Monday, July 12, 2010

Has America decided to "Walk Away" From the Stock Market?

Today was pretty much a snooze fest on Wall St but a few things did catch my attention.

Have Investors Lost Interest in Stocks?

It appears the retail investor has had enough of Wall St's stock bubbles:

As you can see above Americans are starting to bail on 401k stock funds in numbers that are now approaching the levels seen in 2008.  The way I see it:  The retail investor has finally had enough after seeing their retirements get cut in half in the stock market twice in the last decade.

A few comments from the piece linked above:

"Small investors' faith in stocks, which surged in the 1990s, has collapsed since the technology-stock debacle and the Enron and WorldCom scandals of 2000-2002. The 2007-2009 financial crisis only made things worse. Now, the pullback among ordinary investors means they are a declining force in a market that is increasingly dominated by professionals.

Some were tantalized by equities during the 70% rally that began in March 2009 and ran through April. But mutual-fund data and other clues suggest that that brief infatuation has ended.

In 2002, investors withdrew more money from mutual funds that invest in U.S. stocks than they put in. Then from 2007 through 2009 they withdrew money for three consecutive years. That marked the first three-year period of withdrawals since 1979-1981, according to the Investment Company Institute, a mutual-fund trade group. This year, U.S.-stock funds saw inflows in January, March and April, but net withdrawals resumed in May."

Final Take:

Can you blame them? 

Wall St has turned into a totally manipulated casino where the "the house"(the large banks and hedge funds) have a huge advantage because they get the inside info before we do on things like bailouts and reforms. 

They also benefit via "back room" conversations where the large trading desks tip off their best clients when they are about to make a huge play long or short.  This gives them another huge advantage versus other market participants..

What the "little guy" has finally figured out is that placing bets on Wall St is no different than placing bets at a casino in Las Vegas.  As we all know( and any smart gambler will tell you:  Betting against "the house" is a losers game because they hold a statistical advantage against you.  This means over time you lose.  Period.

You need to look no further than 2009 for proof:

How do you think Goldman Sachs had a month in 2009 where they had zero days of trading losses? 

Did you think they were geniuses that were doing "god's work" as they ended up in the black for 30 trading days in a row?......Ummm let me answer that one: NO!  They simply rigged the game via HFT's and other tools like any good casino does.

Remember:  Wall St will take a buck from you anyway they can because the only thing that the street cares about is money.   This is why it makes no sense to jump into the snake pit and trade against them.  You might go on a nice tear for awhile but eventually they will catch up to you.

For Example:  They will hear news on some Fed backed real estate bailout and  go long as you pile in short when you think some sector like commercial real estate is going to hell.  

You can be fundamentally right on the short side and still end up broke.  Caution and a lot of luck is needed to have any chance under such conditions unless you are one of the 1% that is profitable trading.

It works the other way too:  You can go long after hearing the stock pumpers pump up a sector.  Meanwhile they are shorting the same stocks at the same time behinf everyone's back.

Goldman's MBS game was a perfect example of this.  They were selling these securities all over the world at the same time they were shorting housing with the firm's money.  If they weren't shorting the sector themselves they were creating a CDS swap that allowed John Paulson to short the same pieces of paper they were selling long all over the world via their sales force.

Wouldn't it be great if one day all of us just stopped playing their games and "walked away" from stocks?  We are already walking away from their houses.  I say let's take the next step and walk away from their  "Speculation on steroids" casino that they like to call the stock market.

Folks think about it:

Haven't they stolen enough already? 

-  They have stolen our taxpayer dollars in order to backstop their losses like a parent that backstops a child who has a gambling addiction.

-  They have stolen away our ability to make interest on our cash investments which has crushed many retirees.

-  They have stolen our ability to afford a house.

-  They have stolen 50% of our retirements:  TWICE.

-  They have stolen our jobs as a result of not lending and sending the economy into a tailspin as a result of their gambling losses.

-  They have stolen our political system with bribes which has allowed them to stay in power and not be held  accountable for any of their reckless fraudulent behaviour which almost destroyed the banking system and has since destroyed the economy.

