Everyone is pointing to factors that weighed on the hearts and minds of Alan Greenspan and other Federal Reserve officials leading up to yesterday's surprise interest-rate cut.
Here's one startling claim that the Fed may or may not have seen but gives a clear picture of how ugly investor sentiment had become before the Wednesday's rate move: Tuesday witnessed the biggest outflow of cash from mutual funds ever, according to figures from fund-tracker
TrimTabs.com.
We huddled with Charles Biderman, president of TrimTabs.com, to hear what his group found and what it means.
TSC: According to your company, Tuesday we saw the biggest outflow of money from mutual funds in history. Since a lot of people view fund flows as indicators of investor sentiment, that was a pretty bleak figure. Biderman: Did the Fed know? The outflow was $10.7 billion for U.S. stock funds and $13.1 billion for all stock funds, U.S. and global.
TSC: Can you compare that outflow to the amount of money mutual funds took in on the first business day of January last year? Biderman: An inflow of $1.3 billion.
TSC: What does the $13.1 billion outflow figure from Jan. 2, 2001, say about consumer sentiment? Biderman: There was a crisis in confidence.
TSC: Can you put that number into perspective? Biderman: Consider that the total inflow for all of November was $5.8 billion into all funds. The average monthly inflow for the first 11 months of 2000 was $27 billion for all funds.
TSC: What did fund flows look like back in 1998, prior to the last intermeeting rate cut? Biderman: There were outflows that had been consistent. We had $5.7 billion in outflows in the period two weeks before and $3.2 billion the day before the rate cut. Back then, that was probably a record.
TSC: Do you expect to see inflows now? Biderman: Yes.
K.C. Swanson
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