The Real Crisis: "People Have Lost Trust In The Government And The Market"

Tyler Durden's picture

The death of the 'cult of equities' was a popular topic this year among both fringe blogs and the best-known institutional asset managers and sell-side strategists. As AP discusses in this excellent article, ordinary Americans - defying decades of investment history - are selling stocks for a fifth year in a row. It's the first time ordinary folks have sold during a sustained bull market since relevant records were first kept during World War II. The answer is both complex and simple but summed up best by a former stock analyst's comment that in order to buy stocks "You have to trust your government. You have to trust other governments. You have to trust Wall Street, and I don't trust any of these." With Fed policy trying to force investors back into stocks (at any cost), a former fund manager notes, presciently that, "When this policy fails, as it will, baby boomers will pay the cost in their 401(k)s." Are we the new 'Depression Babies'? We suspect so.


Investors, as you well know, are leaving the equity markets in droves...

Based on AP's calculations, individuals accounted for 40 percent to 50 percent of money going to U.S. stock ETFs in recent years.


If you assume 50 percent, individual investors have put $194 billion into U.S. stock ETFs since April 2007. But they've also pulled out much more from mutual funds - $580 billion. The difference is $386 billion, the amount individuals have pulled out of stock funds in all.


If you include the sale of stocks by individuals from brokerage accounts, which is not included in the fund data, the outflow could be much higher.

But why are investors not buying the propaganda this time and jumping in with both hands and feet...

"You have to trust your government. You have to trust other governments. You have to trust Wall Street," says Neitlich, 47. "And I don't trust any of these."


Defying decades of investment history, ordinary Americans are selling stocks for a fifth year in a row. The selling has not let up despite unprecedented measures by the Federal Reserve to persuade people to buy and the come-hither allure of a levitating market. Stock prices have doubled from March 2009, their low point during the Great Recession.


It's the first time ordinary folks have sold during a sustained bull market since relevant records were first kept during World War II, an examination by The Associated Press has found.


"People don't trust the market anymore," says financial historian Charles Geisst of Manhattan College. He says a "crisis of confidence" similar to one after the Crash of 1929 will keep people away from stocks for a generation or more.

What is at the core of this mistrust or doubt?

People who think the market will snap back to normal are underestimating how much the Great Recession scared investors, says Ulrike Malmendier, an economist who has studied the effect of the Great Depression on attitudes toward stocks.


She says people are ignoring something called the "experience effect," or the tendency to place great weight on what you most recently went through in deciding how much financial risk to take, even if it runs counter to logic. Extrapolating from her research on "Depression Babies," the title of a 2010 paper (embedded below) she co-wrote, she says many young investors won't fully embrace stocks again for another two decades.


"The Great Recession will have a lasting impact beyond what a standard economic model would predict,"

But it's not just ordinary folks, its professional investors too...

Public pension funds have cut stocks from 71 percent of their holdings before the recession to 66 percent last year, breaking at least 40 years of generally rising stock allocations

as old 'lessons' or myths are dismissed...

And old assumptions about stocks are being tested. One investing gospel is that because stocks generally rise in price, companies don't need to raise their quarterly cash dividends much to attract buyers. But companies are increasing them lately.


Dividends in the S&P 500 rose 11 percent in the 12 months through September, and the number of companies choosing to raise them is the highest in at least 20 years, according to FactSet, a financial data provider. Stocks now throw off more cash in dividends than U.S. government bonds do in interest.


Many on Wall Street think this is an unnatural state that cannot last.

As it seems, for once, a positive lesson is being learned...

"People aren't looking to swing for the fences anymore," says Gary Goldstein, an executive recruiter on Wall Street, referring to the bankers and traders he helps get jobs. "They're getting less greedy."


The lack of greed is remarkable given how much official U.S. policy is designed to stoke it.

But the powers that be are not happy about it...

"Fed policy is trying to suck people into risky assets when they shouldn't be there," says Michael Harrington, 58, a former investment fund manager who says he is largely out of stocks. "When this policy fails, as it will, baby boomers will pay the cost in their 401(k)s."

So, what are 'smart' retail investors doing with their money?

