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Mutual fund outflows are another example of the costs of ZIRP – Bernankecide

This is a short excerpt from this week’s Professional Edition Fed Report to be posted Tuesday.

The ICI reports mutual fund inflows weekly with a one week lag. Domestic equity mutual funds had $8.7 billion of net outflows in the week ended 4/18/12, after net outflows of $1.5 billion the week before. Based on the first 3 weeks of April, outflows for the month would project to $21.4 billion, which would be enough to turn the indicator outright bearish. When an indicator like this enters a cyclical weak phase starting from below the zero line, that’s usually very bearish. However, this indicator is not a primary market driver. I consider it useful only as peripheral indicator.

US Domestic Equity Mutual Fund Flows Chart- Click to view

US Domestic Equity Mutual Fund Flows Chart- Click to view

In this case, it should serve as a red flag for the market, but there’s another issue. This downturn continues the trend of small investor distribution that started in May of 2009, just a few months after the beginning of Bernanke’s Zero Interest Rate Policy (ZIRP), which I consider the equivalent of financial genocide for America’s elderly. I call the effects of ZIRP, “Bernankecide.”

As their investment income dwindled to zero, elderly retirees were forced to begin liquidating not only their money market funds, but their mutual funds as well, just to meet everyday expenses. Each day that this outrage goes on, another elderly person becomes destitute, reliant upon the state, charity or, most often, their children for their support.

Many times, state governments no longer have the funds to care for them, so the burden falls on the family. The victims themselves must cut their spending, often drastically, and so must their families, who must divert their incomes into the elder care system, from saving for their own retirements or for their own current spending wants and needs. Bernanke has never adequately addressed of the devastating effects on the lives of millions, and the moral issues involved, to say nothing of the negative effects to the economy of the lost income of ZIRP that is the other side of the accounting entries of the short term gains of the banks.

ZIRP is a morally indefensible and repugnant policy. The policymakers consider only its benefits to the economy while ignoring or dismissing the plight of those devastated by it, along with the fact that the losses that they directly incur, along with the lost income of the pension funds, insurers, charitable institutions and businesses,  completely cancel out any benefit of the policy to the economy as a whole. My question is when will the financial journalistic community begin to press the Fed Chairman on these two points–not only the fact that in a double entry accounting world, the overall costs of the policy must perfectly offset the overall benefits to the economy, but that the policy is a moral atrocity.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 


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