Guest Post: If The Market Crashes, Who Owns Enough Stock To Even Care?

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

If the Market Crashes, Who Owns Enough Stock to Even Care? 

Since 81% of all stocks are owned by the top 10%, a stock market crash has little effect on the bottom 90% of Americans.

It is assumed without question that the stock market is some quasi-sacrosanct barometer of the U.S. economy. But who even cares if the market crashes? Only the top 10% who own it. Yes, millions of (generally government) workers have an indirect stake in stocks and bonds via their state/union pension funds, but it's still informative to look at the distribution of who actually has a stake in the market's rise and fall.

This data is from pre-recession 2007, so I suspect ownership has become even more skewed to the top 5% as those below liquidated stocks to pay the bills as household income and housing equity plummeted.

So 81% of stocks are owned by the top 10%, and 91% by the top 20% of households. Thus we can conclude that 11.7 million out of the nation's 117 million households will actually be adversely affected by a stock market crash, while the consequences to the remaining 105 million households will be slight to zero.

A severe decline in the "wealth effect" would probably crimp the top 10% tranche's carefree spending, which accounts for some 40% of the nation's consumer spending. If the market crashes, high-end retailers and restaurants would likely see sales fall significantly. While there would be consequences, we should be careful not to overstate the stock market's role in the nation's Main Street economy.

And what are the chances of a real crash? For insight, we turn to the The Chart Store's chart overlaying the current rally and collapse with the Dow circa 1907. The similarity is rather uncanny:

The only difference is the Fed launched QE2 late in 2010, which kept the rally alive for another 6 months. But as we can see, it didn't change the future decline, it simply set it forward a few months: the current market has now caught up with the 1907 decline.

The past is simply one possible pattern of many to consider, but the remarkable similarity of these two charts suggests that there may be more downside ahead.

One last point: those who exited the stock market won't care if it crashes because they opted out of playing the risky game altogether.

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zorba THE GREEK's picture

A stock market crash could be positive for many people because it would give them a chance to enter the market

with little downside risks. I personally will just stay in PM's.

snowball777's picture

Because they've been hoarding their cash until now?


spiral_eyes's picture

cash, bitchez

or.. not. 

enjoy your negative real rates NOM NOM NOM NOM

Missiondweller's picture

The retail investor has basically been out of the market since 2008. There has been lots of documantation of this.

disabledvet's picture

Well of course this must be true since when the market collapsed in 1929 it had no impact whatsoever! Obviously this is a ridiculous article since WTF was the "plunge protection team" for in the first place? The real story and only story for the past two years has been the MASSIVE social unrest as a result of "bailout nation." clearly policy makers would be fools if they didn't see what has happened everywhere but East Asia heading straight for the USA.

Michael's picture

News flash;

Dr Ron Paul placed second within a cunt hair of Michelle Backmann in todays Aims Iowa straw poll.

  1. 28.56% (4823 votes) – Michele Bachmann
  2. 27.65% (4671 votes) – Ron Paul
  3. 13.57% (2293 votes) – Tim Pawlenty
spiral_eyes's picture

he won't pick up THAT much else. maybe a few from t-paw and cain and even steal a few from bachmann. the interesting thing though, is that perry will split the bachmann vote. paul's supporters won't deviate, and he will pick up a few more as the economy crashes more. liquidity traps, bitchez! prediction (plucked out of the air) of caucus:

bachmann — 25%
ron paul — 30%
perry —  30%
romney — 20%
santorum — 3%
cain — 2%

t-paw, huntsman, etc drop out.

all i hope is sarah palin comes into the race and splits the dumbass neocon vote some more. sadly i think the final two will be dr no and slick rick. stay optimistic, bitchez!

JW n FL's picture

I thought everyone had their high risk 6% - 14% Monies invested in the Markets?

Was I wrong?


Bob's picture

Rick Perry has charisma that is right up their with Candidate Obama's.  Obama seemed to be impersonating MLK.  Watching Perry, I see Joel Osteen. 

Nobody would like to see him President less than me--another Clinton/Bush/Obama is not what I'm looking for.  IMO, though, most people don't vote on policy, but on whether they "like" the guy. 

I see Perry as our next POTUS.  Bachman or Paul as his VP on the basis of popularity; of course, a cipher like Romney would fit the role perfectly as well.

