Hedge Funds Liquidating but Retail is Buying

A solemn crowd gathers outside the Stock Excha...

A solemn crowd gathers outside the Stock Exchange after the crash. 1929. (Photo credit: Wikipedia)

This is something that I have been talking about recently. It is a sign that:

[1] portfolio managers are taking their profits early so they can post good results at the end of the year

[2] the professionals are moderating their stock market positions because they see trouble ahead while the retail buyers are jumping in out of greedy desire to make a lot of money in what they think will be a continued rally — a ‘slam dunk‘ attitude — a legendary bad sign …

BofA Merrill Lynch equity strategists report data on what their clients are doing in the U.S. stock market on a weekly basis.

Last week, BAML’s hedge fund clients unloaded the most stock since 2008, while institutions and retail clients were net buyers.

 
Something strange is happening in the economy and the stock market. I remember the words of my first Wall Street boss, William K. Beckers — one of the big Wall Street names back in the 1920s and beyond. He was the floor broker on the NYSE for Spencer Trask & Co. and watched Morgan, Giannini and other leaders of banking and industry come on to the floor, buying to support their stock prices. In his office he had framed a fading piece of ticker tape that read the volume and “October 29, 1929 Good Night” 
 
He always said about the 1929 market crash: we all knew something was happening, we just didn’t know what it was going to be.
 
In the 40+ years that I have been watching the economy, the equities markets and the fixed-income markets, I have never seen anything that compares to what is happening now. I confess I don’t know what is going to happen, but things have reached a point where it is clear there is something on the horizon. We will find out what it is, and it doesn’t appear likely to make life any easier for anyone.
 
Again, as you plan for next year, consider some contingency planning.
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