IBD had an article in yesterday's paper with some interesting facts about Mutual Funds.
Investors will pull out an estimated $60 billion out of stock funds as estimated by Trim Tabs. The prior monthly record is $29.9 billion in September of 2001. $20.9 billion came out in last month in June.
The author states that "the industry is also better to weather the storm. For one thing, the industry has safety nets in the form of lines of credit".
Now that really makes me feel good. Don't you feel better. The mutual funds can borrow their butts out of this. Like there isn't too much debt already.
Anyway, in 1973 industry assets totaled $46.5 billion. As of May 31st this year they are now $6.9 trillion. Stock funds represent 49% of those assets.
In 1973 net outflows were $1.3 billion. The industry got "socked" with net outflow every year for the next decade, except 1977.
The author then states, "in contrast, since the current market downturn began in March 2000, the fund industry has enjoyed net inflow of $818.2 billion." The author said there is a beneficial trend that we didn't have back in the 70's - retirement account now funnel money into the market no matter what happens in the market.
Now the author is spinning all this stuff in a positive manner but I'm seeing "red lights" all over the place.
He has stated three "good" things. Mutual funds can now take on debt, they are better diversified, and money gets dumped into them no matter what. To me the debt is bad, the diversification is good, but, the mindless dumping of money has fed the bubble and once it stops we could see ebevn more massive redemptions by the funds or extreme debt levels leading to bankruptcies.
Individual retirement accounts represent 21% of all retirement investments. (this tells me that many are hurting and may be reconsidering past investment strategies)
Anyway, as I have mentioned before, one of my biggest fears are mutual fund redemptions. If the current outflow trends continue, selling will beget more selling. With the numbers provided above, market weakness could give us many more "bottoms" before we reach "the" bottom many years from now.
Joe
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