Specifically, it talked about how “small investors” investors are cashing out of stock funds and moving into bond funds.

In Striking Shift, Small Investors Flee Stock Market the paper reports:

Investors pulled $19.1 billion from domestic equity funds in May, the largest outflow since the height of the financial crisis in October 2008…

As investors pulled billions out of stocks, they plowed $185.31 billion into bond mutual funds in the first seven months of this year, and total bond fund investments for the year are on track to approach the record set in 2009.

The trend of mutual fund investors selling stocks and buying bonds has been going on for a long time. It’s usually a good sign too because mutual fund investors tend to buy and sell at the worst possible times.

But the “big news” picked up the financial media, and which was only added to by the ongoing strong of disappointing economic reports, only seemed to hide a much more disturbing trend.

While most-watched stock markets are flat at best, their stock markets are running up.

Best of all, there are a lot of reasons these runs will continue in the short- and long-term.

It’s getting exciting in some parts of the world. And the emerging economies we’ll look at below are exceptionally bright futures, have stocks that are still rallying (they’re up 17%, 24%, and an impressive 33% so far this year), and a few ideas on how to play them.

That’s what the Humphrey Neill wrote in his 50-year-old book, The Art of Contrary Thinking.

It describes perfectly what’s going on today.

Bad news surrounded us for weeks. The summer doldrums have sunk the S&P 500 by 15%. China’s manufacturing activity growth has fallen sharply. “Depression” was making it back into the headlines. Tax hikes looming on the horizon were a very real concern for everyone. It was looking so bad the Fed even signaled it was eyeing kicking off another round of quantitative easing (a.k.a. printing money).

The masses took it all in and were running off on a tangent too. The increase Closed-End Fund (CEF) discounts we looked at last week showed market is really starting to price in a lot of the worst-case scenario.

Since then, the markets have made a sharp turnaround. The “fix” is in. It’s earning fantasy season and companies are posting average earnings. In most cases they’re not as bad as expected. Which means to some - buy, buy, buy.

Right now though with the herd solidly on the euphoria tangent, investors should be asking, “How long will it last?”

The chart below shows the answer may surprise you.

I know, I know…things look very pretty dreary right now.

Just three weeks into the government’s “Recovery Summer” publicity campaign, most economic indicators are falling. Home sales have plummeted. Consumer sentiment is down. And stocks, as a group, are falling daily.

Then tomorrow we’ll likely get another unavoidable reminder of how bad the jobs situation is. Tomorrow’s jobs numbers are expected to come in somewhere between bad and worse. Bloomberg’s survey pegs the estimated for job losses between 200,000 and zero.

There’s almost no good news to report. Fears of a double-dip recession are real and we continue to expect to spend the next couple of years dipping in and out of recessions.

But there are, and will continue to be times, when both bearish is overblown. One of the best market sentiment indicators I know of looks like we’re about to reach one of those times.

Every time a company turns to the public markets to raise cash, it’s either a boom or bust. Very rarely are they ever just flat.

This week was no exception. The much-hailed Tesla Motors (NASDAQ:TSLA) has been a smashing success so far. The maker of six-figure electric sports cars’ shares opened for trading around $18 and have soared in the past two days to more than $30 per share (a gain of 60%).

Although Tesla has already started giving back some gains, the success of the Tesla IPO just shows the opportunities that exist in the IPO market. And if you play by the right sight of rules, you can do really well in any type of market and limit risk.

Right now times are tough.

Stocks, as a whole, are overvalued. They could move lower or higher. They’re stuck in the middle. Jeremy Grantham, of Grantham Mayo & Van Otterloo, summed it up well in his latest quarterly letter, “The global equity markets taken together are moderately overpriced, and the U.S. part is now very overpriced but not nearly so bad as it could be.”  Think: Too late to buy, too early to sell.

Bonds are yielding next to nothing. While the markets have rebounded in the last couple of weeks, bonds have too. The yield on the 10-year Treasury bond has fallen to a meager 3.22%.

And the economy shows no signs of genuinely rebounding. High unemployment is here to stay. Tax increases are just months away. And business investment, expansion and risk-taking are way down.

It’s a tough time for most investments. And that means it’s a great time for covered call writing - an investment strategy perfectly tailored for this type of market. And, if you’ve not too familiar with covered call writing, there’s a “no hassle” way to take advantage of it.

When the U.S. government announced BP should cut its dividend, it wants to hold BP responsible for wages lost due to the Gulf of Mexico drilling moratorium, and the spill wasn’t going to be stopped anytime soon, that’s exactly what the market got – some bad news.

Since then there have been some bits of positive noise in consumer sentiment and China’s exports, but the market is still facing a lot of headwinds.

And right now is a good time to take a look at the lessons BP has taught this week about investing successfully and how we can apply them to the opportunities created by the spill.

Mutual fund investors are selling out at a faster and faster pace each week.

The Investment Company Institute, which tracks mutual fund inflow and outflows, reports redemptions have been surging in equity mutual funds. The last week of April, investors put in a net $1.85 billion into stock mutual funds. Since then though, it has been all downhill.

Investors pulled out a net $1.44 billion in the first week of May, $10 billion the next week, $1.1 billion the week after that, and $17.4 billion in the last week of May.

