You don't need me to tell you how difficult it's been recently to gain comfort with and maintain portfolio positions. The swings in action and mood have driven a lot of investors away. Today I updated one of our Top 10 ETF sectors--Industrials. The previous update was in early July. What stood out from this and other equity ETF sectors was the dramatic declines in AUM (Assets Under Management) for each ETF. AUM routinely had dropped over 40% and trading volume for many had increased by an equal percentage with the latter indicating selling. This is similar to equity mutual fund redemptions and debunks the notion investors are just switching to ETFs. The bottom line is all this volatility is a major turn-off.
HFTs have added to this volatility and shortly we'll be featuring an explanation of how these programs work in real time plus how their presence is affecting markets.
Wednesday's stock market about face was occasioned by the often unreliable ADP report which showed private payrolls adding 110K which beat estimates of 100K. However, the previous report was revised to 116K which means a decline which wasn't well mentioned by the financial media. Bulls also hoped the Fed might launch QE3 which isn't happening yet. But more Fed governors are clearly anxious to implement it which energized bulls. It's unfortunate that these "tools" seem "transitory" since they only pump stock prices but empirically haven't relieved joblessness or helped housing. It's not positive the Fed reduced GDP growth for 2011 to 1.6% and lowered 2012 to 2.5-2.9%. Bulls can ignore poor data as they believe QE3 is then more certain. The Fed also remained pessimistic regarding unemployment stating it should remain at these levels, and improving only slightly in 2012.
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