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Institutional Money Remains on the Sidelines

July 1, 2013

    by Jerry Robinson, Editor-in-Chief

    While U.S. equities have been staging a rally off of their recent lows, the overall demand for stocks remains lower than normal. Meanwhile, both the Dow Jones and the S&P 500 have failed to rally above their 50 day moving average, despite several positive trading sessions. This suggests that the big institutional money is staying on the sidelines, perhaps in anticipation of a steeper fall just ahead. Since volume will likely decline throughout the remainder of this week as we head into Independence Day, I am not expecting many more gains this week in U.S. stocks.

    For investors, history suggests that we pay very close attention to volume levels. When stock prices increase during a period of decreasing volume, veteran investors know that it is not a bullish sign. When stock values increase on rising volume, this is a good sign that the rally is real.

    We are in a stock pickers market. The big money is nibbling at stocks here and there. But most of the smart money has adopted a “wait and see from the sidelines” approach.

    Consider these charts from Bespoke Investment Group, which show that bearish sentiment has recently taken over the financial markets:

    Gold Update

    New CFTC data shows that money managers have dropped their net long positions to a low not seen since June 2007. This after the yellow metal suffered its worst first half since 1981. Despite strong demand from Asia, gold just can’t get any respect. But I believe that all this trashing of gold (as well as silver) by the mainstream financial press, and by some institutional players, is just sheer lunacy — if not absolute arrogance. Does this debt-laden generation somehow believe that it will escape the consequences of its actions? If they are right, gold and silver will tank and stay down, aside from the occasional mania. But my wager is that they are wrong. Gold and silver are not just metals. They are money. And as such, they will prevail in the end as they always have when the walls come crashing down.

    Vatican Bank Update

    As you may know, I have developed a strange interest in the events unfolding at the Vatican Bank as of late. Perhaps my interest stems from the fact that the Vatican bank is the world’s most secretive bank in an era plagued by misguided banking interests. Over the last few decades, numerous allegations of corruption, money laundering, and terrorist financing have been a source of embarrassment for the bank. Newly installed Pope Francis recently announced plans to launch a formal investigation into the bank’s hidden activities. Then today, the director and deputy director of the Vatican bank abruptly announced that they would be resigning as it would be “in the best interest of the institute and the Holy See.”

    And all of this comes just a few days after the arrest of Monsignor Nunzio Scarano, who allegedly took part in a money laundering scheme at the Vatican bank.

    Heaven help us.

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