Retail Investors

Retail investors (minnows all) have been pulling money out of stock mutual funds ever since the “flash crash”. For good and obvious reasons – because however much the sharks mock the investment intelligence of minnows; minnows do know when the game is rigged and when they have no chance. Unfortunately, the minnows are jumping into domestic taxable bond funds right now — mainly treasuries issued by an entity (government) that the sharks obviously own — at their bubbliest prices ever — so maybe the sharks are right.

At any rate, I do agree with others who say that this pullout from equities — 28 of the last 43 months have seen equity outflows – may well be the beginnings of a generational disdain for stocks. If so, expect serious PE compression over time and ignore most equity valuation measures from the last 30 years.

And now that portfolios are shifting towards T-bonds, expect violence on the part of the “shareholder class” if government tries to hyperinflate away their bonds. I doubt American minnows will be as vigilant on this as German minnows are now. But this is still a powerful – and growing – force that will favor deflation. Only time will tell whether the forces favoring hyperinflation/default (the young mostly) become influential at all in the debate. Perhaps another stimulus program — free iPads and ecstasy/meth – in combination with horrible education – will numb that demographic into dumb.


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