-  In a nutshell:  They have stolen our country and it appears no one is willing to step up and stop them.

The Bottom Line:

I am sickened by what has happened to our capital markets.  The data continues to worsen.  Today we got this news about consumer credit:

"Figures provided by FICO Inc. show that 25.5 percent of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders. It’s unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use,” according to the AP. Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico"


The number of consumers with credit scores under 650 has actually risen up to 40% according to an analyst I heard today.  Folks, who is going to buy all of these homes when 40% can no longer qualify to buy.

Even worse:  Without access to credit how is the consumer going to buy anything? It takes 7-10 years for a person to re-establish credit after defaulting. 

How does a 70% driven consumer economy grow when almost half of them no longer have the ability to borrow and spend?

I guess we are in for another lost decade?

We also got this today on the Baltic Dry Index:

"The Baltic Dry Index, a measure of commodity shipping costs, fell for the longest period in almost nine years as declining Chinese steel prices erode the nation’s iron ore demand.

The index of freight rates on international trade routes fell 38 points, or 2 percent, to 1,902 points today, according to the London-based Baltic Exchange. Today’s drop was the 31st straight decline. That’s the longest since the 34 sessions to Aug. 15, 2001, according to Baltic Exchange prices. Charter rates for all types of ships tracked by the exchange fell."

More Green Shoots!

The recent 31 straight daily declines on the Baltic Dry Index represents the longest such losing streak seen since 2001 where we saw 34 straight daily declines.  We didn't see any type of dropoff like this at the peak of the collapse in 2008 which is amazing when you look how sharply the economy contracted during that period.

What scares me here is you would be thinking deflation here after seeing numbers like the ones above. 

However when you see the most recent news:  There is more and more talk about inflation concerns from some very smart guys including John Paulson which makes me believe that the Fed is preparing for another money printing helicopterfest.

If it's not a QE2 then it could be a currency devaluation.  Either scenario is really bad.  Now could these guys just be talkign their book?  Yes but when I hear it from several guys that I respect I have to take notice. 

A QE2 which I believed was impossible is now a risk.  The worse the economy looks the higher the risk we see some sort of second money printing act by the Fed.  As bearish as I am, I didn't think the economy would reverse this violently in a matter of a month.

As a result, I expect "helicopter Ben" is figuring out how he can scare Congress into giving him another $3 trillion or so which will do nothing but prolong the agony of this economic nightmare and increase the risk of inflation and a weaker currenct. 

Disclosure:  No new positions at the time of publication.


getyourselfconnected said...

The Dot Bomb bust kept a lot of people nervy on stocks, but after the last collapse, which involved all stocks not just tech, I find it not surprising many are just staying away. Of course they are turning right around and buying up safe "bonds" but treasuries and muni debt may not be the safe haven many think they are.

Anonymous said...

"Jeff said...9 year lows on the Baltic Index. 31 straight daily declines!"

Just to be clear, you mean low in "days of declines" and not in prices right?

I ask because the BDI hit 663 back in late 2008. Even with all the recent declines, today its at 1902, nearly 3X as high as it was 18 months ago.

Jeff said...



Its 31 straight declines in the index which is the worst decline seen since 2001 where there were 34 straight days of decline.

Sorry if I wasn't clear. I will clean it up a bit.

Jeff said...


YEah thats what is so scary. Where do you hide?

Dividend stock taxes are supposed to rise from 9% today up to 45% starting in 2011 although I don't think O'bama will end up backing off this idea.

I will agree with Greenspan on one point that he said last week:

We have hit an invisible wall.

The data sure seems to be telling us that.

Jeff said...

Oops typo above

I do think Obama will back off.

getyourselfconnected said...

"We have hit an invisible wall."

Is that near the invisible jet??

A friend at work told me a story today and I wish I could share it (online) because it kind of scared me a little, but she has no idea I follow this stuff or write about it. Now if someone wanted to email me, perhaps I could share!