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What’s causing exodus out of stocks?

Marketplace Staff Aug 23, 2010

What’s causing exodus out of stocks?

Marketplace Staff Aug 23, 2010


BOB MOON: Back to what may be an underlying problem for the stock market — some striking numbers reported in the New York Times over the weekend from the Investment Company Institute, a trade group for the mutual fund industry. In the first seven months of the year, investors withdrew a whopping $33 billion-plus from domestic stock market mutual funds. Joining us live now is economist Julie Coronado with the global bank BNP Parabas. What about this Julie, what do you think is causing this exodus out of stocks?

JULIE CORONADO: Well, I think it’s something that we’ve been seeing since the crisis. Consumers were shocked with more than a 40 percent decline at the height of the crisis. And that really drove home for them — stocks really are a risky bet. And when we combine that with a pretty shaky economic recovery, I think consumers are much more focused these days on saving and protecting their principals than winning the lottery in the stock market.

MOON: I would imagine that big flash crash that happened a few months earlier didn’t help things, right?

CORONADO: Certainly not.

MOON: OK, but if businesses want to expand, I’ve always really understood that the stock market is the place you go once you need to raise cash. What do they do now?

CORONADO: Well, I think the reduced demand is also being met with reduced supplies. So businesses are shifting away from the stock market as a source of funding. And they’re issuing more bonds instead. And since that is where consumer demand is going, it’s a natural place to find funding, so it’s kind of going hand in hand.

MOON: Do you think this is this a permanent shift? Americans seem to love picking stocks . That can’t be gone forever, or can it?

CORONADO: Well I think things have changed. The American consumer’s mindset has changed in a more permanent way. At a minimum, I think people are going to allocate less of their portfolio to equity. And this also goes along with the fact that baby boomers are nearing retirement and they’re more oriented towards protecting principal and towards safety than towards risk taking, so it’s a demographic shift in a way.

MOON: Sort of a generational kind of thing?

CORONADO: Absolutely.

MOON: Julie Coronado is an economist with BNP Parabas — thanks for your insights.

CORONADO: It’s my pleasure.

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