Friday's Thoughts for 08-31-2012
Last Friday I explained the facts regarding the markets Low Volume Means No Investors and this week I'll try to explain why.
First it is important to understand that the talking heads in the financial media aren’t very much concerned with anyone’s long term investing success in today's world. They only care about convincing you to stay in the market at all times and fixated to their analysis for the latest market movements. This would include brokerage houses, authors and Ben Bernanke.
Seriously, the cash crowd, AKA the 'Mattress Money' lost a bundle during the 2008 / 2009 market fiasco and cashed out shortly after some recovery was obtained. Many folks that were retiring about that time also cashed in much of their investments just to pay bills. Many of those had to seek employment or put off their retirement plans. A bunch more, that bought homes during the housing boom in 2006, then crashed and set in motion a vicious circle that led to disaster for millions of homeowners.
In the post 2009 crash many properties were now underwater and home owners found themselves paying mortgages on homes that were worth far less than what they bought them for. To make matters worse, many became unemployed and had to abandon their abodes because the mean 'ol banks foreclosed on them. According to Reuters, 2.8 million properties with a mortgage got a foreclosure notice during 2009.
The first thing to sell back then, were any investments in the stock market because cash was king and in some cases badly needed just to survive. The widespread feeling at that time was any buffoon could see the markets were not going anywhere. They additionally felt betrayed at the money mongers everywhere not seeing beforehand the disaster that fell on them. Those thoughts have not evaporated in 2012 as we witness the lack of activity accentuated by the lowest volume in years. The rich and less well healed investor alike are not buying into this market and the 401 K investors are worried as hell.
Here's something I haven't seen in print-at least in part writes commentor convoluted. “Some of my money manager contacts have indicated that as their clients get back to break-even i.e. recover basis from 2008-09, they are pulling their cash out of equities. I thought this might apply to folks at retirement age, but it seems to be across the board. It has been well documented that rather large equity withdrawals have occurred.”
As I read and listen to the vast majorities of financial pundits, they say “we about to embark on a market upswing of major portions”. I would like to know how that is going to happen with a whole generation of investors sitting on their mattress's never to step into the jaws of this market place again.
The new generation of earners hasn't generated enough money to make any dent and will probable sit this year out. The 401 K folks are few and their contributions are not going to increase enough to drive a market up. Lastly the money managers and their funds which are all in and unless the can coerce new investors in groves, they are not going to move the market up either. Maybe these pundits are following Joseph Goebbels marketing ploy.
In the following article, The Big Shift Retirees Must Make Today, the Motley Fool clearly illustrates the problems of today's retirees.
For many, the definition of financial security is having a big enough savings nest egg to live off your income without ever having to sell off any of your investments. Unfortunately, it's exceedingly difficult to put that philosophy into practice, and trying to do so could make you take more risks with your money than you should.
Making ends meet
The insistence of retirees to try to preserve principal has helped boost the popularity of dividend-paying stocks. Like fixed-income investments, dividend stocks let you leave the "principal" of your share investment untouched, living instead on the dividend distributions your companies pay you.
The trade-off, though, is that the underlying price of dividend stocks moves around. As a result, the idea of preserving your principal isn't quite analogous. If you own individual bonds or other fixed-income securities, if you're willing to wait until maturity to get your money back, then you typically won't suffer a capital loss. Only if you sell early, or own a bond fund to invest, will you be faced with capital gains or losses. Even in that event, fluctuations in bond values tend to be less severe than what you'll see in the stock market.
In the end, the goal is making your retirement money last as long as it can. Low rates have been terrible for retirees. But by choosing investments based on total return rather than current income, you can stretch them as long as they'll go -- an important consideration in a tough economy.
Barry (below) clearly states reasons why the cash crowd isn't present in today's market in the article below. He points out that investors 'savings' were crushed when the major indexes crashed 57% from the 2007 peak to the 2009 bottom. Scarred, scared and screwed this is the one generation that will never to return to the market place.
Lots of folks are wondering what happened to the Main Street-mom-and-pop retail investors. They seem to have taken their ball and gone home. I don’t blame them for feeling put upon, but it might be instructive to figure out why. Perhaps it could even help us determine what this means for risk capital.
We are all in agreement here. The stock market is a den of thieves with brutally arrogant insiders who believe the world owes them a living because they have learned how to make fools of Mom and Pop.
The short answer is that there is no single answer. It is complex, not reducible to single variable analysis. This annoys pundits who thrive on dumbing down complex and nuanced issues to easily digestible sound bites. Television is not particularly good at subtlety, hence the overwhelming tendency for shout-fests and silly bull/bear debates.
"The cat, having sat upon a hot stove lid, will not sit upon a hot stove lid again. But he won't sit upon a cold stove lid, either."
This generation of investors prefers to avoid the stove entirely - hot or cold - after an 80% decline in the Nasdaq to open the last decade and a 57% peak-to-trough S&P 500 massacre to close it.
"Burn me once, shame on you. Burn me twice, shame on me. Burn me three times and you can kiss my ass before you ever see another dollar of my money."
Joshua M Brown August 7th, 2012
For some additional reasons why, here is a brief and far-from-complete list of the people and things that have lost all credibility since the the year 2000:1. Brokerage firm analysts
2. Chief Global Strategists
3. Every Single Regulatory Body
4. Every once-great money manager
5. The entire profession of Economics
6. S&P, Moodys and the ratings agencies
7. Morningstar’s mutual fund rankings
8. The mainstream financial media in its entirety
9. Corporate Executives in the Aggregate
10. The entirety of the banking and financial sector
13. Our politicians’ grasp on the economy
14. The ability and sagacity of the Federal Reserve
15. The structural integrity of our stock exchanges
Even the rich investors has issues with this market place.
Despite the near multi-year record highs in stock indices, which have typically correlated tick-for-tick with the-wealthy-people's view of the world, today's Bloomberg Consumer Comfort index sub-data has a rather nasty surprise in its tail.
Those earning over $100k, the highest bracket interviewed in their survey, saw their 'comfort' plunge to its lowest of the year - massively diverging from the incessant rise in equity markets (and its supposed 'wealth effect' transmission channel).
A fun read.
Buy everything I say without limit. Leverage each purchase to the maximum allowed under the law. The markets will only go up and not down and 100,000 is the next stop for the S&P. It is to be Dow without Jones, assets without liabilities and wealth without poverty. The Middle Class has been evacuated and everyone is wealthy beyond belief. It is just there, of course, that the truth lies in this merry old land, “beyond belief.”
In conclusion, I would expect to see more low volume in the coming months and perhaps for a couple of years. Until the markets can gain some semblance of stability there won't be many old generation investors coming back to lose move money. Until them we will have to continue dealing with DaBoyz, criminals, Dark Pools and the High Frequency Trading computers. All of this is squeezing the human trader out of existence and destroying the stock Market as we know it.
To contact me with suggestions or deserved praise:
Written by Gary