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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Buckaroo Banzai's picture

The cash is going into cash. That's why the Fed is so busy printing it.

booboo's picture

Once burned twice shy. It should come as no surprise to anyone who labors for their money but our overlords live under a different construct, they wield power over their domain, snap their fingers and make it so. Its difficult for them to understand fly over country. They really hate us for our lack respect and these feelings are mutual. Fuck em.

earleflorida's picture

ya know... the ol sayin-- blood in the streets is the bottom. but? this time it could be a low tide blood in da streets, when da high red-tide shows up with a full blue-moon!

Ps. my parents never let us kids ever forget about how bad the great depression was on everyday folks!  just sayin

IridiumRebel's picture

My grandfather, bless his soul, described almost being hit by a jumper and seeing a few people take the plunge. He made a point to tell us. He knew the gov was fucking us when they took the PMs outta money. He LOVED showing us his gold ounces. I am sad I only knew him as a youngin and we could not speak of policy and economics. I know he is with me. He was an economic pimp and hope I get some of his ability.

Vendetta's picture

My cousin, a doctor, grew up in a wealthy family in Florida.  She said when she  was a little girl they used to go hang out on the yachts with the wealthy friends of her parents in Ft Lauderdale in the 60's, she said they were always talking about gold.  These were movie stars, various celebrities and wealthy business people, my 2 oldest brothers met some of them as they would go down to florida for summer jobs at the swimming hall of fame which was founded by my cousin's biological father.  Her stepfather, who was a criminal sociopath, loved hanging out with the movie stars from the 40's thru 60's  and wrote some published books about it.  Just a little tidbit from the past.

WillyGroper's picture

>>>>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.


Couldn't have anything to do with algo's, theft, etc. ad nauseum.


Lucius Cornelius Sulla's picture

Not only are people avoiding stocks, they are avoiding and paying down debt (as evidenced by the collapse in the velocity of money).  The USG is the only game in town to prime the pump.


Monedas's picture

1. Average government employee makes more !                            ................................................2. Average ILWU thug makes more !

DoChenRollingBearing's picture

1)  Yes, .gov worker bees now make MORE, that is a big change.

2)  East Coast dockworkers: ILA.  ILA?

I'm a



And they make about $115,000 each, pre-strike...

Freddie's picture

West Coast ILA makes a lot more than that.  Probably $150,000 to $175,000.  It is obscene.

Caviar Emptor's picture

This aint just a "crisis of confidence". That's way too optimistic. Because it implies that when sleeping beauty gets kissed by prince charming then everybody will be buying stocks hand over fist using Jim Cramer's advice.

But reality is that there's a depression going on, and it's biflationary because of Fed policy, which means that individual buying power is getting pulverized. The burn rate of cash reserves is spiraling. INdividuals and families are liquidating equity holdings, savings and retirement nest eggs including 401ks. They have debts yes, but worse: their net income is declining in real terms and has been on a relentless trend down for 3 decades, and at the same time costs are spiraling. There's no cash on the sidelines this time

Pareto's picture

There's no cash on the sidelines this time.  Just traders (no offense), algos, and Benny.  Your observation is spot on.  There is a depression going on.  And its biflationary as consumers get pummeled on the buy side for purchases of even the most basic necessities and then turn around and get hammered on negative real rates of return on what little they might try to save.  Damned if you do and well, damned if you do.  How did we let government and the corporate welfare state get so big to the extent that there are now more takers then makers?  How the fuck was this even possible?  Now, nobody's got a pot to piss in and everybody is looking to somebody somehwheres to blame, or bail them out.  For me, I keep it simple.  There is only one elephant in the room, government.

I don't trust government either.  I don't trust it because its a model that is destined to fail.  A coercive entity that can only destroy wealth, in my opinion, isn't anything you want to rely on.....for anything. Won't work because of its basic properties, it cannot work because there is no ownership or incentive for it to work, therefore, it simply can't be trusted.  Get rid of the elephant.  Until then, its just a casino with Benny as pit boss.

fonzannoon's picture

"their net income is declining in real terms".

That is so true and it is scary as shit to observe. Especially when you are looking in the mirror observing it.

Caviar Emptor's picture

I feel your pain. There's plenty of it to go around. 20 years ago today the cost of nearly everything was half. Except food and energy which have tripled and quadrupled. So we're looking at 5% core inflation yearly and about 7.5% total. Has your income kept that pace? lol 

fonzannoon's picture

the good news is i am hangin in okay. the bad news is i will work till i'm dead. but im cool with it. it could be worse.