Instead of using extra cash to buy stocks, he is buying houses near his home in Sarasota, Fla., and renting them. He says he prefers real estate because it's local and is something he can "control." He says stocks make up 12 percent his $800,000 investment portfolio, down from nearly 100 percent a few years ago.


After the dot-com crash, it seemed as if "things would turn around. Now, I don't know," Neitlich says. "The risks are bigger than before."


Source: AP

Depression Babies paper embedded below:


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NemoDeNovo's picture

Its about time.....

Muppet Pimp's picture

For those unaware, here is the current situation
- .gov and msm are losing their grasp of popular opinion
- msm serves one primary purpose which is to shape main stream opinion
- msm has complete disregard for the truth, the truth is a nebulous concept theyar

Muppet Pimp's picture

It seems I am getting ddos attacked.

SafelyGraze's picture

ot --

finally, an easy-to-understand video about where money comes from

kopiluwak dollars

Thomas's picture

The article seems to imply that the lack of trust is now unfounded. Maybe I am reading too much into it. I am, however, beyond confident that the government and market currently are unworthy of trust. At some point they may get cleaned up and then the lack of trust will be unwarranted. It's not that your wife can't be trusted; it's that she is banging your neighbor right now.

Freddie's picture

It is from a group in Cambridge, MA. Would you trust anything out of there?  I would not.  Like trusting Teddy Kennedy to drive you home if you were a pregnant intern named Mary Jo.

CrazyCooter's picture

Anecdotal story:

Today, my checks from cashing out all of my retirement cleared. I payed off a huge pile of debts. I have a very stable job and lots of extra cash flow, most of which will go to debts until they are zeroed out.

After that, I will very likely never borrow again. I pay cash, or I do without.

After getting screwed by the "retirement system" twice now, I will never put money into a 401k, IRA, etc ever again. Eventually I may buy some assets, some stocks, some bonds, whatever, but it will NOT be in any sort of retirement account structure.

From now on, my savings is MINE mother fuckers.



SafelyGraze's picture

the yin and yang of cash and bonds

eternal cycle of life and health

and every year is the year of the dog

August's picture

Wise you are, O Cooter.  I recently cleared out all my retirement accounts... and it feels good. 


It's really not good to have a "partner" in investing who can raise his percentage of ownership any time he feels the need to do so.

CPL's picture

Weird how people miss that point.

Rip van Wrinkle's picture

Think yourself lucky, Crazy. In the UK, once your money goes into a pension, that's it. You can't get it out until you're 55 and, even then, only on the basis that at least 75% of the fund goes to buy a pension.

Winston Churchill's picture


Thats only the half of it.Compare the open market annuity rayes to the

only ones you are allowed to buy with that pension 'fund'.

You will puke blood at the difference in income.

cranky-old-geezer's picture



In the UK, once your money goes into a pension, that's it.

Think that's bad?  401k's here will be confiscated completely.  Poof, it's gone.

I tell people cash out their 401k before govt grabs it, and they look at me like I'm crazy.

Fine, I won't say anything about it anymore.  Let 'em get wiped out.  Dumbass sheep.

nmewn's picture


Had a similar experience two weeks ago. Cashed out my IRA but call me, errr overly cautious, I cashed it on their bank, not mine.

I went in and said I have a check drawn on PNC, they said let me run it through but we don't have the cash on hand, it'll be Friday before we do...I'll put you on the list.

They have a list of people making large cash withdrawls? Interesting. (I said to myself).

I said fine. It cleared, I walked back out with the check & returned Friday.

They counted it out and then asked if I needed someone to walk me out. I replied, all I have to do is make it ten feet to that vehicle right there and I'll be fine...she just smiled.

I'll hold back for taxes & the penalty, the rest will probably wind up lost in another unfortunate boating accident which I seem to be prone to ;-)

CPL's picture

Taxes and Penalty > complete and total loss.

MachoMan's picture

Taxes and Penalty < complete and total loss.


MachoMan's picture

You'll need to pay estimated taxes at quarter end or face additional penalties...  talk with your accountant about whether you're ahead for the year and you might not face any penalties for failure to pay up before april 15.  Also, something that tends to get a few people is the STATE penalty...  ours is 1%...  everyone focuses on the 10% federal penalty for early withdrawal, but on big sums, every % point matters and tends to translate to a large amount.

