Sunday Morning Coffee

Barron's had multiple references this week to the fact that more than $100 billion has left equity funds in 2012. As I read it, that is a net number. That certainly seems like a very big number but if the context is traditional mutual funds and there is (was?) $10 trillion in mutual funds then this works out to a 1% reduction. Layer on top of that, that some of the $100 billion could be attributable to changing asset allocations of the older baby boomers then I am not sure this is significant enough to merit so many mentions this week.

If the above is incorrect and this is significant then the question becomes whether this is a contrarian indicator for stronger hands to buy the sentiment of others washing their hands of equities or does the crowd have it right this time (the crowd is usually wrong but not always) and it is offering a warning before the next meaningful decline.

From 30,000 feet I tend to believe it is never different in terms of thinking that it makes sense for investors to permanently wash their hands of equities. We can look back on the last decade and see lousy returns for US equities but realize there were plenty of markets that had good or great returns  even as the US did poorly. Technically speaking the current decade has started out pretty well, the SPX is up 27% from January 4, 2010. If a broad index can double or do a little better than doubling in a decade then it is doing pretty well and starting the meter on January 1st 2010 there has been nothing wrong with the results from this new decade.

When you take in the bigger picture you see that we first hit current levels more than 12 years ago and that it is very plausible that we would be nowhere near 1400 without years of desperate and unprecedented action from the Fed. These are the things that contribute to the idea of people that do give up on stocks. Despite all of the problems we have and are likely to have for at least a few more years if the SPX is close to 2400 then that will have been a productive decade for people with adequate savings rates. And that is what investing for the long term is all about.  

The first picture is at the Auckland International Airport (ACKDY) waiting to go to Queenstown, the second one was some little town on the South Island that we drove through and the last one is our morning mocha at Mt. Cook National Park although that is not Mt. Cook, it was socked in while we were there.