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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

June 2, 2011 at 10:15 AM

(Not) here for the party: Small investors hit the Wall Street casino exits

“Won’t get burned again” seems to be the motto of small investors. According to the Los Angeles Times, individual investors have been moving their nest eggs from stocks into bonds since March. Mutual funds that own stocks suffered outflows for five straight weeks ending May 25th, the Investment Company Institute reported. The trend only accelerated in May, as an estimated $3.2 billion was pulled from equity funds in the week ending May 25. If so, these folks have avoided the worst of the market’s recent swoon.

Small investors, including employees who lost their pensions in the 1980s and 1990s as they were converted into 401(k)s, were among those worst hurt by the Great Recession. Portfolios dropped some 40 percent. While they are often pawns of the hedge-fund boyz and the big Wall Street playerz, the recession obviously changed the behavior of those who had previously only lived through the long bull market.

The rally has been marked by increasing appetite for risk. That would be normal if it were accompanied by a normal, broad-based economic recovery — which it’s not. It has been heavily fueled by easy Federal Reserve money, giving at least some Fed governors pause.

In a speech Thursday, Fed Vice Chair Janet Yellen voiced some concern — once you cut through the Fed-speak, about a potential bubble, including the same old games of leverage and imbalances. She walked back from this as the speech went on, but I was struck by the “warning” side more than the “we’ve got this under control” side.

Today’s Econ Haiku:

Google email hack

A new product from China

Welcome Gary Locke

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