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Thread: the wisdom of crowds - Americans refusing to buy into the market rally !

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    Default the wisdom of crowds - Americans refusing to buy into the market rally !

    (snip)"The U.S. stock market has been rallying for over a year, yet "retail" investors are selling, not buying. Is this "the wisdom of crowds" in action?

    A funny thing happened on the way to the greatest stock market rally since the 1930s--the "retail" (individual) investor is selling stock mutual funds, not buying. As I noted yesterday, According to BusinessWeek/Bloomberg, U.S. investors dumped $369 billion into bond mutual funds since March of 2009, while according to Reuters, they extracted $26 billion from equity/stock funds.
    In other words, the great unwashed public isn't buying into the "return of a new Bull Market" and "the recession is over, we have a V-shaped recovery" stories being relentlessly flogged by "tout TV," the MSM and inside-the-Beltway hacks and factotums.

    Perhaps they are taking note of reality on the ground, and refusing to accept the pearls of wisdom being forced on them by their "betters"?

    Analysts and other "experts" are confounded that the public is recalcitrantly refusing to buy into their usual "pump and dump" schemes. In the normal course of events, "experts" pump stocks as the greatest investment opportunity of a generation and that making money in the market is like stealing candy from a baby, etc.

    Then, as the "retail" investor/speculator buys into the hype, the insiders sell (distribute) their shares, leaving the "retail" marks holding the bag as the insiders go short and profit from the collapse of stock valuations.

    This worked extremely well for the "smart money" in 1998-2002 and again in 2003-2007.

    Individuals are shunning stocks like the Devil himself (more than an analogy) while placing their money in "safe" bonds (safe until interest rates rise--see yesterday's entry) and money market funds, which are holding about $3 trillion in cash.

    The "experts" and apparatchiks are drolling over that $3 trillion; they keep hoping the retail investors will finally break down and transfer those trillions into the stock market, and thence into the accounts of the "smart money."

    Remarkably, individual investors seem to have learned the old lesson, of "once burned, twice shy" rather well. Having lost $11 trillion since the global financial meltdown began in earnest in late 2008, "the little guy" no longer believes the stock market is a fair and open market, nor that it is a "wise investment" to "buy and hold" as their "betters" keep insisting.

    This raises the interesting possibility that the "crowd" has more insight and wisdom than the "experts" and shills. The notion that groups have a collective wisdom which exceeds that of "experts" was explored in two recent books: The Wisdom of Crowds and Crowdsourcing: Why the Power of the Crowd Is Driving the Future of Business .

    "Crowdsourcing" is now a hot buzzword, but in essence any transparent market is form of crowdsourcing. But as we all know, the transparency of the stock market is only a useful illusion--useful to those pulling the strings behind the screen.

    The crowd is no longer buying the "the stock market is a transparent, open market" propaganda, which is partly why they're pulling money out of equity mutual funds.

    In other words, the crowd is speaking by staying away in droves.

    There is abundant evidence that the "smart money" has melted the market higher by buying and selling to themselves in various forms of high-frequency trading and manipulation of the futures contracts. None of this raises an eyebrow on "the Street" or in Washington; the "smart money" players are benefitting, and the only fly in the ointment is the retail investors' annoying refusal to jump on board the "Bull market rally" so insiders can sell to them before pulling the plug.

    It seems clear that the crowd of individual investors is telling the "smart money" that they can take this rally and shove it. The "experts" continue to cluck and tsk-tsk that the "dumb" individual who is sitting on cash instead of being fully invested in the wonderful stock market is foolishly mssing out on a rally which "has plenty of legs" and "is only moving higher as corporate profits recover" and all the other enticing siren-songs they have long mastered.

    Maybe the "smart money" experts are right, and the market will only keep rising essentially forever, as it did from 1982 to 2007. But then maybe the "crowd" has sniffed a rat and is refusing to play the 3-card monte game offered by the "experts."

    Interestingly, corporate insiders are selling at a furious pace. Doesn't that give the lie to the "smart money" assertions that corporate profits are set to skyrocket and the stock market is the one place you want to be if you want to rake in stupendouly easy gains?

    We'll see who is wiser, the crowd or the "smart money." (snip)

    from

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    Default Re: the wisdom of crowds - Americans refusing to buy into the market rally !

    Ah, the Weapons the Financial Terrorists use...

