Last year, we noted that there was a “Bubble in Bubble Calling.” News media bubble chatter was the rage, whether it was tech initial public offerings or stocks or bonds — all caused by “a global central bank QE bubble.”

Here we are two quarters later, with the central bank reducing quantitative easing by scaling backs it asset purchases. Markets have reached new highs, which is a highly bullish sign. The jobs lost in the great recession have been recovered, and economic data continues to trend positive.

Despite this, we still hear bubble chatter. Yet when we look at what individuals are doing with their investments, their behavior is definitely bearish. According to a study published in the Financial Analysts Journal, equity ownership has fallen to the lowest level in more than a half-century. In 2012, investors held a mere 37.7 percent of their portfolios in equities. That was out of a grand total of $90.6 trillion in investable assets around the world.

Over the past three decades, investors’ portfolio equity exposure has run at a historical average of about 60 percent. Think of this as the classic 60/40 stock-bond allocation.  continues here

Category: Investing, Markets, Psychology, Sentiment

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to “A Bear Market for Mom & Pop Investors”

  1. ch says:

    Barry – who do you think has been buying all these houses and rental properties around the US? Kids coming out of college with $60k in debt and making $12/hour?

    No – mom & pops with money have been burned twice with stocks & are saying “screw it – I want hard assets that cash flow.” They get that the stock market is rigged.

    Does that mean that stocks aren’t going up? Nope, they are. But more people are waking up to the fact that at some point, you need to convert the ethereal number on a screen into something tangible. Wealth is tangible. And by they time they do that, the price of the tangible may rise much more than the stocks (check out farmland or rental housing over the past 10 years or 15 years – both have destroyed stocks.)

  2. george lomost says:

    So higher prices are bullish. So individual investors are stupid not to buy. But if individual investors do buy en masse that will be a sign that the market has peaked. What to do?

    Maybe the solution is for individuals to buy equities ‘hand over fist’ while loudly proclaiming that we are in a massive bubble!(?)

  3. ch says:

    Not according to Bloomberg, Sandman:

    Boomers are saying “Why be levered long stocks (big mortgage on house with retirement assets in stocks) when I can own fewer stocks (per Barry’s article) and carry no mortgage, saving thousands in cash, now, every month?”

    Given that the same thing that is driving stock prices is driving home prices (Fed and global central bank largesse, dollar devaluation), it’s hard to argue with the logic.

  4. constantnormal says:

    If you can find a period in history with a comparable demographic situation (a very large slice of the public looking toward or living in retirement, focused on income and asset stability), then the historical yardstick might be useful. Otherwise, not-so-much, as we are then off-scale.

    You may have to wait until the boomers represent a small fraction of asset-holders before you see stock ownership by the public return to the historical ranges. Demographics plays a large role in where a population of individuals puts its wealth. One cannot look at each interval in history and assume that everything is comparable, because it never is. What you have to determine is whether the differences between then and now matter or not.

    I think (to coin a phrase) that “this time is different”.

    • constantnormal says:

      And giving this a little more thought (something I seem to never be able to do before clicking the “submit” button), given the ongoing trends in age distribution, we may never again see a time when the elders do not represent a huge majority of asset owners, at least not while there is a civilization that continues to extend the survivability of the aged. Perhaps when all our antibiotics have been overrun by infections evolving faster than we can create, and the elderly die off (we have still not managed to prevent the decay of our immune systems as we age), then the possibility exists for a return to “the old normal”.

      But if that IS the case, then what about all the age-related metrics for asset allocation? If stocks are more-or-less permanently eschewed by the public, what does this say about demand for stocks and the prices of stocks? Will the stock market as a whole be relegated to penny stock status, with the only players being those who manipulate the prices and the suckers? A lot about a market depends upon how broad and deep it is.

      A lot of possibilities open up, once we remove the blinders imposed by a reliance on the historical behavior. And history can only tell us what was, not what will be. We have to figure out if the lessons of the past are still valid today. Sometimes they are, other times they only look like they are, until things go radically astray.

    • rd says:

      The percentage of the population aged 65 or older is expected to rise from less than 12% a couple of years ago to 20% in about 2030. This aging will likely have an impact on asset allocations, even though it probably shouldn’t. People are living longer after age 65, they still need an appreciable amount of stocks, but emotionally many people probably won’t be able to do that.

  5. Mike in Nola says:

    Hard to have a lot of faith in markets where Spanish bonds are cheaper than Treasuries: adult unemployment 25%, teen unemployment much higher, lots of people beggared and Merkle determined to get tougher on the lazy unemployed.

    • Concerned Neighbour says:

      Agreed. Central banks have eviscerated the price discovery mechanism. Can we trust markets that literally can’t go down anymore? Maybe they’re hoping that if they make the manipulation (sorry, “intervention”) so blatant for so long, we’ll forget it’s manipulated (sorry, “intervened in”) and invest our life savings in AMZN at 300 P/E (where all stocks will probably be trading in a couple years).

  6. ch says:

    1. The price of all financial assets assume a large and growing supply of cheap energy (aka oil.) Anyone checked the growth rate of cheap oil supplies lately (or more appropriately, lack thereof)?

    2. If the dollar is supported by oil, and oil supplies on a dollar-adjusted BTU basis are falling, then what should happen to the price of risk assets, measured in (declining) dollars?

    What is happening in the US has happened hundreds of other times in the last 100 years alone…just b/c it’s not super high inflation yet, doesn’t mean it can’t get there (food inflation running at 22% annual rate in 1st 4 mths of the year; healthcare insurance running at 40-100%)…

    Mom & pop stock investors aren’t the only ones that have gone missing…so have the people that said money printing has negative long term implications on inflation. Problem is the inflation is only and will only ever show up in crap that the bond market deems as “non core.” Borrow as much money as you can & buy food & drug companies…

  7. WickedGreen says:

    With somewhere in the ‘hood of at least 2/3 to 3/4 of all “shares” on the NYSE being “traded” by software, can we please dispense with this horseshit about “investors”?

  8. sellstop says:

    The Fed keeps interest rates low to increase employment by stimulating the economy/ encourage borrowing. The Fed has also recognized the value of the wealth effect in how people make decisions, so the elevation of the stock markets in a society where a large percentage of working people own financial instruments must be another way of printing money.
    If only people would accept the money. And the strongest bubble watchers are also the voters that prohibit their government from using historic low interest rates for fiscal stimulus and in fact have decreased the domestic spending of their govt. (Check that fact for me will you Barry)
    I think this period has the potential to be one of those historic blunders by a society that refused to compete on a global financial battlefield because of preoccupation with a sort of Marquis of Queensbury sense of honor. When in fact capitalism as a system has no such moral restraints…
    Well, back to “Capital”……

  9. rafaelbarbieri says:

    “If you’re ever wondering who keeps buying stocks, don’t forget about the companies themselves.”

    How much does this have to do with this:

    “In 2012, investors held a mere 37.7 percent of their portfolios in equities. That was out of a grand total of $90.6 trillion in investable assets around the world.”