Dr. Engali's picture

Unfortunately( or fortunately depending on your perspective ) Fonz our jobs will be antiquated long before our working years are over.

fonzannoon's picture

yeah that is a reality i try to hide from. people are going to be displaced and it is going to be very difficult.

Dr. Engali's picture

Same here. That's why we need the system to collapse. This slow bleed controlled collapse is agonizing for the country and in the end will probably do more damage than if the system just fell apart.

lakecity55's picture

yeah, but the problem is Billy Ayers is gonna kill 30 million of us after the collapse.

Billy is one of the top 10 all-time visitors to the White Mosque. Tell me they are not "planning."

Vendetta's picture

exactly.  Iceland is the only country that had the sense to boot the moneychangers out of power and into jail.  Hanky panky Paulson committed felony extortion against the state and walks free.

masaccio's picture

I'm guessing a big piece of the selling is that people need the money.

smacker's picture

And the author of that article is spot on. What he's describing extremely well is exactly how the cancer known as 'socialism' operates.

It's instructive that he includes a photo of 'democratic socialists of America' on the march, because that is the root of the evil cancer that is destroying America through its crony capitalism and growing police-statism. The socialists are obviously becoming more bold, which means that they've sufficiently infiltrated and embedded themselves in the American system to come out of hiding, thanks to four+four years of Obama and the 47%. What they sidestep admitting is that Hitler was also a socialist and was elected via the democratic process. His thugs soon put on their jackboots and abolished freedom. The rest is history.

America needs to wake up and bring this drive to fascism to an end before it's too late.

Colonial Intent's picture

“[The] abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.... In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holdings illegal, as was done in the case of gold.... The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.... [This] is the shabby secret of the welfare statist's tirades against gold. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”
- Alan Greenspan in an article he wrote in 1966.

smacker's picture


And yet paradoxically, in later years it was Greenspin who switched on the printing press big time and carries huge responsibility for starting the giant credit bubble thru cheap credit. This leads me to say that many millions of ordinary people are wrong to think that anybody associated with 'capitalism' and 'markets' is on the Right of politics. Because socialists who hanker after total government love getting their grubby hands on the levers of financial power (exactly as we saw in Britain under Gordon 'Jonah' Brown). The problem is they're mostly innumerate and do not understand markets, so they end up wrecking them.

AgAu_man's picture

I now find CNBC, CNN, MSNBC, Fox etc increasingly difficult to stomach. Getting so tired of the pseudo-reality swill, crime & violence Crap, meaningless sports by overpaid, pampered jocks who needed handholding to get through high school math and science, boring and pointless Sci-Fi that continuously violates basic laws of science.

Doing something with the kids or low tech work is far more meaningful and satisfying. And rewarding for all.

Corporate governance has sunk so low, that it deserves the backlash it is getting. And it probably has become too diseased to self-heal.

Get better news and analysis from ZH and other blogs, than MSM.

Ineverslice's picture


started wearing out the mute button more than a decade ago, couldn't stomach the commercials..

Up til about 2yrs ago, House re-runs was all that was left for me on the tube, as I finally kicked the cnn habit...

And now,nothing, except the occasional flik (Lord of Rings, the other nite)...Not even a hockey game (if there ever is one) sways me...   Good for you Bro.

adr's picture

In my business of actually producing product and attempting to sell to consumers through mass publicly traded retail, I find nobody actually wants to do it anymore.

Every one of my father's friends has either sold or shut down their business. The ones that are left have attached themselves to a public monster like Reebok, Under Armour, or Nike. The funny thing is that these public brands don't actually make anything themselves anymore. They source all their product from other companies and just slap a logo on the product and then charge an extra 30%.

I've tried to help six small business owners break into the market this past year. None of them knew what they were getting into. They don't realize that to even think about doing business with a major retailer, you need to spend $30k on inventory software just to accept an order.

The only chance you have is if you get picked to go public. Then you'll see $20 million in opening orders, even if there is no hope to sell 5% of that. However you better have a source in China to produce your product for less than 10% of your expected MSRP. Even if your sellthrough is less than 3%, you'll keep seeing the orders come in with the IPO on the horizon. All the while you sell off private stock to proxies of the retail boards. You get to make a couple million so they can make a couple billion off the bullshitted IPO.