It’s happening all over. Canadian investors pulled out between $1 billion and $1.5 billion from mutual funds in May.

The size and consistency of the redemptions has had a noticeable impact on the markets. Aside from the general decline, there real impact can be seen in the last thirty minutes of each trading day.

The last half hour of trading is usually dominated by mutual funds. This relatively brief period is when mutual funds, if they have to meet significant redemptions that day, are forced to sell stocks and raise cash.

The industry which has had as much as $11 trillion of other people’s money to throw around in the U.S. plays a very big role in the markets. That’s why over the last few weeks there have been sizeable sell-offs at the end of a lot of the days (today’s late-afternoon uptick was a rare rebound).

Worried about this startling new trend in mutual fund investors running for the exits?

You shouldn’t be. As history has proven time and time again, mutual fund investors buy and sell at the worst possible times.

So with the mutual fund investors pulling out of stocks, it’s time to take a step back, look at what’s really going on, and get prepared to seize opportunities when they present themselves. Here's where you will find them.

As last Thursday’s market sell-off and this week’s rebound have proven, the only real factor driving the markets higher is liquidity.

That’s why all the recent action directly or indirectly related to the Greek bailout, the European Central Bank (ECB) monetizing more debt, the ongoing bailouts of Fannie Mae and Freddie Mac, and deep deficits of Western governments at all levels, simply further cement the most important trend of the next decade.

It’s a trend that will make fortunes for some and cost others a lot. Here’s how to ensure you’re on the right side of it all.

With the Dow falling farther and faster than it ever has before, the financial media begins its search for the “reason” it happened instead of what we really need to know about.

Was it the riots in Greece?

Remember how just a week ago Greece’s problems were good for U.S. stocks? The prevailing reason du jour for stocks going up was investors would pull out of Europe and put their capital to work in the United States.

Or was it the British elections, a “fat-fingered” trade, or China’s monetary tightening measures earlier this week?

Or did a big fund made a highly-leveraged bet that Greek bonds would rebound after the bailout was announced and when they didn’t, it imploded?

The most likely culprit, however, was part of something we touched a few months ago. Back when Goldman Sachs’ traders were booking profits on 98% of trading days, high-frequency trading (HFT) was the hot topic.

While the big traders running the computer-assisted trading programs were banking remarkably steady profits, we looked at the big risk that came with HFT systems controlling 70% of all trading volume:

At some point in the next five to 10 years, another out-of-the-blue crash will likely happen again. Sure, there are limits on how much the major indices can move, but rules and regulations don’t always prevent the next problem, they usually only add to it.

Today was just a taste of what automated markets will bring eventually on the random and unpredictable day.

For now though, we’ll wait for the full details to come out for the who’s and why’s of the whole ordeal. We’ll look at the real impact of the sell-off.

Investors are faced with a lot of touch questions about oil now. However, one little-known indicator is flashing “buy.” And the last time two times it did that oil prices more than doubled each time. Here’s the set-up.

]]> http://www.q1publishing.com/dispatch/viewcontent?&contentId=714 Financial 2010-04-25 The market rally has reached an almost comically delusional high.

Bad news comes out. They say, “No problem. It was better than expected.” Market goes up.

Good news comes out. They say, “The recovery is real. There’s still time to get in. Don’t miss out.” Market goes up.

The market rally has been almost bulletproof and this earnings season has only made it stronger. Currently, 83% of S&P 500 companies that have reported have beaten analyst expectations. It’s on pace to be the best performance for earnings vs. estimates since 1993.

Expectation hurdles have been low set exceptionally, but in the current stage of the market rally any news is good news.

But it’s times like these, when the S&P 500 has had only seven down days in the last five weeks, when it’s time to look at when this rally will end. Because it will end. It will end badly. And history shows most investors will miss out on the further gains to be had and will go “all in” just in time for it all to fall apart.

Here are three ways to know when the rally is about to end.

Last week two major events happened that will have a tremendous impact on your portfolio in the months and years ahead.

Last week, while the Dow continued its march higher and the mainstream financial media cheered on the rally, the most important market in the world took a major turn.

A few investors will be positioned to reap exceptional rewards while the herd will take a bigger hit to their bottom line than they did during the Panic of 2008.

Here’s what happened and what it means for the most important megatrend in the financial world.

In reality though, the “reversal” is actually cementing one of the greatest investment opportunities of the next decade.

Last Wednesday the government announced it was opening up offshore waters to oil drilling and exploration.

It was hailed as great news by most of the media. The move to open new areas to oil exploration when oil’s at $80 a barrel appeared to be a great economic move and a greater political move.

But not all is what it seems. And a great investment opportunity was just turned into a greater one.

Over the next decade the government will reach further into the private sector than it ever has before.

Despite the year of debate and non-stop selling of the program, there’s still a lot of uncertainty over the impact of the law.

All politics aside, we know a few things already.

First, it will not be nearly as good as proponents said it will be.

Second, it will not be as bad as opponents said it will be.

Third, over the long-run though, we know it will cost far more than projected. The expected tax revenues and savings will not materialize and spending will be greater than forecast.

Finally, as with all other government interventions, it will create opportunities and pitfalls for investors. The real opportunities, however, may surprise you.