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Smart Money Comes Out Of Stocks. Where Is It Going?

  • Written by Syndicated Publisher No Comments Comments
    July 25, 2013

    My weekend column noted that public investors, who on average were pulling money out of the market until late last year, are now pouring money in at their fastest pace since 2007, while indications are that so-called ‘smart money’ (Wall Street institutions, the trading departments of major banks, insurance companies, pensions plans, hedge funds, etc.) has been pulling money out of the stock market this year, and especially since May.

    Several publications and websites picked up the article and ran it as part of their content, which resulted in a number of comments in their ‘comments’ sections.

    One that was repeated several times was “If smart money is pulling out of stocks the money must be going somewhere else. I see no evidence of where that would be.”

    We can’t really know since smart money usually doesn’t tell investors what it’s doing until after its fully re-positioned and is trying to get the public to jump on and drive prices higher.

    But if I had to guess, given the huge jump in the price of oil this year and a few other commodities I’d say probably into oil for one thing.

    072313a

    And given the spike in home sales and home prices, and reports that would-be home buyers are being squeezed out of the housing market by institutions building large rental portfolios, buying homes in bulk quantities for all cash, I’d guess some of the money institutions have been pulling out of stocks has been going into real estate. As we’ve all seen, headline stories this year have been “Investment companies have  swooped in buying thousands of houses.”

    It was recently reported that Blackstone Group alone has bought 26,000 homes in 9 states. Colony Capital in California has been pouring $250 million a month into houses, and already owns 10,000 properties. Suzanne Mistretta, an analyst at Fitch Ratings, recently said, “The growth in real estate is being propelled by institutional money.”

    And based on the way hedge funds are being ridiculed for being down over recent months, I’d say they probably moved money from the long-side of the stock market to short-sales and other downside positioning. And we know that a number of them have invested quite heavily in gold because they announced it in the spring, and gold has not been the place to be. Probably some of that was money they have been pulling out of stocks.

    072313b

    Just guesses. But those look like some places institutional investors may have re-allocated the money they’ve been pulling out of stocks.

    There are other probable areas if you look around.

    And of course there is cash, as in hoarding cash to prepare to take advantage of low prices after the market correction they seem to be expecting.

    But as I say, just guesses. 

     

    Some relief from Fed’s Recession Indicator.

    The Chicago Fed’s National Activity Index CFNAI), a compilation of 85 separate economic indicators, was designed by the Fed as an indicator of the economy growing or slowing. It’s been of concern lately, declining to -0.29 in May. More worrisome, the 3-month moving average declined to –0.37 in May, moving too close for comfort to the –0.70 level that the Fed says indicates the economy is in recession.

    I’ve noted how odd it is that the Fed is not mentioning the negativity showing in its own index as Chairman Bernanke continues to say that economic growth remains “moderate”. 

    The latest reading of the CFNAI was released yesterday and provided some relief. Not a lot. The consensus forecast was that it would improve to 0.0. It fell well short of that, but at least the monthly reading for June rose to –0.13 from the previous –0.29. And the 3-month m.a. rose to –0.26 from the previous –0.37.

    To read my weekend newspaper column click here:  Smart Money and Public Investors Disagree – Again!

    Subscribers to Street Smart Report:

    The in-depth mid-week Markets Signals and Recommendations report will be in your secure area of the Street Smart Report website tomorrow.

    Images: Flickr (licence attribution)

    About The Author

     

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

     

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