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CNN Live Today
Short-term Investors Pulling Money Out of Markets
Aired July 12, 2002 - 12:13 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: We turn our attention now to Wall Street where a lot of Maalox has no doubt been passed around after big, big losses this week. Taking a look at the markets this hour, the Dow down 64 points, Nasdaq up 8 points.
Joining us now from New York, Alan Wastler of CNNMoney.com. Hi, Allen.
ALAN WASTLER, CNNMONEY.COM: Hi Kyra, how are you doing?
PHILLIPS: Very good. And so, are you -- how is your nerves?
WASTLER: You know, if you are investing for the long-term, your nerves are pretty steady. I mean, we have seen it whacked pretty hard lately, but if you are investing in the long-term, you have got to remember, the market is sort of like the song by Chumba Wumba. You know, it will get knocked down, but it will get up again. You just got to keep that faith.
PHILLIPS: Oh, we are talking the dead cat bounce.
WASTLER: The dead cat bounce. And that is what we are seeing today. If have you been following the index this morning, you see it go up, then it is down again. Then it is up, and then it is down again. And what that is, sardonic traders, they talk about, you take a dead cat, throw it off a building. It goes down, boom, and it will bounce a little bit, which is kind of hopeful, but it is still dead. Anyway.
PHILLIPS: What type -- but what type of investors do you think are pulling out?
WASTLER: Right now, what we are probably seeing is a lot -- you know, sort of the mom and pop marginal investor, that's like, You know what, I have seen my 401(k) and mutual fund just go crazy too long. I'm out of here. I'm gone. You are seeing that TrimTabs, which follows the mutual fund market, they estimate that for July, we are probably going to see about $56 billion pulled out of mutual funds. And, you know, that's your typical investor that is in there.
The institutions are still hanging in there. But right now, the sort of the hot money, the money that is sort of fickle and just, you know, Hey, I got a $500 bonus, I think I will go invest in stock. That's what is pulling out. The people that stay there for the long- term, that have seen the market be cyclical, and go up and down, they are looking at a five-year horizon, ten-year horizon, they are staying in pat.
PHILLIPS: Well, let's talk about what is doing this, because a lot of people are expressing a lot of anger over the corporate corruption, yet we still have to look back, correct, at Internet, September 11, all of these factors.
WASTLER: Yes, it is what I personally call the trifectas hitting the market, OK? First of all, it is hung over. We binged on the Internet and on the telecom sector...
PHILLIPS: Nice analogy.
WASTLER: ... you know, and so, people bought, bought, bought. All of a sudden, corporations aren't buying any more. So that's part of a regular economic cycle. Then came 9/11, OK? Boom, we're at war all of a sudden, and the guys that did it are still running loose, and now we are talking about hitting Iraq too.
Now, markets hate uncertainty. That's a couple really uncertain situations right there. So that is going to pound the markets down. Then third, we got lies, OK? The numbers that you typically base your buy decisions on, you can't be too sure about them any more because everyday, we have got the headlines saying, Oops, maybe that wasn't what we should have done with the revenue. So, you know, people are just -- you got that trifecta weighing down on markets. It is very tough to invest in that kind of situation.
PHILLIPS: So that is what is making the predictions so difficult, you think, basically the lies?
WASTLER: That's true. Now, you know, typical valuation model on the street is looking at the return of stocks versus the return of bonds. And when the return of stocks generally gets below that of bonds, people say, There's going to be a turnaround coming. It is going to bounce up -- bounce up again because historically, the two are about even.
Except that valuation model relies on the earnings reported by these companies. If the companies are going back and restating earnings, or if the feds are going in and saying, No, they did it all wrong, you can't trust that valuation. So all of a sudden, all the old models you used to make your investment decision, boom, they are gone. What do you do now? So that is what we are seeing.
PHILLIPS: Great question. What do we do now? Alan Wastler. Thank you.
WASTLER: All right. Take it...
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