To call our entire economic system a fraud is being unfair to fraud. Our system goes beyond fraud and far past crime. It is genocide to freedom.

newengland's picture

Genocide  - or the modern nicey word: globalism, the rule of the Trilateral Commission, as adhered to by 'Democrats', and 'Republicans'...both traitors to the country. Both hate the Republic of the USA, but schmooze it in order to get their pay, perks and indexed linked pensions. They talk BS: words like multicultural. 

Say what? There is only one culture of the USA: the Republic, the Constitution and the Declaration of Independence.

We have been cheated, bamboozled, conned by the career politicians and their central bankster puppet masters.

Ghordius's picture

again this "globalism". it seems to escape some that there is no such thing

(besides the fact that this word is only used in the US)

there is globalization - which describes the increase in interconnectedness of economic activity on the planet (in fact this is the "second great wave of globalization", the first ended with WWI)

and then there is the old and more correct word: imperialism

what you are trying to describe is the fact that the US is more and more treated the same way as any other country

i.e. it's losing it's preeminence as the core of an empire, the same way as England before

and this is an effect of globalization, particularly in the realm of finance, but also of politics

overmedicatedundersexed's picture

ghordius, stop with your bs, globalization is just it is the destruction of liberty itself. treason by the .gov's of the western world toward one unelected elite in control, much like the EU today.

Colonial Intent's picture

"The drive of the Rockefellers and their allies is to create a one-world government combining super capitalism and Communism under the same tent, all under their control.... Do I mean conspiracy? Yes I do. I am convinced there is such a plot, international in scope, generations old in planning, and incredibly evil in intent."
- Congressman Larry P. McDonald, 1976, killed in the Korean Airlines 747 that was shot down by the Soviets

albanian's picture

"To call our entire economic system a fraud is being unfair to fraud. Our system goes beyond fraud and far past crime. It is genocide to freedom." And it's going on and onnnn in every country. I live in Sweden and it's the same.

hooligan2009's picture

for some reason you cant be up may be being monitored

Colonial Intent's picture

If you start with italics it removes the up/down option.

Dr Benway's picture

Really? So it is possibly to post with impunity against judgment by ZH peers. Not sure I like this bug at all.

Dr Benway's picture

"Maybe non-italic quote and then italics?"

Colonial Intent's picture

I give up, it must be the NSA.

Vendetta's picture

yep, can't uptick the comment either ... the 'Vanger Group' must be in control of things in Sweden

ebworthen's picture




JustACitizen's picture

Whether people wish to acknowledge it or not - some people have to actually work. You cannot have an entire economy based upon rentiers.  When folks were promised (and believed) risk free 8-12% annual returns - be it on their homes or their stocks - the nation crossed a Rubicon. Our nation's so called elite led the way - and the people followed. It is the nature of most people to follow those that are "set above them" - most people are followers.

From high to low - most everyone - believes in getting something for nothing - or trying to get something while offering as little as possible in return. I laugh nearly everyday when I read some of the posters on this site writing about their "hard work" as if they have ever performed a physical/hazardous job.

Everywhere I look - people talk about offering "value" and then spend millions with advertising agencies/commercials trying to convince the public of that value. What's wrong with this picture? Shouldn't value be immediately discernable?

Let's hope we get back to a time in which work of all kinds is valued by all/

hooligan2009's picture

think about is an outdated supports a system that has clearly failed..your assets are worth just the confidence of a fiat system and your liabilities can suffer from the same fate..why support a system that is rotten by paying taxes or receiving benefits that beggar you are your neighbor and support an empire of armed bases globally..change what you term "work" to "living well with others" and you will be fine..mental danger is the new hazard..ask the drug companies...

shovelhead's picture

It's really quite simple.

If you are willing to trade your money for the product, then you agree to the value placed on it.

To me, $200 jeans have no inherent value over a $20 pair of Wranglers. Others feel differently. The advertising component is worth the expense to alter your 'perceived value' of a good. The young and low self esteem types are particularly susceptible to this form of marketing.

Don't fall for the rentier argument because capital does, and should, have a time value placed on it. Savers and investors are getting crushed in an artificial, manipulated ZIRP and NIRP environment where the only winners are Govt. and Banks that get first use.