    If your idiot theory is line with public, call them "Wisdom of the Crowds"
    If your idiot theory is opposite of the public, call them "Sheeple"

    One of these words will always fit any idiot theory you propose (contrarion, smart money, market)
    The only idiots who are buying into these kind of open double-faced hypocritical terrorism is, well you know....

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    Default Re: the wisdom of crowds - Americans refusing to buy into the market rally !

    Baby boomers and even Generation X (as retail investors) are getting older and need to switch their risk tolerance into something more conservative, despite the rally. Hence, they will continue to dollar cost average away from equity and into fixed.

    Not saying that this is the only reason for this supposed trend, but it could be a supporting hypothesis.

    Besides, retail investors who don't DCA and use a long-term asset allocation goal..but rather buy and sell based on emotion, seldomly enter the market at the right time anyway.

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    Default Re: the wisdom of crowds - Americans refusing to buy into the market rally !

    ^^^ actually, one of the hottest sectors of late has been triple tax exempt muni bonds. It certainly makes sense for some investors to rotate into tax exempt investments when the gov't is set to raise capital gains taxes from 15% to 23.6% ( with medicare tax included ), and also set to raise tax rates on ordinary income to 39.6% ( with medicare tax on ordinary income also increasing the effective tax rate even higher). US Treasury bonds have also been somewhat hot, but they don't offer state tax exemption ( which is not an issue in states that don't levee an income tax).

    Also, another hot sector rotation has been to stop dollar cost averaging any investment, unless the dollars involved are actually Canadian, Australian, New Zealand etc.


    Right now there seems to be a huge amount of international investor gyration in the international currency markets / international company stock shares ... which is probably tied to the Eurozone's problems re Greece & Portugal, or a 'power play' by China to show the US Fed how much international impact they can exert on the US dollar. Ben Bernanke is also jawboning the US congress today.


    (last minute update) hmmm ... the DOW forfeited a triple digit gain by closing time, as the result of very poor auction results on today's newly printed stack of US Treasury Bonds. Rising interest rates at the treasury auction also spilled over into rising mortgage interest rates ( which is horrible for both homeowners and business owners, and also for the US gov't's budget deficit ).




    the 'gold foil hat' crowd is also pointing out that this week is 'end of quarter' ... such that mutual funds / hedge funds etc. have a whole lot of motivation to 'game the market' via strategic purchases of index stocks etc. thru the end of this week in order to make their first quarter numbers look rosy. Even with this 'updraft' effect, the treasury auction's higher interest rates appears to have catalyzed a 'reality attack' re US stock valuations.


    Also, the 'gold foil hat' crowd is not above speculating that the Europeans are also playing central bank games versus the US dollar in order to save their own collective ass.

    (snip)"For once, some actually good insight from a CNBC guest. Philip Manduca, Head of Investment of the ECU Group, discusses Greece and the very severe implications of what the final outcome will look like. "Trichet said the Greeks are crooks, and they've been lying about the numbers. There is a deeply embedded corruption within the Eurozone. Combined with the endemic European socialism and there is just no way you are going to get spending cuts and tax raises and maintain a GDP that makes any sense of the percentage aspect of debt to GDP. So the whole show is wrong. This is an intractable situation, this is going to continue on and on. The only hope for the Eurozone, and the Euro as a currency, is that someone takes the spotlight soon, and that may be the United States." "(snip)

    from


    At the very least, the 'take-away' from recent market and currency actions is that there is a whole lot of 'funny business' taking place behind the scenes. If you have the 'faith' to buy into this weirdness, I wish you the best of luck.

    ~
    Last edited by Melonie; 03-25-2010 at 02:17 PM.

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    Default Re: the wisdom of crowds - Americans refusing to buy into the market rally !

    Quote Originally Posted by Melonie View Post

    Also, another hot sector rotation has been to stop dollar cost averaging any investment, unless the dollars involved are actually Canadian, Australian, New Zealand etc.

    ....and rest usual mindless drivel with no basis snipped

    More garbage opinions passed as fact.

    How about this pretty simply idea?
    $100 invested in S&P 500 has a 2010 earnings yield of ~7%, the highest of all assets (incl corporate bonds)

    But, that would need intelligence, thought & doing your own thinking instead of being blindly led like a sheeple by financial terrorists sitting in their mom's basements...