Lord Koos's picture

Perry won't fly.  He's like a B-grade version of Bush -- people still remember what happened the last time they elected a governor from Texas.

Shirley Wilfahrt's picture

Barring the standard Live boy/dead grrl rule....

Perry in a landslide.


Fuck Yeah!!

ceilidh_trail's picture

This website states that it is nonpolitical, then goes on to call the Tea Party people "neocon warmongers". 'Nuff said, not worth another look.

Bob's picture

If it's any consolation, he did say that this is the case only because the inspiration of the early Tea Party has been hijacked and scurriously exploited by the fascist machine.

Cruel Aid's picture

From Texas... He is a classic Rino, ex Jackass. Hell he endorsed asshat Gore. LOL

Oh regional Indian's picture

Michael, isn't it strange that Ron P has been hemming and hawhawhawing for the better part of 30 years about I'm not keen on keynes, gimmie some mises misery....blah blah... and then he places a cunt hair lower than Michelle Bachmann? 

It tells me a lot, both about politics and perception management in America. And it looks scary and those NUMBers DO NOT matter.


Bob's picture

Perception is all.  That would appear to define public life in America these days, controlled by a corporate media machine.  Of course, we've been set up by generations of television, where commercials are the substance and programming only incidental. Suspension of disbelief has become the foundation of American "character."

I think we see how far this has gone with facebook.  Real life becomes incidental to "empowered" perception management at the individual level.  Sad indeed. 

Oh regional Indian's picture

Sad Indeed. Indeed! I was in the US from 95ish through 2006 and I believe I saw the decline and fall before my eyes in that period. And being in the dot.con BOOM gave me a really deep insight. 


sessinpo's picture

And this means what exactly? I'm sure that you have heard that McCain did poorly in the last Iowa Straw Poll, yet won the nomination.

The Iowa Straw Poll means nothing. It is non binding. Heck it cost money to vote in it! The two top contenders will be Perry or Romney, but most likely Romney because he is an establishment player. Perry is trying to play hard to the Christian right. Unless Bachman or Paul get some HUGE upset wins (caucuses or conventions and not non binding  polls), they have no chance fighting the system set by the two parties - the Corruptocrats and the Corruptocans.

Dental Floss Tycoon's picture

Michael said: "Dr Ron Paul placed second"

Dr. Paul is the only dog I have in any political fight.  That said I don't believe he has much chance of winning.  Most Americans just don't have a clue what he is talking about.

But I would love to be wrong.

BTW did you notice how much more face time Michele Bachmann got than Ron Paul in the debates?  But that's the mass media doing what it does best.

Fred Hayek's picture

The majority of the populace had no significant stake in the stock market in 1929. But everyone had money in banks, which were collapsing for a variety of reasons. Almost everyone in farming states was hurt by dust bowl conditions. Almost everyone was hurt by the Fed actually slashing credit as the depression began. Almost everyone working in an export related industry was hurt to some degree by the revenge tariffs on american goods inspired worldwide by the passage of the Smoot-Hawley tariff. Etc etc etc. Yes, the stock market crash of 1929 was a bad event but a hugely overleveraged economy was hurt in several other ways that probably mattered more to the average american.

Kayman's picture

the passage of the Smoot-Hawley tariff.

Lucky us, we already exported enough jobs that we have none to protect now.

JW n FL's picture







what else can I say?

jerry_theking_lawler's picture

In 1930, the Republican-controlled House of Representatives, in an effort to alleviate the effects of the... Anyone? Anyone?... the Great Depression, passed the... Anyone? Anyone? The tariff bill? The Hawley-Smoot Tariff Act? Which, anyone? Raised or lowered?... raised tariffs, in an effort to collect more revenue for the federal government. Did it work? Anyone? Anyone know the effects? It did not work, and the United States sank deeper into the Great Depression. Today we have a similar debate over this. Anyone know what this is? Class? Anyone? Anyone? Anyone seen this before? The Laffer Curve. Anyone know what this says? It says that at this point on the revenue curve, you will get exactly the same amount of revenue as at this point. This is very controversial. Does anyone know what Vice President Bush called this in 1980? Anyone? Something-d-o-o economics. "Voodoo" economics.


From Ferris Bueller's Day Off....that's where I learned my economics!!

