It’s Baaaack…The madness of Wall Street

June 4, 2012

By Jennifer Ablan and Matthew Goldstein

It is small wonder mom-and-pop investors are showing no love for U.S. stocks for a fourth consecutive year.

Not only has the U.S. economic recovery remained fragile, but the so-called “headline risk” is dominating investor psyche again.

On Monday,  the Dow Jones Industrials Average extended its “June Swoon” ending flattish after being down for most of the day, after Reuters reported that finance ministers and central bank governors of the Group of Seven (G7) industrialized nations will hold a conference call on Tuesday morning amid increased concern about the European debt crisis.

There’s also speculation that the Federal Reserve will continue with a third round of its bond purchases—better known as Quantitative Easing—after last Friday’s awful employment report for May. That helped send the Dow down more than 2 percent and dragging the index into negative territory for the year.

Much also has been made about  Facebook’s tumultuous IPO turning mom-and-pop investors off from U.S. stocks.

But it has been clear—to some of us, at least–that mom-and-pop investors threw in the towel a while ago.

According to Jeff Tjornehoj, head of Lipper Americas Research, equity mutual funds have had inflows just once—in 2010, $6.3 billion–in the past five years. Investors have pulled a net $305 billion from their equity mutual funds since the end of 2007.

As my colleague Matt Goldstein and I highlighted last August, mom-and-pop’s “stockcation” may be permanent.

In that story, The Madness on Wall Street, we quoted Andrew Lo, a professor of finance at the MIT Sloan School of Management, who frequently writes on hedge fund trading strategies and markets, who was spot on with his analysis:


“The market we are operating in is markedly different from five years ago,” says Andrew Lo, a professor of finance at the MIT Sloan School of Management, who frequently writes on hedge fund trading strategies and markets. “We are seeing extraordinary emotional reactions from central banks, politicians, regulators and investors. That kind of reaction is not conducive for building long-term wealth. We have an environment that is highly unstable.”


And looking to the pros for guidance in this time of madness may not be of much help either.

Consider that Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest money manager, said in February that investors should have 100 percent of investments in equities because of valuations and higher returns than bonds.

If you’d listen to Fink, you’d be a lot poorer right now.

UPDATE: Timing is everything and this post seems to have landed at just the write time. Within hours of this posting, BlackRock announced that its equity guru, Bob Doll, is retiring. A long-time bull and one of the market’s biggest cheerleaders, the news about Doll isn’t so surprising. After all, one has to figure that Doll’s bullishness rubbed off some on his boss.



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Fink obviously had stock to sell. Lots of it. So he went on CNBS and told everybody to buy so that he could unload his stash. Meanwhile, Ma and Pa Sixpack smartly continue to run away, run away. Only it’s not because they are smart. It’s because they need the cash to live. So much for ZIRP helping the market and the economy. It’s forcing folks to liquidate whatever they can. Bernankecide, the mass financial genocide of US elderly retirees and savers.

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