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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hooligan2009's picture

have faith .. all is not have a healthy mind, a family and the ability to stand on your own two feet..HOLD FAST

SubjectivObject's picture

Ha! Wished you lived next to me. 

Peas ina pod.

Vendetta's picture

yep.  I'm rowing in a similar boat with similar sentiments at the same age.  I see a slew of folks who have all these toys by the truckload and, though I can afford to pay cash for such things, I cannot cost justify them for the minimal ROI in personal enjoyment, I don't have sufficient extra time to extract that that personal ROI.  I have no interest in the debt obligation as everything I own is paid for except a humble home in a rural area and rent a room in the 'big city' for work to minimize commute time/gas and housing costs.  It is amusing to go buy a vehicle when I need to replace one and see how they seem to freak when I pay cash for it.  As for 401k, I emptied as much out as they would f'g "allow" and stacked even though I dodged the 2008 engineered collapse ... I complained about the horrible dozen or so 'options' available in my minimal input to the 401k to the 'retirement specialists' ... they even removed the fund that preserved what I had in there that enabled me to dodge the 2008 thing. 

Just replaced a toilet seat the other day with one that said "Proudly Assembled in the USA"  ... a f'g toilet seat.  It said it all about this nation and where it is continuing to head straight into.

michigan independant's picture

All this started for you since your parents were drunk.

Then they sobered up.

And you realize life is hard work and now it's time to do just that.


blindman's picture

John Prine Diamonds in the rough.wmv
John Prine's Bruised Orange
good luck and keep u eyes open. or ..
cheers !
.. " it ain't such a long drop..."
oh hell , u deserve the whole damned thing ..
(Chain of Sorrow)

My heart's in the ice house come hill or come valley
Like a long ago Sunday when I walked through the alley
On a cold winter's morning to a church house
just to shovel some snow.

I heard sirens on the train track howl naked gettin' nuder,
An altar boy's been hit by a local commuter
just from walking with his back turned
to the train that was coming so slow.

You can gaze out the window get mad and get madder,
throw your hands in the air, say "What does it matter?"
but it don't do no good to get angry,
so help me I know

For a heart stained in anger grows weak and grows bitter.
You become your own prisoner as you watch yourself sit there
wrapped up in a trap of your very own
chain of sorrow.

I been brought down to zero, pulled out and put back there.
I sat on a park bench, kissed the girl with the black hair
and my head shouted down to my heart
"You better look out below!"
Hey, it ain't such a long drop don't stammer don't stutter
from the diamonds in the sidewalk to the dirt in the gutter
and you carry those bruises to remind you wherever you go.
you can gaze out the window .....

michigan independant's picture

Thanks for that link. The root is what matters.

shovelhead's picture

JP is one of the best.

Gets to the nubliness of things and is pretty durned clever with a turn of a phrase.

Cuz it's a big ol' goofy world.

Dre4dwolf's picture

Fuck the government, bunch of socialist assholes who sit around and steal what doesn't belong to them, just to give it to people who already have too much or people who don't deserve it.

Then ontop of it, they want to disarm the entire public so that anarchy and police brutality takes over.

Then ontop of it, the banks have free reign to rob pillage plunder and rape

Then ontop of it, the people in office don't even understand the problems they are "trying to solve" and when they fail to produce a solution they go on extended vacation.


williambanzai7's picture

Why would any informed individual voluntarily enroll in a program designed to utilize robotics to fleece all the customers?

Seriously, none of the people who design these programs bother going to investor meetings sponsored by CLSA for example. They actually scoff at the idea thar fundamentals mean anything intrinsically in terms of the value of what is traded. It's all a giant video game circle jerk.

Who Needs that? And they are busy polluting all the global markets with the same, we enhance liquidity, bullshit.

Let them suck each other dry.

IamtheREALmario's picture

It does not appear that Wall Street has the collective intelligence to save itself from a very painful self-inflicted destruction. And with it most of the ecomony WILL destruct. I think that is the plan ... but when?

The question is whether there will be the will to drive past Wall Street to the root cause and purge it.

shovelhead's picture


Because these guys graduated from Call of Duty and HALO.

Killing real people instead of pixels is much more entertaining and renumerative.

Same for the Drone Alone crowd. We've bred a generation of cyber slayers.

Zgangsta's picture

People trust gold.  They need to see gold going up to a believable value before they'll trust seeing stock prices going up.

IamtheREALmario's picture

Based on what I saw tonight on television it appears that "the powers that be" are going to sacrifice banks/bankers (or some visible banks) as the evil that has wrecked this country.