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    Default Re: the wisdom of crowds - Americans refusing to buy into the market rally !

    $100 invested in S&P 500 has a 2010 earnings yield of ~7%
    ^^^ excellent example of our tax money at work i.e. the taxpayer bailout of major Wall St. firms that comprise a large chunk of the S&P 500. Specifically, major Wall St. banks were able to borrow US dollars at the FED window at near zero interest rates, and in turn use this borrowed money to purchase US Treasury Bonds paying 3%+ interest rates at zero risk. This US taxpayer financed interest rate 'spread' arguably constituted a direct US taxpayer 'subsidy' to the major Wall St. financial firms.

    However, the gov't's near zero interest FED window program that has made this possible, as well as the Treasury's Qualitative Easing program ( which accepted bank toilet paper bonds in exchange for the near zero interest loans) is slated to end at the end of this month ... which arguably provides reason to sell rather than buy ...


    (snip)"There are even some fairly optimistic ways that this sort of contraction in swap spreads could develop, although the fact that the move is so precipitous makes me think they are unlikely: banks currently hold lots of Treasuries in lieu of loans as assets. If a bank suddenly started making lots of floating-rate loans, it would behoove them to sell swap spreads to simultaneously remove the Treasuries from the balance sheet and match their assets (a short-dated, floating-rate loan) to their liabilities (long-dated fixed-rate, ordinarily). I doubt that's what is happening, but I don't have a good answer.

    The bottom line is that Treasury debt is cheapening relative to other interest rates, which isn't surprising when there is so much of it. In fact, not only is it not surprising, it is to be expected - and even more than that, it is entirely consistent with history. See the chart below (Source: Bloomberg), which shows that this shouldn't be particularly surprising after all.



    Exhibit 2 in that argument? The Treasury today auctioned a $42bln 5y note that was poorly received and sported a long tail. The 10y note contract fell 1-06 today, the biggest drop in some time, and 10-year nominal yields spiked to 3.83%. The intermediate-term chart below shows the importance of today's selloff. There is some further support for prices between here and 4% yields (see Chart, source Bloomberg), but this is the wrong time of year to expect support to hold in the bond market.



    With the Fed not buying and the Treasury with no choice but to sell, I am not sure I want to be the buyer. I guess I am not the only person thinking that at the moment! We all know that yields are artificially low right now. Soon, we might get to find out how low.

    Initial Claims on Thursday is the release of note. Consensus calls for a further improvement, to 450k from 457k. I never seem to hear any commentary about why Claims aren't improving as fast as the bullish economists keep telling us they should. The forecasts keep getting pushed back - every week is expected to show a little improvement, seemingly because economists sort of think they should be improving. But the 2010 low is still the 433k recorded in the first week of the year. I am singularly unimpressed with the behavior of the Claims data. It is all well and good to say "well, employment is a lagging indicator," but at some point before we get job growth I would still expect to see businesses stop laying people off! There is also another auction tomorrow, this time of $32bln 7-year notes. How about a little fire, scarecrow?!

    from


    But, that would need intelligence, thought & doing your own thinking instead of being blindly led like a sheeple by financial terrorists sitting in their mom's basements
    well, ultimately, one needs to consider hard economic facts when attempting to evaluate both naysayers AND cheerleaders !

    (snip)"As the markets have rebounded from the brink of disaster, many Wall Street cheerleaders have proclaimed the dawning of a major new bull market. If we measure market cycles biannually, and if bull markets need not eclipse peaks achieved in previous cycles, then this forecast is spot on. Of course, most investors are not saving for next week, but for homes, college tuitions, and retirements. For these longer term investors, the euphoria of the current rally may soon turn to despair when the market faces the unsavory fundamentals of a second financial crisis.

    We have long raised the point that, in general, the political, economic, and financial fundamentals of our new mega-government era do not support a sunny long-term outlook for U.S. stocks. Today, the S&P 500 trades at 21.6 times current earnings, which is 32% higher than the average over the last 30 years. [03/24/10, multipl.com] With so much economic uncertainty on the horizon, I'm not sure how you make the case that the market is still undervalued. The nature of the recent stock price move appears to be that of a bear-market rally, not a bull-market resurgence."(snip)

    from

    ~
    Last edited by Melonie; 03-26-2010 at 12:32 AM.

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