×

BEHIND THE MONEY: All This Rally Wants is You

I just want you for my own...
More than you could ever know...
Make my wish come true...
All I want for Christmas...is you.
-Mariah Carey

Stocks have made quite a comeback this year, but for it to continue in 2010, your broker needs to play some Mariah Carey on his next cold call.

The S&P 500 is up 65 percent from its 2009 closing low and looks to close out the full year with a gain of greater than 20 percent. But looking at the latest mutual fund inflows, the retail Regular Joe chose the safety of bonds. More than $260 billion flowed into taxable bond funds this year through Nov. 30, but more than 17 billion was taken out of U.S. stock mutual funds, according to Morningstar.

The reason why the retail investor is crucial to the continuation of the rally is because mutual fund managers are already all-in. Average mutual fund cash levels have already gone from 6 percent following the 2007 crash to a low of 3.8 percent, according to Alan Newman's 'Stock Market Crosscurrents' newsletter. This is near the the all-time low cash level of 3.5 percent recorded in the summer of 2007 right before the crash unfolded.

The buying power of mutual funds is completely exhausted, according to Newman, whose contrarian and prescient newsletter has been early over the years in pointing out problems such as the high-leverage in our financial system and the dangers of program trading. "This display of optimism and complacency surpasses anything we have ever seen before," wrote the analyst, in his latest note.

So now it's up to you. If the retail investor doesn't put more cash into mutual funds, then mutual fund managers can't buy more stocks. But does the retail investor feel good about the outlook for the economy and stocks?

"Although the S&P 500 is 30 percent below the all-time highs, the math is not quite what it appears, since the major index must climb another 41 percent to get back to the highs," wrote Newman. "Given the index is already up 65 percent from the lows, one would be excused for believing such an event would require a rather complete turn in the fundamentals, such as far lower unemployment stats combined with huge gains in job growth. Neither of these factors appear to be on the horizon."

--with reporting by Jennifer Dwork and Prasanna Subramanian

______________________________________________________
Got something to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap! If you'd prefer to make a comment but not have it published on our website send your message to fastmoney@cnbc.com.

Trader disclosure: On December 22nd, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (INTC), (MSFT), (NUE), (BTU), (AGU), (C), (GS); Pete Najarian Owns (CLF), Is Short (CLF) Calls; Pete Najarian Owns (MS), Is Short (MS) Calls; Pete Najarian Owns (MRVL); Pete Najarian Owns (STX) Calls; Pete Najarian Owns (UUP) Call Spread

For Joe Terranova
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (CLB)
Virtus Investment Partners Owns More Than 1% Of (DLR)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (UA)

For Jon Najarian
Jon Najarian Owns (RYL)
Jon Najarian Owns (KBH)

For Eric Beder
Beder Owns (ANF)
Beder Owns (TGT)
Brean Murray, Carret & Co. Is A Market Maker In (BEBE), (CACH), (TRLG), (WTSLA), (URBN)

For Peter Schiff
Schiff Owns Gold

Add'l Disclosures:
Finerman's Firm Is Short (IJR)
Finerman's Firm Is Short (MDY)
Finerman's Firm Is Short (SPY)
Finerman's Firm Is Short (IWM)
Finerman Owns (AAPL)
Finerman's Firm Owns (BAC) Preferred, (BAC), (BAC) Call Spread
Finerman Owns (BAC) Preferred, (BAC)
Finerman's Firm Owns (BDX)
Finerman's Firm Owns (BCR)
Finerman's Firm Owns (MSFT)
Finerman's Firm Owns (PLCE)
Finerman's Firm Is Short (TLT)
Finerman's Firm And Finerman Own (WFC) Preferred
Finerman's Firm Owns (WMT)
Pete Najarian Owns (CAT) Calls