Since the market began its precipitous decline in 2008 and until January of this year, $418 billion came out of equity mutual funds. According to Lipper Analytics, January of 2013 broke this streak of net redemptions with a $14 billion net inflow. At the same time Lipper reported net new bond fund purchases were $34 billion. Obviously, there were many disbelievers at the beginning of of the year. We covered this in kortsession #8, “A Masterpiece of Uncertainty And Contradiction…..”, in which I critiqued a New York Times article that posited investors were scrambling to get into stocks like there was no tomorrow. This thesis was not supported by the facts.
Fast forward to June and July 2013. According to Trim Tabs, investors pulled $69.1 billion out of debt mutual funds and ETFs in June. This broke a 21-month streak of net inflows into these fixed income funds. In July another $21 billion came out of debt funds. What I find astonishing is that from the bottom of 2009 to the present day, the market (the S&P 500) has more than doubled moving to new highs; but only in the last few months have we seen investor preferences for bonds wane. Even more incredible, according to the attached article and video from CNBC (“U.S. Equity Funds See Highest-Ever Inflows in July”) is that in the eight week period ending July 22, $143.4 billion came out of bond funds and ETFs and went into savings accounts and money market funds. This is vs. only $54.1 billion going into equity funds during the same period. That equity inflow represented only about 12% of the outflow since 2008. This is stunning because it would still represent an incredible reluctance on the part of investors to be in the equity market. Instead, it looks to me like a stampede to cash.
Last night I attended a dinner party where the host, knowing my background, questioned my current thinking about the market. I told him, as I have stated in previous posts, that I believe this is one of the most benign periods I have ever seen for equity investing. Of course, I gave him all the usual caveats. We’ve come a long way. We are overdue for a correction. Expect volatility. But if he could stand the heat, this is a kitchen he could be in for the long term.
After I gave him the Kort Party Line he confided that he was just about ready to pull the trigger and sell everything. What is important here and the main take-away from this post is that this type of talk and the mutual fund statistics are really not the sort of data points you get at the top of a bull market. So, it looks to me the ‘wall of worry’ is very strong and our bull market is still intact.
Finally, If you read the article, you will see that Trim Tabs is sympathetic with a bearish viewpoint. The same holds true for the video featuring two of my favorite CNBC gurus, Jeff (the bad-news-bearer) Cox and Rick Santelli–consistently negative and consistently wrong.
What do you think?
The information presented in kortsessions.com represents my own opinions and does not contain recommendations for any particular investment or securities. I may, from time to time, mention certain securities for illustrative purpose, names where I personally hold positions. These are not meant to be construed as recommendations to BUY or SELL. All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.