Stock Market Investor Psychology Crazy Ratio Record Crash?
Stock-Markets / Stock Markets 2015 Mar 04, 2015 - 12:11 PM GMTBy: EWI
Editor's note: This article is excerpted from "The State of the Global Markets 2015 Edition," a comprehensive report by Elliott Wave International, the world's largest independent market-forecasting firm (data through December 2014). You can download the full, 53-page report here -- 100% free.
With so many once-bright investment ideas flaming out— houses, condos, commodities, gold & silver, oil, junk bonds and hedge funds, to name a few—one would think that the buy-and-hold ethos of the Mania Era would at least be under review. But it isn’t. All it has done is become more focused while remaining as cherished as ever.
On United States Follow this link for the most up-to-date analysis of U.S. markets: http://www.elliottwave.com/wave/MIFF November 14, USA Today quoted a popular refrain: “For many people, this is a TINA market—meaning There Is No Alternative. Money market funds yield nearly zero; bond yields are miserably low; and commodities are pumping mud. Your best alternative, it seems, is stocks.” (Right. Buy what’s way up. Whatever happened to “buy low, sell high”?) The consensus is nothing less than a wholesale rejection of the alternate explanation offered at the top of this newsletter.
Here’s another ratio that shows how completely detached the commitment to equities is from its historic norm. Weighing ICI equity mutual fund assets and ETF assets relative to money market assets, this ratio reveals that mutual fund investors favor stocks over “risk free” money markets by an incredible 4.29-to-1 margin. This record reading came in August. The graph also shows that lower peaks in the ratio preceded the market collapses of 1987, 2000 and 2007. In August 1987, the assets in equity mutual funds equaled those in money markets for the first time; the Crash of 1987 followed two months later. In 2000 and 2007, the ratio peaked at a higher 3-to-1 margin and was followed by Dow declines of 39% and 54%, respectively. Now it’s at 4.3:1! This crazy ratio fits our outlook for a record collapse in stock prices.
Over the course of the last 12 months...
Editor's note: This article is excerpted from "The State of the Global Markets 2015 Edition," a comprehensive report by Elliott Wave International, the world's largest independent market-forecasting firm. For a limited time, you can download the full report, for free, and use its year-in-preview insights to prepare, survive and prosper through the global investment landscape of 2015 and beyond. Download the full, 53-page report here -- it's free.
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