I virtually never watch prime time, but my wife does. On the show "Elementary', Holmes went on a major rant against Wall Street bankers. If this is how the majority of people form their opinions then a steady diet of "Bankers are evil" will give the powers that be the cover to set up banking scape-goats.

It is no wonder that the few higher level "bankers" I know are leaving the business. Will Lloyd take one for his satanic god?

falak pema's picture

Just read history : THe french king, big boss of Europe in that age; circa 1307;   destroyed the Knight Templars; the biggest private Oligarchy enterprise of that age who were both warrior elites; they had just LOST the Holy Land (failed expansionist MIC disaster for ethnic cleansers fighting in name of "God wills it" in foreign lands); AND had got extremely rich as bankers via Trusts, "WMD" product of  of that age : the rich gave their wealth at their death to the Templars to WIN salvation with God!

The Templars went laughing to their own banks, richer in their EUropean networks than all the kings of that age, who were LOADED with debts to fight their internecine feudal wars. It is estimated that the Templar constructions of churches/shrines RUN by them involved more stone cutting than what the Pharoaohs used to build their pyramids. So the Templars had their own financial derivative scams as they got paid directly at their own shrines where people came and donated all over europe.

Ain't that vaguely familiar?

The bankrupt King just emprisoned them all, charged them with heresy and sodomy and took all their wealth away. Game over...It could repeat if the US loses its control of world OIL pipeline, as collateral damage to financial crisis and King dollar biting the dust. So Potus may have to take dire action to find scapegoats to install central planning bigtime of 'new order globalisation'. You may have noticed that the China-US connection has now created a universal factory controlled by 8 families who own 1600 billion nominal wealth of China via their networks. The Templar type private Oligarchy elites exist on both fronts; hiding behind the Statist curtain of "we the people". 

So bringing down this global ponzi now gone viral will not be easy. And, it will take "cojones" to do!  

Line up the Usual suspects! 

PS : The demise of the Templars and the Crusades, allowed the Italian city republics, partners in commercial and naval activites of the Crusaders, to take over their european networks as the kings of commerce and finance. The age of Venice/Florence/Luccan and Genoese bankers who created modern capitalism! 

The beat goes on. Maybe the Internet Age just beginning and 3D printing will be tomorrow's capitalist rage. 


magpie's picture

Interesting coincidence that the demise of the Templars marked the reestablishment of the gold standard in Medieval Europe.

And as an additional coincidence, theorists of the enlightenment liked to see the (Levantine) Crusades not only as a misguided religious exercise but as a massive outflow of silver bullion, as Monsieur Voltaire did.

falak pema's picture

Absolutely, Just like in Roman days, Europe had NO gold mines but had silver mines. To pay for silk and spices, emeralds and diamonds or lapiz lazuli...a tradition that went back to Rome, Medieval Constantinople, hub of  East-west commerce had to pay in silver from its own mines (Mostly in Bosnia and Romania controlled by Venice) or from African gold from land of Punt. 

Europe bled its silver mines as it had a several centuries trade deficit with the Orient; whence the wars in Holy land and eventual latin capture of COnstantinople that weakened it fatally for the Turks to take over subsequently. 

The COnquistadors then found gold/silver in New World, whence the rush of Euro Bankers (mostly Italian, working for Charles and Philip, to move their shops from Venice/Florence/Antwerp to Amsterdam) to start the great rush to American assets from Low countries belonging to Spanish Empire thus financing their colonies. North Europe banking took over from South around 1600.

falak pema's picture

The amazing thing about human nature : ten years from now if this crisis blows over; everything will be forgotten. If its a deep depression crisis and prolonged civilisation reset; people will only have one thing in mind fifty years from now: just forget it; like we did the lessons of 1929 and maybe WW2...


magpie's picture

Of course they learn. most of it is wrong.

shovelhead's picture


Just had a little fantasy of Blankfein, Dimon et al. getting the Jacques DeMolay treatment...

Cheered me right up.


Laura S.'s picture

The paper is very interesting and I think that what it assumes is correct. Grim future awaits all US citizens. What is good that this wrecking machine is still backed up by a powerful military apparatus, so it can just deny to pay any debts or care about the outside world. This is why I would never put any money into US bonds.

I´m happy to live in Canada which is still in a better shape than US (according to The 2011 Census Results). Even our baby boomer generation is very strong, we are at least able to maintain the population growth necessary to be able to feed the future generations while not destroying the foundations of our market and political system.

