The front-page story of the business section of this Sunday’s (April 7, 2013) New York Times featured our headline quote. This is a story that, on the surface, would make any respectable contrarian cringe, all about average investors piling back in the market at just wrong time. It seems to be a common theme for the Times, a cautionary note to help the little guy from making a big mistake, like BUYING STOCKS now. (see session 8, dated 2/20 2013).
The author, Conrad De Aenlle, begins:
“AFTER long spurning the bull market for fear of being burned again, investors have finally given in this year. They have abandoned their aversion to stock funds, pouring more money into them in January than in any other month ever.
The $65.5 billion of net investment in equity mutual funds and exchange-traded funds that month appeared to give the market fresh momentum, culminating in a first-quarter gain of 10 percent for the Standard & Poor’s 500-stock index. That benchmark ended the quarter at a record high, topping the previous peak of October 2007.
- Strong fund flows, however, often herald significant bear markets. In fact, history’s second-biggest month for net investment in stock funds was February 2000, just before the technology bubble crashed.” (link to complete article)
What the author did not bother to explain was that, according to TrimTabs, whose estimate for January was $77.4 billion net equity fund inflows, only $39.3 billion went into domestic equity mutual funds and ETFs. Also, according to TrimTabs, total U.S. Equity fund and ETF net-positive flows in the first quarter of 2013 were estimated at $52 Billion. To give perspective, global equity funds and ETFs got $65.7 billion net in the first quarter, while bond funds garnered a whopping $72.3 billion.
This hardly looks like “Flocking to the Party,” especially in the context of 22 straight months ending December 2012 where U.S. equity funds/ ETFs experienced net redemptions, a total of $417 billion net since 2008. Also, if everyone was so wildly bullish in January, why did bond funds, according to TrimTabs, get $40 billion net inflow that month (versus a 2012 monthly average of $27 billion)?
This is what really riles me, Conrad has the gall to compare today’s market to February 2000. Now you remember 2000, when almost every evening, as the market moved to new highs, the networks were doing man/ woman-on-the-street interviews and the constant refrain was like “What me worry?” “I’m in stocks for the long-run.” That’s bubble Psychology. When more new money continues to pour into bond funds that don’t provide significant real returns, that’s not exuberance (may be a bond bubble, but not stocks). That is fear!
I generally hold to that old Wall Street adage that “no tree grows to the sky”: but, this one hasn’t grown for thirteen years. As such, a lot of long-term risks, a la the tech bubble and the housing bubble have been taken off the table. And the theme of “Latecomers flocking….” may signal we are ripe for a correction, but the equity game still appears to be in the early innings. I don’t buy this being anything close to a long-term top. We make the same point in session 8. So, again I say, “Really, New York Times!”
As to the long–term outlook, I urge you to take a look at the Mark Mobius video interview linked to session 21 (link to Mobius interview). Mobius is a very smart guy. He learned his trade at the foot of master investor, the late Sir John Templeton. His comments may cause a light bulb to go on for you, just as it did in the head of one of his CNBC interviewers that day.
Let me know what you think.
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