This summer, investors are taking their ball and going home.
They’re not just selling stocks. They’re not just selling bonds. They’re selling everything … for the first time since the market disaster of 2008.
That’s the damning conclusion of research provided by Credit Suisse, as chronicled in this Bloomberg story. The firm estimates everyday American investors yanked $6.5 billion from stock funds in July, as well as $8.4 billion from bond funds. Then they yanked another $1.6 billion and $8.1 billion, respectively, in early August.
This is NOT ordinary behavior. Typically, investors will sell stocks in times of turmoil and move to bonds for safety. Or they’ll sell bonds when inflation and growth is picking up, and shift money to stocks to generate greater profits.
But in 2008, disgust with Wall Street and the capital markets in general grew to such a level that investors dumped everything. Now, in the wake of increasingly turbulent markets from New York to Shanghai and everywhere in between, they’re doing it again.
Separate research from Bank of America Merrill Lynch suggests a stunning $19 billion was yanked from equity funds on Tuesday alone That’s the most in any single day since late 2007.
|Investors have yanked billions from stock and bond funds in the past few months.|
You can look at this data in one of two ways. As a short-term, contrarian timing indicator, you can say the extreme investor panic may mark a temporary low. And sure enough, markets bounced sharply on Wednesday and Thursday. I anticipated something like that, taking large profits on inverse ETFs and put options in my trading services on Monday.
But as a longer-term indicator, I think these figures are troublesome. They dovetail nicely with the other fundamental and technical signals I’ve been talking about all summer, the ones that suggest we’ve entered an entirely new market environment.
Gone are the low/no-volatility, monetary morphine-driven “autopilot markets” we’ve had for the last 6 1/2years. Now, central bankers are losing the tenuous control they had of investor psychology and economics. That means many investors will be left on their own, with only lousy, conventional Wall Street “wisdom” to lead them astray.
You won’t be one of them though. You have Money and Markets to give you unbiased, timely, generalized advice. I also have my much more detailed Safe Money Report with specific “buy” and “sell” recommendations and much more detailed guidance.
|“But as a longer-term indicator, I think these figures are troublesome.”|
Unlike most of Wall Street, by the way, I wasn’t just sitting on my keister this summer and hoping things would magically get better in Safe Money. As things started coming unglued a few months ago, I was actively selling down exposure and raising cash — BEFORE markets went to heck in a hand basket.
Bottom line: It is a new market and a new paradigm. And while most of Wall Street hasn’t gotten wise to that yet, I will do absolutely everything in my power to make sure you stay ahead of the game!
In the meantime, let me know what you think about these outflows. Are you one of the American investors who is dumping stocks and bonds, and if so, why? What does that say about where markets are headed this fall and beyond? Let me hear from you over at the Money and Markets website.
Is the market turmoil we’re seeing the inevitable result of massive debts coming due? The consequence of bad policy over the past few years? And what should you do about it as an investor? Those were the topics you were discussing over at the website.
Reader Mike S. said the lack of proper banking regulation is setting the stage for more market turmoil, offering this view: “Thank You for pointing out how high the margin levels are in our banks, as they are also trading with our savings deposits. Back before 1999 when the geniuses removed Glass-Steagall, our savings were safe as there were two kinds of banks: Saving Banks and Investment or Commercial Banks.
“Now the runaway bankers are making bets not only with their funds, but with ours. This will not end well, unless both the Democratic voters and the Republican voters start calling their Congressmen and women and demand the reinstatement of Glass-Steagall. Until that happens, a repeat of 1929 and 2007 is right around the corner, in my opinion.”
Reader C.W. said post-recession policies should have been better calibrated in 2008-2009, and if they had, we’d have a different economy today. His take:
“Keynes did not fail. Politicians failed. Applied correctly, Keynes works. As a previous submitter said, ‘Where would we be if the stimulus had been given to the populace? Student debt should have been paid off in full, so household formation could continue and all mortgages should have been reset to 3.5%, 30-yr fixed.
“Those two moves would have reset the U.S. for growth and allowed the free market to take care of the rest. But so many right wingers hate Obama that no logical approach like that would have made it.”
Speaking of debt, Reader Stu said: “Pretty scary stuff about the amount of margin debt out there. Not to be forgotten is the excessive amount of student debt, the huge auto loan debt bubble, stupendous credit card debt, and the indebtedness list goes on and on.
“Oh, and lest we forget the elephant in the room, the government’s U.S. $18.5 trillion debt, and of course those hundreds of trillions of unfunded liabilities (social security, etc.).”
So what should you do about it? Look for advice away from Wall Street, according to Reader Didi. She said:
“If you watch CNBC, every fund manager and their mother can’t stop saying: ‘Invest for the long term’ — Probably so that the market doesn’t bust their leveraged trades.”
And Reader Fred151 said we should all be prepared for more turmoil in the months ahead. His opinion:
“The rebound of the past two days is just a temporary reprieve. Certainly within the next few days, this market will be going back down in a very vicious manner.
“This bear market is ready to rock and roll. And unlike 2008 when the federal government was in fair shape and able to help, this time, it is going to be horrible. Obama has put us into so much debt that there will be no help for those on the margins.”
I appreciate all the feedback. Personally, I believe our problems stem from a combination of lousy regulatory policy, too much debt with too little income to support it, misguided stimulus, and wretched monetary policy. Many of the solutions we’ve been offered – like almost a decade of zero interest rates and QE – haven’t worked to turbocharge the economy, yet we keep getting more of the same from the “experts.”
But the real world and the lackluster global economy seems to be intruding on the fantasyland markets now. That means we’re in for much more volatility and tumult over the next couple of years than we’ve experienced over the last several.
More thoughts on these topics or others? Then don’t let them fester; share them at the website using this link.
Quit your whining and get going already. That’s the message from international officials to the Federal Reserve, according to the Wall Street Journal. Several are advising the Fed to just go ahead and start hiking rates at its September 16-17 meeting rather than keep kicking the can down the road.
Mining and materials stocks have been getting crushed in the past year by the global economic slowdown. But legendary financier Carl Icahn apparently thinks Freeport-McMoRan (FCX) can turn things around with a little help. He revealed that he took an 8.5% stake in the copper, gold, and energy producer, and will pressure the company on cost, production, and pay issues.
Desperate to escape political and economic turmoil at home, waves of migrants are trying to gain access to Europe by air, sea, and land. Politicians are struggling with the migrant crisis and in the meantime, an increasing number of immigrants are winding up dead.
The latest tragedy struck overnight when 71 migrant bodies were found in an abandoned truck in Austria. Police believe Bulgarian smugglers may be responsible.
So what do you think about the latest move by Carl Icahn? Can he right the ship at FCX? How about the Fed meeting next month – should they raise rates or not, and why? Any other stories you want to comment on? Then please do so over at the website.
Until next time,