Wall Street's troubles are compounding. It appears that small investors have waken up to the fact that the game is rigged. They are fleeing from casino capitalism in droves.
In a speech Tuesday, Mary Schapiro, chairman of the Securities and Exchange Commission, said the SEC was informed by retail brokers that the Main Street investors they cater to "have pulled back" from the stock market since the flash crash.
To buttress her point, Schapiro noted that stock funds have suffered net outflows every week since the flash crash.
When I wrote this well-received essay a week ago, the net outflows were beginning to gain attention from the media. In the past week, things have gotten much worse for Wall Street.
Because the lack of new "dumb money" flowing into Wall Street, as many as 80,000 banksters will lose their jobs.
Since Washington refuses to enact serious reforms of Wall Street, and the regulators refuse to do their jobs, it has come down to mom and pop investors to starve Wall Street into submission.
Domestic equity mutual funds, the sort of funds that Wall Street likes to sell to Main Street investors, have seen outflows for 18 consecutive weeks (a total of $62 Billion in outflows), and this past week saw the largest amount of redemptions ($7.5 Billion) since the May 6 Flash Crash. The retail investor just wants out. Period.
The result of all these small investors selling is a huge drop in trading revenue for the investment banks.
Troubling economic data and uncertainty over European sovereign debt and the global recovery led investors to step back from the markets, analysts said. The result may be the lowest revenue from investment banking and trading for the five largest Wall Street banks since the fourth quarter of 2008, when they had combined negative revenue of $3.35 billion...
Equity investors have traded a daily average of 14.2 billion shares on U.S. exchanges so far in the third quarter, according to Bloomberg data. That’s the worst start of any quarter since the first three months of 2009, when the Standard & Poor’s 500 Index touched its lowest point in almost 13 years, and 25 percent less than the average for last year’s third quarter, the data show.
Trading accounts for an average of 34% of revenue for the big five banks (Goldman Sachs gets 81% of their revenue from trading). If investors don't send them money to trade, then the banks can't make money from it.
The small investor can be fooled, but he/she isn't a complete moron. We may be far too trusting, but we know when we've been stolen from. We know a rigged game when we see it.
Some investors have raised concerns, Schapiro said, as to "whether these changes in our market structure could undermine the fair and level playing field essential to investor protection, capital formation and vibrant capital markets generally."
Since the start of 2008, investors have been fleeing stock funds in favor of bond funds, which are viewed as safer. Still, there's no question that seeing the Dow fall so far so fast with so little warning took a big bite out of confidence, says Michael Farr of investment firm Farr Miller & Washington. "It made the individual investor more certain in their suspicion that the (stock investing game) is fixed," he says. The fact that regulators have yet to explain why it happened and whether it can happen again, he adds, is an overhang on the market.
This is bad enough news for Wall Street. However, it is far from the whole story.
But it doesn't end there.
Small investors aren't just cashing out of stocks. They are cashing out of other investments vehicles as well, such as Exchange Traded Funds.
August 2010 net cash outflows from all ETFs/ETNs totaled approximately $1.9 billion, with year-to-date net cash inflows totaling $47.6 billion. Total U.S. Equities had net cash outflows of over $10.9 billion for the month of August 2010.
And if that wasn't bad enough, it turns out that even hedge fund managers are beginning to sweat as they witnessed $2.9 Billion in outflows in July.
July's number follows an outflow of $2.7 billion in June. The industry has dropped 4 percent since April 2010, according to Trimtabs, which attributed the decline mostly to negative returns in May and June. Flows have now been negative five of the last eight months (see chart, this page), the worst eight-month stretch since the September 2008 to April 2009 period...
Redemptions should resume in September; historically one of the worst months for hedge fund flows. For the year, flows toward hedge funds stand at $1 billion, following redemptions of $172 billion in 2009 and $150 billion in 2008. We believe it is safe to assume this “lost” $320 billion will not come back to the industry any time soon.
Now I'm sure that all you will shed a tear for those poor, billionaire, hedge fund managers.
Ariana Huffington started the Move Your Money movement to convince people to move their money away from Wall Street banks. A couple billion dollars of money was moved to local banks and credit unions, but it appears the movement has stalled. That's too bad because it is an excellent idea.
If you step back for a moment and examine these events, you will realize just how far out of whack our political and financial system is.
There is no justifiable reason why mom and pop investor should have to be the ones to bring Wall Street to heel. That's what our government is for. However, our government has completely abdicated their responsibilities. They've gotten in bed with their criminal friends on Wall Street. They've decided that the citizens of America just don't matter as much as Wall Street money.
As for Wall Street, once their greed and thievery is so open and obvious that even mom and pop investors can identify it, then you know things are totally out of control. Wall Street has completely abdicated their responsibilities to their own religion of the free market. It's every man for himself and damn the consequences.
There is a silver-lining in all this (other than the one about greedy banksters getting sacked because of their thievery). If small investors keep pulling their money out of Wall Street then Wall Street might actually allow Washington to pass real financial reforms, because that is the only way that the small investor will ever have confidence in Wall Street again.