DEEP THOUGHTS FROM DAVID ROSENBERG

Some good thoughts here from David Rosenberg on the current state of the market:

It is really amazing to sift through the fund flow data because it is so apparent that it is the “pros” that are chasing this market higher. The private client is fully aware that two bubbles burst seven years apart as Wall Street product-pushers came up with back-to-back new paradigms — the first being the tech mania followed by a new era of housing and credit finance.

It is not lost on the individual investor that equities have generated no net return over the last 11 years and that we are very clearly in the middle of a classic secular bear market. What is amazing, and indeed, encouraging, is that the long-term resolve of the investor is not being overwhelmed by greed as Wall Street strategists push the theory of pricing the market on “mid-cycle” earnings and economists push the theory that data that come in “less negative” is actually bullish.

To be chasing the market after a 60% rally that is now priced for a V-shaped recovery is clearly not the strategy being deployed by the private investor, at the margin. So, what we see as evidence is the record $42.91 billion that flowed into U.S. bond funds in August, on top of the $34.7 billion intake in July. Year-to-date, bond funds have taken in a net $180 billion, about double the $92 billion during the comparable period in 2008.

It’s not as if people are selling equities — they are just watering down their already-high exposure in the stock market. Equity-based funds attracted $3.86 billion of new inflow in August, bringing the cumulative tally to $15 billion. So, it is very interesting to see where the “mountain of money”, “cash on the sidelines” and “dry powder” is going. Into fixed-income. For every dollar flowing into equity funds, twelve is flowing into bond funds.

To be sure, some will point to this as some sort of a bullish contrary data-point. Then again, maybe there is a secular demographic development that needs to be understood — a survey recently conducted by AARP (American Association of Retired Professionals) found that 49% of those between 45 and 64 years old are not confident that they have saved sufficiently for retirement. Fully 12% of this group are being pushed back into the labour market or intend to delay their retirement so as to garner the income necessary to achieve their standard-of-living objectives for the future. This all points towards a multi-year strategy of pursuing income-generating securities as opposed to a heavy reliance on capital appreciation.

Source: Gluskin Sheff

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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