SubjectivObject's picture

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

The bulk Middle Class investing demographic is aging and simply wants to goof off with what remains of their lives and capital.  Cash, or secure, liquid, assets are their [perceived] security, and being in the market is too god damn much to think about anymore.

q99x2's picture

Public Doubt. Geeze that's putting it mildly. They're preparing to F'n kill us.

newengland's picture

Good people trust their family, their neighbor, their community, the Republic under the Constitution and Declaration of Independence.

Politicans and central banksters are carpet baggers; money grubbing ne'er do wells. They have proved this by their actions. Their words are worthless. That is why they want a nation of debt slaves, and want to disarm the people; leave the people defenseless, while they wage endless war at home and abroad.

blindman's picture

i don't know 'bout all this. i spent the night
looking for a a dog that ran away. she was a good
dog. found a way out and took off, she may return?
we fed the bitch, loved her and watered her every day.
she found a way out and now it is up to her to move
on or find her way home. we looked for her in the
vicinity where she had been walked and become familiar.
not there, not here.
it is up to her what comes next. it is shocking this
free will, unpredictible. dogs,
we called this one 'ella blue'. gone for now

OldPhart's picture

I have no faith, confidence or trust in government since the 80’s when they realized that social security was a rapidly failing Ponzi scheme.  I have no faith, confidence or trust in the stock market after watching the events from the 90’s (Enron), the 00’s, (Internet Bubble, the ridiculous rise in home values), and then the crash of 2008 through now.  Particularly after reading postings and comments on Zero Hedge by people way brighter than I ever wished I could be.

I’ve said this before, I suffer from debt aversion.  I can’t stand owing money, to anyone, and over my life have pretty much lived on a cash based system.  Yes, I’ve financed cars, and then ran them until they physically fell apart.  (I’ve got a 48 F-3 in the yard that I’ve got to replace a clutch in and the 63 Pontiac actually ran until the A-plates holding the wheels simultaneously fractured…an interesting sensation is scraping down a road at about 30 mph as four tires roll ahead of you.  Yes, I literally drove the wheels off the Pontiac).  I’ve bought exactly two new cars in my life.  I have a mortgage that I have been paying off as fast as I can without seriously impacting my beer budget.  An extra hundred dollars or so on the principal payment per month makes an enormous difference on the length of payment; as does an extra fifty or so on a car payment.

I’m nobody special, just a simple bean counter but I now feel that putting money into the market, in any fashion, is the equivalent to rolling fixed dice, on a slanted table, in a crooked casino, while the Pit Boss is picking my pocket.  I ceased all contributions to my 401-k in 2010 and attempted to pull out as much as I could only to be blocked by plan rules.   My 401-k savings is less than modest after 2008 losses and piss-poor investment options.  Current year to date my earnings have been just below four percent.  It represents my cash savings (other than the silver and gold I lost on a previous congealed quicksand incident in one of our local dry lakes).

I simply do not understand the logic that the stock market drives our economy.  Most of the businesses are private entities.  Even if they were, once the initial stock is sold into the market, the rest is driven by the brokers, traders and investors.  As to the investors, we have had a significant percentage of the population that can’t even invest in a toothbrush, let alone the stock market.  Do EBT cards have an embedded  brokerage account? 

Nor do I understand the push to spend money that I do not have.  Those that live on credit mystify me as much as the kids did back in 2005 that had big trucks filled with the various toys, hauling a travel trailer with ATV’s and motorcycles.  How on earth could anyone afford that sort of stuff, particularly at their age.  When I was their age I was skipping meals to buy diapers and milk while working two to four jobs (for a while five) back in the 70’s/80’s.  After the collapse, the current depression, and the obvious corruption of our financial markets and government, what sane person would participate in any activity that profits a fuckin’ bank or financial outfit?  Why would anyone participate in any activity that invites the corruption of government into their home?

I realized in the early 80’s that I will never retire as my parents were able to.  In fact, I realized that I would be working until I drop dead or be pushed aside to ultimately die on the street.  I’m fifty two and I have an extremely clear vision of being a dried up corpse on the side of a seldom traveled desert road in the relatively near future, victim of a drone while trying to evade a roadblock/checkpoint. 

Now I’m realizing that my future, (and, hopefully, very soon, if my oldest would get the fuck out of Afghanistan after ten years and concentrate on porking his wife regularly) grandchildren may not live to know or see their own grandchildren.  In fact I’m looking at kids ten years old or less realizing that the vast majority will be brutally killed by our so-called government leaders.  That to me is the ultimate tragedy of what we’ve been doing financially.