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The retail investors has for all practical purposes abandoned the equity market. For months various talking heads have used retail overexposure to the bond market as the argument for”pent up demand” for equities. Instead the beat goes on, as mutual funds suffered their worst outflows of the year in the week ended Nov. 20, according to ICI, losing $5.5 Bn. Almost $400 bn has flowed out of equity mutual funds since 2009, including over a quarter trillion in the last two years.
All the on line brokers show diminished trading even when compared to the crash year of 2009. Stock trading now accounts for 16 percent fewer customer trades at TD Ameritrade than it did in 2009. The day after Thanksgiving when the market ramped up again was the lowest volume since 1996.
I divide the reasons for this quite rational equity divorce into two board categories: large scale fraud and far too much Government manipulation, involvement and control in the financial market. This has also lead to the creation of economic hit men who can carry out self serving interests with government backing.
The latest in a long line of fraud comes from SAC Capital who is being pursued by the Justice Department. For Eric Holder to actually pursue a billionaire fraudster implies very serious transgressions. Another example of fraud which I experienced personally involved MF Global, who just dipped into customer segregated accounts. To this day its CEO, Jon Corzine walks around untouched and free. The complacency of governments in this was described by Muddy Waters, who is getting out of shorting Chinese fraud because the government there is actively involved in cover-ups. It took the SEC two years to enforce Chinese IPO fraud in the US.
I have discussed this fraud for several years now, and investors have little more tolerance for it. I would never go seriously long the equity markets until this changes, and that will take years of reformed behavior and restoration of the rule of law and ethics.
The other factor is the extreme and corruptive influence of Goverments who operate behind closed doors with little transparency, looting enormous funds for cronies. The retail investor rejects this as well. This avoidance would include my well discussed hook, guessing which crony the Fed funds next. The retail investor knows full well it is not him.
Unfortunately all this has caused Joe Retail to scramble into the greatest bubble of all time, the central bank infected bond market. Bond mutual funds have received nearly half a trillion since 2010. For a very good article on the monster bond bubble read Colin Lokey here.