Friday's Thoughts for 09-07-2012
Several weeks ago I explained the facts regarding the markets Low Volume Means No Investors. Last Friday I wrote Where Are The Investors And Traders? Today we briefly examine why the cash crowd 'Sheeples' haven't returned and probably won't ever come back.
The cash crowd, AKA the 'Mattress Money' lost a bundle during the 2008 / 2009 market fiasco and many panicked then sold what was left leaving them in a world of hurt. Some cashed out later after some recovery had prevailed continuing to this day. The remaining number of 'Sheeples' however, is dwindling each and every session that unfolds today. They are taking what is left and running. The first to leave were the ones that were not 'well-healed' and their investment portfolio was small in dollars.
Many folks that were retiring about the 2008/2009 period also cashed in much of their investments just to pay bills. Many of those already retired had to seek employment; for others they put off their retirement plans and continue to work. A bunch more, that bought homes during the housing boom in 2006, then crashed during this time frame, set in motion a vicious circle that led to disaster for millions of homeowners.
Another solid reason for leaving the markets as a investment platform is the cash crowd depended on their advisers to make the right decisions. Mainly because they didn't have a clue how the mysterious inner mechanisms of the stock markets worked.
When their advisers failed them in the 2008/2009 debacle it was obvious that their consultants didn't know anymore than they did and sought to cut their losses short. Some of these Brokers were crooked but everything was O.K.
In some circles so long as the 'investment' continued to show profits. Those thoughts continue to this day in the larger portfolio crowd. The not-so-well-informed 'Sheeples' were none the wiser that they were being taken to the 'shed' as they had no clue to what was really happening during the early bull market.
Even a monkey could have picked out winners on a continued basis, so they were the first to leave the market place when things turned sour and profits turned into losses.
“American investors lack basic financial literacy,” according to a new report from the Securities and Exchange Commission.
“According to the Library of Congress Report, studies show consistently that American investors lack basic financial literacy.
For example, studies have found that investors do not understand the most elementary financial concepts, such as compound interest and inflation. Studies have also found that many investors do not understand other key financial concepts, such as diversification or the differences between stocks and bonds, and are not fully aware of investment costs and their impact on investment returns.
Moreover, based on studies cited in the Library of Congress Report, investors lack critical knowledge about investment fraud. In addition, surveys demonstrate that certain subgroups, including women, African-Americans, Hispanics, the oldest segment of the elderly population, and those who are poorly educated, have an even greater lack of investment knowledge than the average general population.
The Library of Congress Report concludes that “low levels of investor literacy have serious implications for the ability of broad segments of the population to retire comfortably, particularly in an age dominated by defined-contribution retirement plans.”
The next group was those who felt they could ride out this downturn if they just wait for the next turn around. They were a bit more informed and didn't need the investment monies as badly as those who were now out of work or retiring. This group consisted of those who would be classified as having thin to medium portfolios which have continued selling right up to this point in time. They were not relying of dividend-paying investments, instead they were the equities growth crowd that mostly dumped stocks as they dwindled in value or had enough of this crooked casino.
Those portfolios that would be classified as being substantial and dividend paying are probably still nestled 'safely' away and in many cases forgotten. Forgotten so long as they continue to pay dividends that is. These folks have little reason to sell and if they did, there would be few places they could reinvest anyway. These investors are still relying heavily on their financial advisers for accurate strategies that will continue to protect their assets.
This private 'well-healed' equity group and the 'Funds', including the 401 K folks, are basically all those who are left in the trading arena. Neither group will sell as there is little reason do so when considering the dividends are still coming in. The 'Funds' however have a different problem in the negative reaction the markets would do to their remaining portfolio if they started selling.
Somewhere, sometime, I believe, this trend will start to reverse when current investments are not paying and better paying ones MUST be purchased to replace the slackers. Riding a sinking ship down is not an option for these highly paid investment managers.
To replace their 'dogs' they have to sell. This selling will push the markets down and not necessarily push the markets up as few trades are equal. Using Dark Pools to mask attempts to secretly sell may or may not be a market savior for the large funds trying to dump equities and keep the open market from reacting in a negative way. Here is chart to illustrate fund activity.
In conclusion, the small time cash crowd, ma and pop investments, aging workforce and other forms of 'mattress money' are not about to take another beating and prefer to sit this generation of investments out. The returns were not all that great anyway and have little reason to jump back in and loose more money.
The large investors that currently hold all the cards WILL have to make a move eventually, especially if their foreign and bank holdings start to deteriorate. This, I believe, is the case at hand.
So who is trading right now? It is the HFT crowd's algo computers and those I call the two-percenters. The 2% folks are the ones that currently move the markets and that is why there are such small movements as of late.
I do not hold out that anytime soon we will see a new crop of investors as the same 'ol BS is being tried out on the new crowd; the new crop of income earners as seen in this article below. I also do not believe the new 'young investors' are falling for the same hype either.
As I have mentioned many times before "The talking heads in the financial media aren’t very much concerned with your long term investing success. They only care about convincing you to stay in the market at all times and fixated to their analysis for the latest market movements." And because they can't convince the older generation, they are starting on the newer generation.
Sadly many will become the latest round of suckers and will fall into this casino with little hope of surviving the market quicksand. The real hope is that HFT, Dark Pools and other illicit forms (legal yes, morally wrong) of market participation will be stringently regulated so there is a level playing field for the rest of us. Investing shouldn't be a game of chance non should the margins be so easy to obtain.
Young Investors: What Are You Waiting For?
By investing at a younger age, you can harness the power of compounding - not penny-pinching - for profit.
Term of the Week
A slang term for a young urban professional who cannot afford property. Yupcaps are individuals in their late twenties or early thirties with a post secondary educations and a well-paying jobs who are unable to purchase a property due to factors such as high real estate prices, limited personal savings and limited credit history, all of which can make it difficult to get approved for a mortgage.
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Written by Gary