AynRandFan's picture

Canada is in good shape because western Canada is a major exporter of mining products, fossil fuels and timber. Otherwise, it would have folded long ago.

moondog's picture

In this grim future, you should be concerned with both the Canadian housing market bubble and the US MIC. Canada has nothing to defend her commodities from the US juggernaut if the SHTF.

Debugas's picture

4 of every 5 financiers will be laid off and their spending habits will change dramatically. So if your business' customers are financiers you should expect hard landing

Element's picture

They hate us for our freedums ...................


Exporting lethal surveillance tech: UK asked to investigate spyware firm


Published: 27 December, 2012, 16:34


Privacy rights activists are calling on HM Revenue and Customs (HMRC) to investigate spyware firm Gamma International and its exports of surveillance software to repressive regimes, such as Bahrain, calling the transactions “criminal” and “illegal”.


The campaign group Privacy International (PI) confirmed in a press release that Gamma International is selling surveillance technology to regimes with horrific human rights records without a proper license.


The software being sold is powerful enough to intercept text messages, phone and Skype calls, remotely turn on cameras and microphones, log keystrokes and copy files, The Guardian reported.


The activist group sent a 186-page report to HMRC, saying that that technology sold is being used to spy on activists, who are later targeted by repressive regimes and "amounts to criminal conduct".


"For years, British companies like Gamma International have had carte blanche to sell incredibly powerful surveillance technologies to any government that can afford them, even when they are subsequently used to target human rights defenders,” head of research at Privacy International, Eric King, told The Guardian.


Gamma International is a British company that offers "world-class offensive techniques for information gathering," such as FinFisher – a spyware product that can take control of target computers and capture even encrypted data and communications.


Can some one tell me the difference between a 'Govt' and a fucking low-life pervert peeping-Tom?? Damn! I seem to have completely forgotten how to differentiate them again. But at least we all know without any doubt why 'smart' phones have a high-res camera and a high-quality microphone.  There was a time when it was considered height of rank paranoia to even suggest that the 'authorities' might be doing such a thing with phones, but actually, they always were.

"Smile! You're on candid camera!"

shovelhead's picture

The difference is that a peeping Tom will run away when caught instead of shoot you in the face.

zippy_uk's picture

Its terrible - all these baby boomers crying about their savings being devalued by inflation. 


For all use Gen-X and younger, all the Baby Boomer debts "generously taken out in our name" for their pleasure are being devalued also. I simply can't say I am unhappy about this.

The game of higher and higher housing costs benefiting the chosen Boomer group with their over-inflated pension plans which are unaffordable, while able to spend in Walmart/Tesco on ultra cheap Chinese goods and overseing offshoring of jobs to "over paid young people" who can barely afford basic rental in shabby accommodation is coming to an end.


You did not think of us in your debt grab, so don't expect us to cry for you when inflation burns you.

spanish inquisition's picture

I am guessing thera are a lot of people in government who answered horse.


It literally means "call a stag a horse."

The Story:
During the Qin Dynasty, prime minister Zhao Gao set about a plan to take over the throne. Since he feared the other ministers would oppose him, he devised a way of testing them. One day, he gave a deer to the emperor, saying "This is a horse." The emperor laughed at him, and said, "You must be joking; this is clearly a deer." Zhao Gao asked the ministers present, and some kept silent while others said it was a deer. A few ministers agreed with Zhao Gao that it was indeed a horse. Later, Zhao Gao had all the ministers who had not said the deer was a horse to be killed.

BaggerDon's picture

I created, for those people who are fed up with the pols, wealth managers and the rest, and want to take control of their own financial destinies,,,check it out..............

stant's picture

also economic patriotism will be a buzz word 2013 , along with molon labe bunper stickers

SubjectivObject's picture

Fast way to neuter an opposition; give it a bumper sticker.

Like, Wer doin sumpin Now!

Butt hay! Occifer, I can take it off if you want ...

rayban's picture

In Gold We Trust

sessinpo's picture

It hasn't happened yet. The last Presidential election is proof of that. There are a MAJORITY of voting people that have faith in government, even if that faith is misplaced.

The thread is incorrectly titled. It should be about investors, not the people. The people is generally used for the generally population which is a different group. In fact if one were to look into those Obama voters, many are not investors of themselves or the future of America. They are about the here and now, regardless of who pays for it. (Failure of socialism 101).

I suspect that might occur with the fiscal cliff and the raised tax rates for everyone. Critical thinkers don't seem to see the effects of certain situations until it slaps them in the face. A reduced paycheck might do the trick, but I won't hold my breathe.