[in short, you don't get to "hold back" unless you meet some pretty specific circumstances...  the IRS has closed that loophole (deferral) long ago].

nmewn's picture

Thanks for the advice/heads-up Macho.

Just spoke to Mrs. nmewn, she's going to run it by her CPA. Sounds like any estimated taxes due would have to be in by January 15.

MachoMan's picture

Yep, due at the quarter end...  the thing about estimated taxes also that gets quite a few people is that the quarters aren't all 3 months :-)

(you'd only be able to wait until april 15 if you didn't have to pay anything, sorry for the confusion).

jerry685's picture

The banks are doing that to me also....I noticed they seem to want longer and longer to cash any 5 figure check...or larger

It went from 2 days to 5 so far....maybe the boating accident should happen before you pay taxes....just a thought

CH1's picture

- .gov and msm are losing their grasp of popular opinion

Apparently they are fighting back....

Their Facebook division just blocked a bunch of pro-freedom sites:

CrazyCooter's picture

There is a problem when everyone can freely exchange ideas with everyone else. If you want the long timeline version (with billions of deaths between here and there) you can read this:

As recently noted by CHS, most people are kind, gentle creatures. The traditional schemes to control and manipulate them begin to fail in an open environment of information exchange. If the internet does not go down, in total, then really positive changes will be inevitable I think. Going to be a very rough spot in history though.



Dr Benway's picture

There's a risk the timeline is such that all of us writing in this thread will live the entire rest of our lives in a period of decline. Even if you have optimism that change will eventually come, it may be too late. Instead of taking a market clearing crash, after which a new start could begin, the old cronies in charge will defer it, creating decades or more of zombie world.

We are not the first here. At the end of various empires, there have been millions people living their entire lives in a dying empire. How did it feel to live in the decline of the Roman empire? How did the citizens of Teotuhican feel before it fell? You feel powerless because there is nothing you can do.

No investment choice can save you. Depending on how the manipulation goes, you may be screwed whatever you invest in, including gold and including not investing at all and holding cash.

Thomas's picture

Holy shit, guys. Have some faith. I intend to outrace the reaper for awhile. We are in a Darwinian phase punctuated equilibrium), but there are winners. I hope to be one.

Dr Benway's picture

I sincerely hope you are right, Thomas.


But some empires literally took centuries to implode.


And you know what they say about timelines and survival rates...

exi1ed0ne's picture

Rather than invest in imaginary security - invest in real ones such as education for yourself (how do you make biodeisel?  Splint an arm?  Can vegitables?) and in your comminity (support networks, family and friends, not being an anonymous cardboard cutout that has no social consequences if taken from).

Decline doesn't have to equal misery!  I was over in Macedonia in the Army, and the one thing that always stuck in my mind was a group of kids playing.  No shoes, rags for clothes, skinny.  Still, they were laughing and playing like any other kids I've ever seen.  I don't think that it will be all roses, but it ain't roses now either.

Debt-Is-Not-Money's picture

" thing that always stuck in my mind was a group of kids playing.  No shoes, rags for clothes, skinny. "

Well, that's one way to solve our overweight problem!

Diogenes's picture

Sounds like Appalachia in the thirties. Not that long ago, or far away. Could be closer than you think, in the future too.

cranky-old-geezer's picture



Period of decline yes, but not forever, kicking the can isn't free, there is a price to be paid.  In this case the price is destruction of the currency, same thing that happened in the Roman empire by the way.

Living on borrowing requires either (a) a productive economy you can keep borrowing from at higher interest rates, or (b) currency printing creating a larger pool of low interest "money" to borrow from. 

Since our economic productivity is shrinking while the govt is borrowing more and more, they're forced into option (b) currency printing with interest rates held artificially low, steadily debasing the currency. 

How long can it go on?  Till other nations say "enough" and start dumping our currency (and govt bonds). 

Bernanke can't control that.  He doesn't know when it will happen, but he knows it will happen, and it's what keeps him awake at night.



Dr Benway's picture

Good points there, cranky.


But TBTF doesn't just apply to companies, it applies to countries too. This is why China hasn't collapsed the US economy already, the blowback would crush them too.


All countries are complicit in the scam now, the entire global financial system is the evil empire of which I speak.

