Now what?

November 24, 2013

50

Now what?

I try not to make market or economic predictions because they will mostly be wrong. Everyone else is mostly wrong too but most won’t admit it. I will, whatever.

While I admit to have no ability to forecast markets, I am a pretty good predictor of what people will do with their investments – I’ve discussed it here in case you’re interested in why I think that. I jokingly call myself America’s foremost authority on investor fads and trends but , as they say, there’s a kernel of truth in every joke. The truth is that this is actually my obsession and I chronicle it seven days a week (my annual graphic here).

Anyway, here’s Bloomberg Friday:

Investors are pouring more money into stock mutual funds in the U.S. than they have in 13 years, attracted by a market near record highs and stung by bond losses that would deepen ifinterest rates keep rising.

Stock funds won $172 billion in the year’s first 10 months, the largest amount since they got $272 billion in all of 2000, according to Morningstar Inc. (MORN) estimates. Even with most of the cash going to international funds, domestic equity deposits are the highest since 2004.

The move marks a reversal from the four years through 2012, when investors put $1 trillion into fixed income as the financial crisis drove many to redeem from stocks and miss out as the Standard & Poor’s 500 Index almost tripled from its low. Rare losses this year in core bond portfolios, coupled with a 25 percent gain in the S&P 500, spurred the switch back to equities that some professionals call risky performance chasing.

This shift’s having happened is the culmination of virtually all of the work I have done at this blog since the fall of 2012. I could post hundreds of links below or you could take my word for it. Fine, maybe just this one: 22 Times, You Poor, Dumb Bastards (October 2012). I know I may have alienated a few readers over the last year but I really felt it was more important to say what I felt and to speak forcefully at times.

And now that this has all played out, I’m not exactly sure how to feel. I got this sea change in attitudes mostly right but, unfortunately, I don’t have the slightest idea as to what might happen next. We’ve swung back to equilibrium in both valuation and sentiment pretty quickly this past year – from abject stock hatred to a low-simmering boil of bullishness. Maybe this goes all the way to Dow 20,000 or maybe we get that 30% pullback that everyone’s so desperate for first.

I don’t know what will happen.

But I’ll try my best to make sense of what I see – specifically through the prism of investor mood and behavior – just like always.