As mutual funds face record withdrawals, where is the upside?

Mutual funds lost $320 billion to redemptions last year. It was, by most measures, a "flight to safety." Equity funds, in particular, were hit hard by the falling stock market.

According to the FT, "The data include both retail and institutional investors. The total outflow of $320bn does not include money market funds."

The flight out is fine, but what about the flight in? Some analysts see 2009 as a "rebound" year, especially if government stimulus packages work. If that is true, stocks could begin to move up sharply as the Obama and TARP plans start to bear fruit, perhaps as early as the second quarter.

Other researchers believe that stocks are cheap. The P/E ratio for the S&P 500 is at a multiyear low. It would not take much of an earnings recovery to push that up.

Investors may have saved themselves from having their investments down 30% instead of 40% by moving money into Treasuries. But, the Dow has been up as much as 30% in strong years. Those who stay on the sideline risk a chance to get their money back.

Douglas A. McIntyre is an editor at 247wallst.com.