Saturday, August 29, 2015



They're not just selling stocks. They're not just selling bonds. They're selling everything … for the first time since the market disaster of 2008.

That's the damning conclusion of research provided by Credit Suisse, as chronicled by Bloomberg. The firm estimates everyday American investors yanked $6.5 billion from stock funds in July, as well as $8.4 billion from bond funds. Then they yanked another $1.6 billion and $8.1 billion, respectively, in early August.

This is NOT ordinary behavior. Typically, investors will sell stocks in times of turmoil and move to bonds for safety. Or they'll sell bonds when inflation and growth is picking up, and shift money to stocks to generate greater profits.

But in 2008, disgust with Wall Street and the capital markets in general grew to such a level that investors dumped everything. Now, in the wake of increasingly turbulent markets from New York to Shanghai and everywhere in between, they're doing it again.

Separate research from Bank of America Merrill Lynch suggests a stunning $19 billion was yanked from equity funds on Tuesday alone That's the most in any single day since late 2007. A collective $29.5 billion flooded out of equity funds over the week, and that's the worst since BAML's data begins, going all the way back to 2002.

All this shows just how panicked investors were by the action this week. BAML's note shows the largest outflows from emerging-market, high-yield, and investment-grade bond funds since the 2013 "taper tantrum," when Ben Bernanke, then the Federal Reserve chair, started talking about winding in the US central bank's quantitative-easing programme. All that means the bank's "bull and bear index" has fallen to its most bearish level since January 2012.

And according to Credit Suisse, August is the first month since the fourth quarter of 2008 (when the financial crisis was in full swing) in which there have been both bond and equity fund outflows, rather than one or the other.

You can look at this data in one of two ways. As a short-term, contrarian timing indicator, you can say the extreme investor panic may mark a temporary low. And sure enough, markets bounced sharply on Wednesday and Thursday.

But as a longer-term indicator, I think these figures are troublesome. They dovetail nicely with the other fundamental and technical signals I've been talking about all summer, the ones that suggest we've entered an entirely new market environment.

Gone are the low/no-volatility, monetary morphine-driven "autopilot markets" we've had for the last 6 1/2years. Now, central bankers are losing the tenuous control they had of investor psychology and economics.

Our problems stem from a combination of lousy regulatory policy, too much debt with too little income to support it, misguided stimulus, and wretched monetary policy. Many of the solutions we've been offered – like almost a decade of zero interest rates and QE – haven't worked to turbocharge the economy, yet we keep getting more of the same from the experts.

The real world and the lackluster global economy seems to be intruding on our fantasyland markets now. That means we're in for much more volatility and tumult over the next couple of years than we've experienced over the last several. The potential for more China outflows is huge and the bottom line is that QE has much more to go. It is hard to become very optimistic on global risk appetite until a solution is found to China's evolving crisis.

As soon as credit expansion stops, the piper must be paid, and the inevitable readjustments must liquidate the unsound over investments of the boom and redirect the economy. And, of course, the longer the boom is kept going, the greater the malinvestments that must be liquidated, and the more harrowing the readjustments that must be made.

The market chaos this week did spook investors despite prices ending up back where they started, on Tuesday, investors dumped stocks at a pace not seen since 2007. For the week as a whole, investors haven't unloaded this much stock since at least 2002.

If you know your history, then you know that it is a common tactic by the establishment elite to string the public along with false hopes so that they do not prepare or take alternative measures while the system crumbles around their ears. At the onset of the Great Depression the same strategies were used.

People have 
tied their hopes and dreams to a quarter of a percent rate hike. That's how ridiculous things have become. People are so horrified that if money isn't absolutely free that all hell will break loose—that people are going to go broke, the market's going to crash, and that there won't be any jobs. That's a pretty sad state of affairs, and it  should not be the foundation for a free and prosperous nation. It is the height of central planning folly and it is a form of economic tyranny.

The message for our political elites and economic masters today is much the same as it was in 1776: They ignore the people's contempt at their own risk.

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