A pretty stunning chart on the historic disconnect between stock mutual fund flows and stock market returns comes from the Investment Company Institute via this item at Zero Hedge a short time ago. Apparently, you don’t need your typical 401K stock mutual fund investor anymore for stocks to keep going up.

Click to enlarge

Yes, that area shaded in pink on the far right is the region that everyone has been talking about lately and the recent reversal in fund flows might mean that, for once, retail investors are ahead of the curve (literally), rather than behind it.

Tagged with:  

Punish the Savers – Part 64

Among the many other oddities in our financial world that are now accepted as “normal”, future historians will be left to pass judgment on how, here in 2010,  U.S. monetary policy continues to punish the group that the nation needs most if it is to somehow restore balance to its money flows – savers.  This New York Times story takes up the issue:

Perversely, coming after a devastating financial crisis caused by companies and households that feasted on borrowing, ultralow interest rates are penalizing people who have paid down their debt and are now trying to save. It is also punishing those who rely on the proceeds of their nest eggs to pay the bills.

“It’s the whole point of low rates, to entice borrowing and discourage saving, but it means a massive wealth transfer from savers to borrowers,” said Greg McBride, a senior financial analyst at Bankrate.com. “It is a trend on steroids now because interest rates have been cut to the bone.”

For example, anyone keeping $500,000 in a 12-month certificate of deposit earning a rate of 1.5 percent annually — one of the best savings rates available nationally these days — would earn $7,500 a year, hardly enough to live on. Just three years ago, that same investment would have generated $26,250.

“You have spent your life being prudent, building a nest egg for your retirement, and now the returns are terrible,” said Todd E. Petzel, chief investment adviser at Offit Capital Advisors, a wealth advisory company in New York. “I am 58 years old. I know lots of my peers who are thinking of retiring, and they are scared to death.”

I really feel for a lot of these fifty-somethings and their elders who are just now learning how central bankers have stacked the deck against them and are, unjustifiably, as scared of owning gold as they are of outlasting their meager savings, now earning one percent.

The Unstoppable China Property Market

More fears of a China real estate bubble that is now veering toward an eventual meeting with a pin have emerged after the latest round of housing reports show the government’s efforts to slow things down have met with only modest success. From Lillian Liu of Finance Asia comes this report on the latest worries and the likely outcome.

It isn’t a question of whether China’s property market is a bubble, but when it will burst.

Xiao Wan bought a 65-square-metre apartment near the North fourth ring road in Beijing last year. He couldn’t even recall clearly the room layout but remembered it was the first decent enough apartment that he found fairly affordable. He hastily signed the purchasing documents, but has never lived there and does not plan to.

The 27-year-old lives with his friend near the third ring road in China’s capital city. He bought the apartment as an investment, which so far is panning out. “I bought it for Rmb15,000 ($2,214) per-square-metre; it now can be sold at Rmb25,000,” he said. “It’s good just having it.”

Wan is not alone. Many homebuyers nowadays in China consider their property assets as part of their long-term savings plan, as well as a hedge against inflation.

Why property? China’s tightly run financial system leaves only three places for its zealous savers to put their money. Bank deposits are one option. But they yield 2.25%, less than the 3.1% rise in May’s consumer price inflation. The equity markets are a second choice. But stocks have been performing poorly; Shanghai’s benchmark index was one of the world’s worst performers in the first half of 2010. (And the bond market is underdeveloped.) Even with its high transaction costs and manic price moves, property has become the preferred investment choice for everyone from young married couples to middle-aged factory workers trying to ensure their retirement.

For those of you keeping track at home, that would be a gain of about 67 percent over the last year for Xiao Wan and untold billions for his fellow real estate investors.

(more…)

Tagged with:  

In case you missed it yesterday at Bloomberg, have a look at this story about Michael Burry (of “The Big Short” fame) who talked with Jon Erlichman about what he’s been doing with his money lately, that is, after his hedge fund made a killing betting against the housing bubble a few years ago and he retired from managing money.

On John Paulson’s bullish asset allocation strategy:

Paulson is big in gold and that’s something that is interesting to me, given how I see the world playing out. But, other than gold, I haven’t really bought into the other theses.

(more…)

Young Investors Wise Up, Shun Stocks

Another interesting chart from the folks at CNN/Money shows in graphic detail the changing views about stock ownership by age group, the accompanying report noting how the Generation Y crowd is currently being hit with a double whammy – a recent history of market crashes and a job market that is much worse than for older workers.

What’s amazing about this data is the 35-49 age group where decades of conditioning that your best bet is “stocks for the long run” appears to have produced a nearly unshakable belief system. Even after ten years of dismal returns for equities (with the notable exception of gold stocks), Wall Street and the financial media should give themselves a pat on the back for being so successful in their efforts to convince the public that stocks are still a good bet despite the overwhelming evidence to the contrary.

Tagged with:  

Homebuyer Tax Credit Bill: $24 Billion

From the REO Insider blog (a site that, due to our never-ending short sale offer, has been a source of useful information about the burgeoning market for properties with “special conditions” – next Sunday will be four months since our offer was made) comes this tally of the cost of the various homebuyer tax credit and loan programs offered by the government that have helped to prop up the housing market over the last year or so.

The total bill for the homebuyer tax credit so far, as reported by the Internal Revenue Service, stands at $23.5 billion.

About $16.2 billion of that is for the $8,000 (Recovery Act) and $6,500 (Assistance Act) grants shelled out to first and second-time homebuyers, respectively. The other $7.3 billion is for interest-free loans through the Housing Act provision. Americans who qualified for these loans will begin repaying them next tax season, which starts in January.

The numbers are based on IRS filings through July 3.

The Government Accountability Office estimates that with all of the first-time homebuyer tax credits, the total revenue loss to the federal government will be about $22 billion.

When they write the history books for the current period, they’ll probably look back at things like Cash-4-Clunkers and the homebuyer tax credit as huge mistakes by the government that extended the downturn for years, much as historians now look back at the policy mistakes made during the Great Depression.

Tagged with:  
Page 1 of 6012345102030...Last »

IMAGE

© 2010 The Mess That Greenspan Made