‘Mom & Pop’ are Running for the Investment Hills

The Public’s Subliminal Awakening To Wall Street’s War Plans

Beginning in the last week of August investors have experienced a torrent of stock selling.  But small investors, whom Wall Street condescendingly dubs, ‘Mom and Pop,’ began dumping both bond and stocks two months before the dam broke.   Walls Street prophets are wondering why, and how the public could be so smart.  It is an cynical adage on Wall Street, that the “The Public is Always Wrong.” So this role reversal has the “experts” worried.  

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According to believed reliable information, the Federal Reserve Bank (FED) is pumping in unprecedented new dollars to plug the leaking dike in the US stock market.  But liquidation of US Debt (bonds) may be an unstoppable torrent, and the pundits observe the public is also selling US Treasury debt at an alarming rate, and at the same time that China is selling its vast hoard of US Treasuries.

Almost unnoticed by Wall Street, the great American middle class has become a massive investment power since the advent of 401(k) laws.  Collectively, the public is a huge holder of both stocks and bonds, especially of US Government bonds owned through mutual funds, self-controlled IRAs and private accounts.  These holdings are liquid and can usually be sold or switched to cash with a phone call or an e-mail.  In the past, most  Mom and Pops have been passive, long-term holders, trusting the managers of their mutual funds, buying and holding. According to Bloomberg News, some 52 million Americans hold more than $4 trillion in IRAs.  Much of this huge pool is in stocks and US Debt issued by the Treasury.  This writer and others have written about how the price of this debt has been manipulated by the FED for some 35 years.  Now it is worrying Wall Street that Mom and Pop become large net sellers of both US Treasury instruments and stocks in the weeks before the stock market plunged in the last weeks of August.  The question is:  How did they know?

‘The Street’ is wondering how the rank and file investors could have suddenly became so financially astute as to sense and anticipate the a breach in the dam and to start cashing out ahead of the most “brilliant” hedge fund managers.  The banking elite  are beginning to worry that the mutual fund crowd is abandoning ship. They are used to stampeding the ‘public’ into whatever investments best suits they have for sale.  Mom and Pop’s IRA has been the perpetual bag holders in the Wall Street Snipe Hunt.

The  Bloomberg News published a revealing story on August 28,  Mom and Pop are Running for the Hills.”  It is based on a factual report from giant Credit Suisse Bank, that reveals that the American Public (not the big institutions) have started the rout of both government bonds and commons stocks.  The FED has tried to prop up with record acts of ‘stabilization’. The Bloomberg story tells us the investment public has been dumping stocks for weeks prior to its official stock washout and, even more unusual, the public has also been dumping larger amounts of US Government debt by cashing out of bond funds.   

Bloomberg explains its fear of the mighty Mom and Pop:   “Since July, American households — which account for almost all mutual fund investors — have pulled money both from mutual funds that invest in stocks and those that invest in bonds.  It’s the first time since 2008 that both asset classes have recorded back-to-back monthly withdrawals, according to a report by Credit Suisse.

“Credit Suisse estimates $6.5 billion left equity funds in July as $8.4 billion was pulled from bond funds, citing weekly data from the Investment Company Institute as of Aug. 19.  ‘Those outflows were followed up in the first three weeks of August, when investors withdrew $1.6 billion from stocks and $8.1 billion from bonds,’  said economist Dana Saporta.  ‘Anytime you see something that hasn’t happened since the last quarter of 2008, it’s worth noting,’ Saporta said in a phone interview. ‘It may be that this is an interesting oddity but if we continue to see this it could reflect a more broad-based nervousness on the part of household investors'” who held 89 percent of US mutual fund assets last year, according to ICI. (Bloomberg)

Wall Street is worried that Mom and Pop are no longer firmly under its influence, ready to buy whatever the Street wants to sell, and sell whatever the Street wants to buy, manipulated by Bloomberg and Fox News.   However, there is a a more subtle and likely explanation than to believe that 52 million Americans have acquired a sudden financial acumen.  It’s more likely they are catching on to Washington politics and its push for war with Iran, and responding to it by dumping anything that smells of Wall Street or Washington, DC.

First, this is not the same as the 2008-9 plunge, when the public jumped onto the sell wagon, half way down the slippery slope.  This time Mom and Pop led the way, weeks ahead of the plunge we heard about on CBS and NBC!  They seem to have started the trend!  Thus, it is probably not the decline of the market that has scared the enlightened 52 million into starting to dump our “growth” stock funds (that have stopped growing) and our “high yield” bond funds that do not provide high income. 

Perhaps the public is selling because anyone can see our political state is in an insolvable mess, most clear in this year of the early race for president.  We are trapped in an out-of-control monetary and political system, and we feel powerless to correct it.  Worst of all, we know it.  So we are starting to sell our US Government bond mutual funds and to dump our stocks, then to sit on the cash.  If something has a ‘Wall Street’ or ‘US Gov.’ label on it, sell it! 

We, who are sarcastically referred to as Mom and Pop, are  in such a panic mode that we have made “Your Fired” Donald Trump, Ben Carson who has never held office, and Bernie Sanders the popular lead Presidential candidates of the Republican and Democratic parties respectively.  It is a pure revolt!  Americans are saying, “We want political independence, no matter what its face.  Give us anyone but another Clinton or another member of the Bush dynasty.”  Out of pure desperation Mom and Pop are selling out of what they see as the corrupted, Wall Street-dominated political system, and turning to the great gaping unknown.  

China is selling US Government bonds, seemingly as fast as it thinks it can without cratering the bond Market.  Another Bloomberg story points out: “The People’s Bank of China has been offloading dollars and buying yuan to support the exchange rate, a policy that’s contributed to a $315 billion drop in its foreign-exchange reserves over the last 12 months. The $3.65 trillion stockpile (of US Treasury debt it owns) will fall by some $40 billion a month in the remainder of 2015 because of the intervention, according to the median estimate in a Bloomberg survey.”

Also, accruing to a report by FED observer Avery Goodman (not yet verified but very likely), “On Monday, August 24th, the Fed injected $18.54 billion” into the stock market. 

Author Goodman logically attributes the giant rebounds in stock to the FED-fomented buying.  There is no reason to doubt his numbers.  The FED’s QE-3 action in 2013-14, pumped at least half a $trillion into the home real estate market–$20 billion for stock would not work up a sweat.    The warmaking community and their Wall Street financiers have long worried about the US debt built up in the hands of China, Russia, India, and others, but they have mistakenly overlooked the danger of the American public being their largest creditor.  They made a fatal mistake when they ignored the possibility that the debt-holding public would reject the next war and would react financially to their political disgust and fears.

Summing it up:  The drop in the stock market is not all bad!  This may be the first phase of Great Turning in the age of Serial Wars.  It will necessarily start with a devastating financial event that cannot be stalled by yet another planned war.  All of King Jed Bush’s Horses, nor all of Queen Hillary’s Men, cannot put financial Humpty Dumpty together again. 

References:

http://whtt.org/u-s-bonds-sovereign-debt-the-humpty-dumpty-factor/#more-5407

(http://www.bloomberg.com/news/articles/2015-08-28/fed-up-investors-yank-cash-from-almost-everything-just-like-2008)

(http://seekingalpha.com/article/3472286-the-fed-spent-23-billion-in-3-days-but-still-had-a-hard-time-pushing-up-stocks?ifp=0)

http://whtt.org/us-treasury-bondsthe-godfather-of-all-bubbles/#more-5227

       

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