Cull Morgan's picture

Good doctor, your comment is as profound as it is depressing!

After we first wake up and realize how broken the world is, I think we all have a tendency to think things can't possibly continue this way much longer. However, without significant external enemies, a fading empire can last for quite a while.

Assume the best analogy to the history of the British, American and Chinese empires is the Roman, Byzantine and Ottoman empires. The US today would then be Byzantium just past it's prime, with fairly good relations with a rising Ottoman empire. The transition of Byzantium from the respected elder of the Ottomans to their prison bitch took many generations. The inevitable end was masterfully delayed by the emperors from the Komnenos family.

My own middle-aged ass would probably be better off with a well-managed decline, but for the next generation I'm hoping for a reboot with better legal and monetary systems.

Dr Benway's picture

Great historical comparison there, CM, and you raise an interesting point regarding what proportion of the population would benefit from decline as opposed to reset.


Personally, I think a very small proportion of the population actually will benefit from decline, but that it is this small proportion that is in charge.

MachoMan's picture

A better legal system and monetary system is a redundant statement...  our monetary policy is the wellspring from which all other systems flow...  For example, if our monetary policy was different, would wallstreet get a free ride from prosecutors, aka settlements?

fiftybagger's picture

Good for you Cooter.  Hope you stacked some silver with all that money  Hopefully you will have enough to help others make it through the transition;  after all, in the end that's all your taking with you.  Regards.

Silver For The People

Freddie's picture

F TV, Hollywood and the media.  They want to disarm you. 

Remington IV's picture

MSM liars and cheerleaders , losing their grip on the masses .... sounds like Pravda

chubbar's picture

Related to this realization, you now are seeing the Gov't rapidly speeding up the transition to a police state. The laws stripping us of our constitutional rights are coming "fast and furious" now.

aerojet's picture

We just saw that with the massive gun control skirmish that just took place, mostly online--the MSM came out swingin and won some early victories, then the pro-gun crowd stormed the place and shot down all the stupid, re-treaded bullshit arguments against gun ownership.  I know that most people don't believe this, but I think the left is on the ropes in the US.  They look increasingly desperate to me.  The only reason Obama got re-elected is because Romney sucked ass.  The Republican Party is a dead letter, too--there's a massive shift about to take place in politics and it is not more leftward because the left has utterly failed and will be unable to expand their free-shit army any larger because we're at the tipping point where printing more fake money has no effect on anything anymore.  So without the ability to buy off union members and free-shit types, the left is finished.

ball-and-chain's picture

That's what I say.

Who's crazy enough to trust the markets and the government?

Nurse Ratchet for president!

Dingleberry's picture

Do the Muppets really need a 50 page study needed to tell them this shit?

How about just mentioning insider trading, quote stuffing, bid rigging, reverse trades, churning, naked shorting, FASB accounting rules suspended, Comex/LME/LIBOR rigging, ratings agency scams, robosigning and as an added bonus, the watchdogs at the SEC and DOJ are busy watching porn.

This list is far from complete, but should suffice.

duo's picture

Nice little plug at the end for real estate.  TPTB:  If you're not going to have money in the market, then buy overpriced real estate and help the banks.

That will work until the only tenants you can find will be Section 8 vouchers.

aerojet's picture

I laughed about the real estate plug.  How is that even remotely a controllable situation?  Renting out houses to dead beats is not, I repeat NOT an easy way to make money.  And housing values continue to plummet in most zip codes.  The best I can say about real estate is you may create a more favorable tax situation for yourself if you arrange things the right way.  But that's not exactly winning.

midtowng's picture

I guess people will learn a lesson after you've hit them over the head enough times.

ShortTheUS's picture

Why the negativity, T-Dawg?

Don't you know we have to #rise above all this?

rsnoble's picture

People have done more than lost trust...........they are fucking pissed.

CH1's picture

People have done more than lost trust...........they are fucking pissed.

I dunno... I see people who just sit there and take the pain... and do NOTHING.

A few talk... and do NOTHING else.

Why should the elite worry or slow down? No one ACTS, ever.

Xanadu_doo's picture

Let's face it -- most are too stupid , err distracted to notice. When does next season of dancing w/ the stars start?

I could call them fucktards just for fun, but I will #riseabove /s