market peaked. Altogether a whopping $140 billion has been redeemed from domestic equity-focused mutual funds, which compares to "only" $98 billion in 2010. Unfortunately for the permabulls, the rangebound market since then indicates that absent retail investors returning to the broken casino that is the equity market, the probability of another break out of previous high is slim to nil. In fact as the chart below confirms judging by how long the area chart has been negative (or in outflow territory), the only thing Joe Sixpack wants is to get his money out of the rigged ponzi scheme pronto. And the longer the market trades like an irrational, pustular (for all the 19 year old HFT Ph.D's out there) and outright rabid teenager, the more investors will just say no and park their cash in either taxable bond funds (another $1.2 billion inflow in the past week), in their mattress or in gold. And unlike the Fed, equity funds can not print their own money: given enough redemptions and the liquidation selling will be inevitable. It also means that following $140 billion in redemptions with the market ending unchanged, the leverage used by mutual funds, whose cash is already at record lows, must be at record levels. And we all know how "record leverage" situations end...
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