New_Meat's picture

freddy, you nailed it.  If there were a greenie thingie, I'd give you one. - Ned

Caviar Emptor's picture

This ain't 1929, bro. There's no retail stock market mania. 1929 was like 1999 cubed: everyone was in, everyone thought it would last forever. There was also leverage the likes of which make 2008 look cautious. It actually didn't take much to wipe people out totally. Not at all what we have today. Most of the trading isn't people. It's bots passing shares back and forth giving the appearance of demand. Few people hold overnight positions at all. There's nothing to wipe out in a crash

disabledvet's picture

Retail is all cnbc and now even bloomberg talk about. Now how many publicly traded companies were there then? 30? And now? 12,000? We have no private economy like we did back then to fall back on. In other words "this better work."

A Lunatic's picture

There's nothing to wipe out in a crash

Interesting observation. There is sooooo much more to gain by almost crashing. Preventative measures, that's where the big money plays are.

DormRoom's picture

wtf.. Using a chart from 1907?  The General Theory of Employment, Interest and Money hadn't even been published yet.  Policy makers have more tools @ their disposal now, then 1907.


Too bad American politics is too dyfunctional to apply what is needed: more fiscal stimulus.. Infrastructure bank.


It's an apple to orange comparison.  It'd be like looking at pregancy stats, prior, and post creation of the pill.

Pay Day Today's picture

You've assumed that trading psychology has changed beyond fear and greed. It hasn't. You've suggested that new tools and new theories will change market behaviour. Then you suggest two things - fiscal stimulus and an infrastructure bank - which could have been implemented 150 years ago.

Not sure where you are going with any of this. We are not smarter than we were a century ago (i.e. beoing more contrived and complicated is not necessarily the same as being smarter).

rosiescenario's picture

I'd go back even further...we haven't changed since the tulip mania or South Sea Bubble, though we do now have far more complex derivatives, HFT's, not to mention almost instantaneous news delivery. Actually, in giving this some more thought, we are probably far better equipped today for rapid we have gazelle herding vs. water buffalo herding of prior centuries.

EFNuttin's picture

You've assumed that trading psychology has changed beyond fear and greed.

I have a theory that fear and greed are our trading equivalents of the primitive reactions of flight and fight.  When prices are falling sharply, the fear leads to flight from the market.  When prices are rising quickly and "everyone else" is getting rich while we sit back skeptically until doubt is overcome by greed, we then jump into the "fight" to grab some of the largesse.  Does anybody know of writings that connect "fear and greed" with "fight or flight"?  I highly recommend viewing video interview on YouTube of Vernon Smith, Nobel Prize winning economist who, unlike 99 percent of economists, believes that financial bubbles are intrinsic to human nature.  PBS filmed "Mind Over Money" which profiled Chicago-school economists who essentially don't believe in bubbles, versus actual bubbles since the Tulip Bulb Mania and Vernon Smith's work.  I wonder if Vernon Smith is related to Adam Smith.

Diogenes's picture

Fiscal stimulus would work if the problem were too little credit. But what if the problem were too much credit, as it is now? What if the consumer cannot spend because he has no money, and cannot borrow because his credit is maxed out?

In view of the fact that this has been the case since 2005, it is no wonder that l the massive  stimulus of the last 3 years has had no positive effect.

DormRoom's picture

Richard Koo, the man who coined, 'balance sheet recession' recommends fiscal stimulus.  Governments must spend as the consumer continues to deleverage.  Business won't invest, if there are no consumers. So it must be government.

Pay Day Today's picture

I agree with Koo's analysis; however he doesn't deal with how to destroy debt, only how to pay it off over a very long period of time once asset valuations have collapsed.

This is an answer that the banks like of course; debt restructuring is not.

The Japanese economy would have got on to its feet far faster if in addition to spending, debt moratoria were mandated. Something like zeroing the interest on household debt would have greatly sped up debt repayment.

Making it easier for households to declare bankruptcy would have also helped destroy bad debt.

Both these steps would have hurt the Japanese financial insitutions - of which Nomura is a big one.

Greenhead's picture

So what if Koo said spend more?  That only means more debt since we are already running a large deficit.  Where is the stimulus money to come from?  Either more debt, more taxes or more pinting which is another hidden tax anyway. 

How about instead of trying to stimulate consumption which really means more leverage and debt, we try and figure how to save more some we can actually produce something sometime?

What do you say, new paradigm?

Pay Day Today's picture

"Where is the stimulus money to come from?"

