Most days, stock market coverage runs with headlines like “Stocks Fall on Greek Turmoil”, silly efforts to make sense of essentially random stuff. This New York Times article offers a different view of investors. It discusses the disappearance of retail investors and the steady decline in trading volumes since the Great Crash.
Many market experts say the biggest reason for the shrinking volume is that traders and investors remain leery that the economy will suddenly turn on them in the wake of the financial crisis, the wild swings in stock prices and the European debt troubles
Also, day traders got crushed in the Great Crash, and old people are switching to bonds, the usual recommendation for retirees. Pretty innocuous. The writers at Zerohedge have been discussing this issue for months, here for example. They offer an angrier take:
Another week of artificial stock rampage courtesy of a transitory, one-time $2 trillion liquidity spike (that is now ending, if only temporarily), and another week of retail investors refusing to be suckered in (and joining corporate insiders who just sold a record amount of their own stock).
They point out that money is flowing out of US equity mutual funds even faster than last year. That has turned around a bit since that post went up in March. Zerohedge is scornful of the pricing in the markets. Between high frequency trading and massive liquidity courtesy of the Fed, they think prices bear no relation to reality.
I’m with Zerohedge.The Fed’s quantitative easing program is designed to force people to take more risk to get higher returns. The idea is that when the market goes up, people feel wealthier and spend more money. So why is it a good idea for retirees to be making riskier investments? If the market goes up, they aren’t going to spend the money. When they lose money in the stock market, they become even more careful with their money.
Retirees as a group aren’t rich enough to matter anyway. According to the Federal Reserve Board’s 2009 Survey of Consumer Finances, the mean net worth of retirees was $108,000, which includes their homes and all other assets. When they lose money in the stock market, they become even more careful with their money.
I think the big problem is that those in the top decile of wealth aren’t investing. Their mean net worth was $1,569,000 in 2009, and if they let their money ride in the market, they are even richer. Even without additional savings, portfolios with low exposure to the financial sector are back where they were before the Great Crash. They have the money that would make a difference.
A substantial part of this group has figured out that the stock market sucks. They have a lot of money, and a lot of connections, and they can read. They see that big corporations are operated for the benefit of their biggest shareholders and top management. They see that Wall Street is out to screw them into the ground and take their last dollar. They hate Wall Street and its un-indicted criminal population. They are convinced that Congress loves Wall Street and responds to their tiniest hurt feelings, ignoring the rest of us. So do the SEC and the Department of Justice, which won’t even investigate the causes of the Great Crash.
They know that high frequency traders are sucking all the profits out of the market. They know, some from personal experience, that the CPAs who audit giant corporations sold their principles years ago.
Look at what happened to Carlyle Group. It is the largest private equity company, and it recently went public. They sold at $22 per unit, below their anticipated range, and were trading at $21.33 when I checked May 9. Ask yourself a simple question. If this company hits a good deal, who will get the money? Will it be shareholders? C’mon, it’s a serious question. OK, I admit it, it isn’t a serious question. We all know the money will be sucked out by the insiders, and it’s doubtful shareholders will even realize how badly they’ve been screwed. Here’s how they do it at Bain Capital.
Politicians and police keep us from occupying Wall Street. Deserting it may be the best punishment we can deliver.