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November 01, 2012 at 10:50 AM
As the U.S. presidential election nears and the uncertainty of the fiscal cliff looms, opinion leaders are weighing in on what that means for stock market investing.
In a commentary posted Thursday on investment research firm TrimTabs’ blog, Charles Biderman (left), the firm’s CEO, offers a novel explanation for the rapid pace of outflows from U.S. equity mutual funds: investors simply need the money.
There are two types of such investors, Biderman says: The first are retired investors selling stocks regularly to pay bills. “There are about 90 million Americans in the retiring baby boom generation. Their children only number about half of that,” Biderman says, noting that pension funds that TrimTabs tracks have been selling stocks for three years.
Another group of sellers are unemployed investors in a down economy using whatever resources they have to get by.
Beyond those who have no choice, there are also those who are shifting their investment allocation to safer investments. Biderman says that while $10 billion per month have flowed out of stocks over the past two years, there has been a tidal wave of $20 billion in monthly flows into bonds and $40 billion flowing into bank accounts that pay depositors virtually nothing.
A third possible reason for the outflows may be investor fear of volatility. But Biderman dismisses this reason because investors typically follow stock-market performance, which has been quite positive in recent years. He argues that “stocks are staying up because the Fed is manipulating the stock market,” yet “the lousy economy is forcing people to sell stocks” anyway.
Whether or not to get in or out of this bizarre market that has been rising in a down economy is the subject of two recent commentaries, one by finance professors at the Wharton School of the University of Pennsylvania and the other by Brookings Institution economist George Perry.
Wharton professor Jeremy Siegel (left), of “Stocks for the Long Run” fame, notes the stock market’s value has doubled since March 2009, so that fearful investors are behaving normally in missing most of the party. In other words, the prevailing sense of bearishness is a bullish indicator for the market. “I can easily see stocks up another 20% to 30% from these levels in a year or two,” the Wharton article quotes Siegel as saying.