Same as now, except instead of the Fed printing it and giving it to the primary dealers, the USG prints it and injects it directly into the real economy to create 5M-6M new jobs.

I would call this a new paradigm but it already happened in the 1930's (WPA).

Greenhead's picture

Brilliant, like no one ever thought of counterfeiting before.  Let's just print pieces of paper and call them money and inject them into the economy and pretend they have the same value as the other pieces of paper.  Prices won't go up, gas costs won't change, commodities will stay constant cause ... what?

This is the most infantile, wishful piece of thinking I've read in a while.  Still drinking the koolaid I guess.

Pay Day Today's picture

I don't get your problem. The Fed is printing money now. Has been for years.

All I am saying is get rid of the Fed (Ron Paul style) and have the USG take over those functions.

The USG can then inject that money directly into the real economy - bypassing the primary dealers. It's not rocket science and the US has done it before.

goldsaver's picture

You are right... it has been done before... Wiemar, Zimbabwe, Argentina.....

Bob's picture

Funny that we look at a debt-money fueled stock market in an environmnent of demand destruction in the real economy and don't see overinvestment in the market as a central problem. 

We've incentivized investment in the financial markets OVER investment in the REAL economy by providing tax favored status on capital gains.  The people who have significant wealth that COULD be invested elsewhere are highly sensitive to taxes and people who would otherwise be contribuing to the real economy are consumed with playing the market. 

IMO, every day that we continue to incentivize "investment" in Mr. Market's casino is another day that dot gov is actively "stimulating" the financial economy.  And, given that this "stimulus" is tax revenue negative, it severely constrains the government's ability to fund programs that would directly impact employment. 

The only difference that I see between this tax-driven stimulus and a more traditional fiscal stimulus that COULD yield jobs is that it focuses ONLY upon the welfare (perceived, at least) of the top 10% of the population.  POMO/MOMO and PPT only amplify this tax policy-driven misalignment of investment. 

We need to eliminate the 15% capital gains tax rate.  A financial transactions fee would be additionally effective for reasons that most of us readily recognize.  HFT anyone?

The corporate media has over the past year installed Mr. Market as our national mascot.  He's replaced the flag as a prop on news casts about the state of the US economy. 

Supporting this sick sock puppet has become Job One for the American people.  Hey, if you're a trader this may not bother you--there are still fortunes to be made in the casino.  But if you want to see increased investment in the real economy, we've got to stop incentivizing "investment" in the finance casino. 

Pez's picture

Plenty O' businesses/ consumers in China. USA dont gets it.

Bobbyrib's picture

Well, what was the massive stimulus over the last three years spent on? Infrastructure projects or pork?

I'm sure the middle class tax breaks helped passed in the Porkulus package, but they also spent billions on garbage we didn't need. The Republicans were right to rip that bill apart. It's as ugly as any bill coming out of Washington.


robobbob's picture

so how long have you worked for the white house? and did you have to apply for the job, or did the job just come with your donation thank you card?

Miss anthrope's picture

HEH he's in a dorm room fresh out of government indoctrination camps,  he pays THEM to work!!

Kayman's picture

more fiscal stimulus..

Yeah.... pissing money into the wind, seems like a good policy.


RafterManFMJ's picture

I agree. When I buy something with my galactic black card, I'm just charging it off to the fine creatures of Alpha Centauri.

Although their currency is fixed at 6 Zolots to 1 USD, we both maintain the polite fiction that they will ever collect; it really is a sweet deal as I get blue skinned whores with prehensile tails, and they get a warm feeling from paper promises.  Everybody is winner!

RumCurrency's picture

I doubt it... 2/3 of Americans have less than $1,000 in savings.  And if the market collapsed, the average joe would think putting money in would be more risky, rather than less risky.  Smart money holds gold as cash and then buys solid income-producing investments as the market gets cheaper.

Rynak's picture

Yup, i explained this to a buddy a few days ago, like this:

Does the current financial crisis affect a tiny minority the most? Yes, however, that minority has a lot of "buffer" to spare, while the majority average joe has almost zero buffer. Phrased another way: While it affects a minority the most, that minority's survival does not depend on the majority of their wealth..... while those being affected less, have near zero reserves, and thus are strongly affected *no matter how small the loss is*!

TL/DR: Those most affected can afford to lose. Those least affected cannot afford to lose anything.