PANIC!–“Investors flee market at crisis level pace”

The BadNews Bearer Jeff Cox

The Bad News Bearer
Jeff Cox

Despite the frightful headline, this snippet from CNBC contributor, Jeff Cox (a.k.a the ‘Bad News Bearer’), is really a very comforting and bullish commentary about current/recent market sentiment. Why? At major market tops “Investors (don’t) flee (the) market at (a) crisis level pace.” (May need to be a sub to view this link) They usually wait for a crisis, like 2009. In fact, according to ‘Bad News’, the last time we saw equity mutual fund redemptions of this magnitude was 2009.

On the contrary, with the market near record highs on all fronts (including NASDAQ) we are seeing market panic redemption rates. “Funds that invest in stocks have seen $44 billion in outflows, or redemptions year to date, according to Bank of America Merrill Lynch. Equity funds have seen outflows 5 of the last 6 weeks. US funds have been hard-hit, with the group surrendering $10.8 billion in the last week. Cash and investment-grade corporate and government bond funds gathered 12 billion last week” … and you wonder why the market has been acting so awful since the first off the year?

Now, giving credit where credit is due, Cox alludes to this when he writes: “To be sure, the trend could be interpreted as a buy signal.” And, he points out the last time we had this type of flight from stocks was in 2009, after which the market (S & P 500) proceeded to go up 200%. But, that is about it. The rest is the tale of woe, investors pulling out of stocks, moving into high grade bonds (with scant yields) and money market fund (yielding nothing).

If I were penning this story, my headline would be:

“Good News! Investors flee market … all is right with the world”

This is not a bubble. This is not ‘irrational exuberance.’ This market is full of skeptics. If you are still not convinced, here are a few more snippets from the article, one indicating a significant amount of dry powder on the sidelines:

“Cash and government bond funds gathered $12 billion last week.”

 “Money market funds have just shy of $2.7 trillion in assets despite their promise of basically zero yield, according to the Investment Company Institute. That number has remained flat over the past year.” in other words, money market funds do not appear to have funded an 11.74% increase in the S & P 500 (or record performances turned in by other indices) last year, as fearful investors kept their powder dry.

Here’s The Real Shocker:

ZAP_lightning_bolt_icon

 According to the article, “Bond funds have seen 12 straight weeks of inflow. Those focused on higher quality debt have had 66 straight weeks of inflows.” I would be willing to bet that although this streak was limited to 66 weeks, there have been many more in since 2009, indicating people are willing to accept extremely low returns for the supposed safety of bonds (which, BTW, are not that safe in a rising interest environment). By and large, the memories of that generational event d0 not fade lightly. Many are still fearful.

  Conclusion:

There always exists the potential for a sharp and serious correction, maybe a cyclical bear market, caused by who-knows-what. But the fear and cautious sentiment indicate that we are nowhere near the investor complacency or exuberance that are hallmarks of the end of a secular bull market. These fund statistics confirm it. Actually, as Cox suggests early in the article, these stats may indicate we may be being set up for an opportunity to put some of that sideline cash to work.

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.    

Leave a Reply