Money flowing out of mutual funds, Fed engages 'Operation Twist'


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Investors are pulling their money from U.S. stock mutual funds , PBS' Nightly Business Report said yesterday . Over the past quarter, they took $75 billion out of their domestic mutual funds, correspondent Erika Miller stated, a massive figure which is actually higher than the amount withdrawn at the peak of the financial crisis, after Lehman Brothers imploded and dragged the stock market down with it.

 "When we're getting close to a market bottom, the phone starts ringing off the hook and our clients want us to sell everything," Bruce McCain,the chief investment strategist at KeyCorp, told Bloomberg last week. "Market bottoms are less about an improvement in the fundamental situation, whether the economy or outlook for earnings , and a lot more about getting rid of all the anxious investors."

Meanwhile, the Federal Reserve Open Market comittee announced  its decision to support the economy by extending the average maturity of its Treasury security holdings. In layman's terms, that means selling $400 billion of Treasury bonds with shorter maturities (according to the Fed, three years or less) and buying an equivalent amount with longer maturities (six to 30 years). 

The goal of the so-called "Operation Twist" is to reduce long-term interest rates, which in theory should stimulate borrowing and deliver a boost to investment and consumption.

More important to the average investor or consumer would be the passage of the fiscal stimulus and tax plans presented by the White House, but those stand little chance of passing a hostile, Republican-controlled House of Representatives and a narrowly divided Senate.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: News Headlines , Bonds , Mutual Funds
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