SOS Fact or Myths

On one SIDE............

Right now, it seems like a very similar scenario is unfolding on the financial "battlefield." On the one side, those "writing the code" of public perception are yelling "CHARGE!" into equities. See news items below for confirmation:

• "US Stocks Long-Term Slump Near End... Stocks may stay in a tight range for several more years as they near the end of a bearish era." (Bloomberg)
• "Billionaire Lambasts Dour Sentiment, Eyes Bull Market. Sentiment may be sour but a bull market in US stocks that roared in September has more upside." (Reuters)
• "Warren Buffett: Forget Gold, Buy Stocks" (Tycoon Report)
• "Cramer's Mad Money: The Market Is Cheap, Cheap, Cheap. The predictions of the bears... are looking more and more ridiculous and untrue by the day." (CNBC)

On the other SIDE ..............

says investors have been "voting with their feet," pulling their money out of US equities for 24 straight weeks. In the past week alone they withdrew $623 million from US stock funds, and invested $1.45 billion in overseas equity funds instead.

As for why, the article covers the gamut of reasonable suggestions: The slew of confidence-denting scandals and fraud, two stock market crashes in the last ten years, and the fact that insider selling just reached a "breathtakingly bearish ratio of 1169:1, i.e. insiders are selling 1,169 shares for every one that they're buying."

One thing doesn't add up though: If investors are so rattled by the instability of US stocks, then how do they rationalize swapping the one for the way-more-unstable sectors of foreign markets and high-yield debt?


MyView

Facts:

1. Net outflow for 24 straight weeks in US equities;
2. in past week, USD634 mil withdrew from US equities and USD1.45 bil invested in overseas equities; and
   
3. Selling ratio of 1169:1, insider is selling 1,169 shares for every one on buying

It seems that the fact of more insider sellers than buyers as shown by the fact does not correlate with the continuous increase in the US equities, so is the net withdrawals from 24 straight weeks in the US equities.

Reality:

1. US equities moves up despite the facts mentioned above (on a thinner volume, of course)

Anology:

1. This situation is not new, when explained that it was proven that earnings improvements does not has much impact on the direction of the stock markets because the stock market's trend is influence by "cumulative emotions of investors";
2. Sooner or later the fact will catch up with the "