I, like many others, lost faith in the Government a long time ago. But that doesn't mean that opinion represents the majority. As I said, the last election would indicate that an opposing view is the majority. Maybe to many people are in such dire straits, they have given up and are hoping, depending on government to save them financially.

Downtoolong's picture

Nailed it. This is the most important thing that is different this time. As expected, Wall Street is too arrogant and short-sighted to see it. In fact, we the investor are more powerful than they are. We have the power to walk away. Without our money, they become nothing, and acquire the status they have always deserved alongside carnival side show hucksters.

Tombstone's picture

Since most of the government,  many big banks, as well as numerous institutions are now in the hands of die hard socialists and Communists, what is there to trust?  In and out is the only safe way to make money.  Putting it into long term investments only makes sense when we have a free economy and a much less tax hungry government that is willing to spend with little or no debt.  As long as the welfare state grows at a monstrous pace, the future of wealth creation and the retainment of said wealth is in dire jeopardy.

Colonial Intent's picture

Bush’s tax cuts and wars greatly increased deficit spending, resulting increased borrowing.

Clinton had created large budge surpluses, eliminated the need for government borrowing, starting to pay-down the national debt, scared the life out of the Federal Reserve that creates currency as the principal of loans. For money is created as the principal of loans, but it is destroyed as those loans are repaid, draining currency from the economy and revealing the fraud at the heart of fractional reserve currency systems. Clinton’s surpluses were a profound threat to the reserve monetary system, because less debt reduces the number and size of new loan contracts, that are needed to replace currency destroyed as older loans were repaid. For if there is no debt in the system; there is no money in the economy.

moondog's picture

I used to parrot the Clinton surplus myth as well. He paid down the public debt (not national debt) by borrowing far more money in the form of intragovernmental holdings (mostly Social Security).

Vooter's picture

Clinton may have a run a budget surplus, but the national debt increased from roughly $4 trillion to $6 trillion during his two terms in office. But he's not alone--the national debt has increased under EVERY president after Jimmy Carter...

AwkwardReader's picture

I'm not sure if this is the place, but what if the Government really got out of control. Other than what the Interwebs tells us.. Passed laws worse than the Patriot Act? Passed gun control and all that jazz.   (I'm almost laughing trying to bring up the 1st Admendment.)

I have the solution. Fear not sheep.

Take retribution on the local folks that support the Government.

The Sheriff of the county is elected to uphold the Constitution,That's his/her sole duty. To uphold the Constitution.

If they don't, then dispose of the them. Whatever means that is , well, that 's up to that county folks.

The Founding Fathers were smart. They gave a lot of lee way, but they also gave a lot of ,hey I'll cut your fking head off if you go against the Constitution.




shovelhead's picture

You're putting the cart in front of the horse.

Violence on a local level they can deal with.

A govt. only retains it's legitimacy if the people comply with it's edicts. Mass non-compliance ala Gandhi would be the most effective way to paralyze and break down the system.

If everyone (who pays taxes) simply filed tax exempt status and removed themselves from the banking system so they couldn't freeze and confiscate assets at the Federal level, what could they do? Physically send millions of IRS agents to every home, workplace, corner store?

Try to shift the burden of compliance to local enforcement? Good luck with that. It might work in large cities to a small extent but in flyover country it will never happen. Local enforcement gets paid locally and nobody is going to lock up their paymasters. Notice the groundswell of States resistant to Federal overreach yet? It's there and growing and will get bigger when Uncle Sugar turns down the money taps and looks for more revenue at the States expense.

They can print money and create debt to pay the bills so that's not the issue. What is important is that they lose legitimacy by losing your obedience to their laws. They simply cease to matter.

Tough to place 350 million people under house arrest.

Then it's game on and they have no recourse but to re-negotiate and re-establish rule of law. The Emperor truly has no clothes if the people choose to open their eyes and act accordingly.

And there lies the rub.



Vooter's picture

"They gave a lot of lee way, but they also gave a lot of ,hey I'll cut your fking head off if you go against the Constitution."

LOL...well put...

ramacers's picture

.... and "real" hurt has'nt even started yet. all hearts know the fall must come.

moneybots's picture

"The death of the 'cult of equities' was a popular topic this year..."

"The death of equities" was a headline in August, 1982.  The end of the 16 year secular bear market was at hand.

stiler's picture

this might be of interest to some here. it's about an hour long (audio) and post-election. the best part from 18:00 on.