The Tragic Irony Of America’s ‘Too Big To Fail’ Stock Market
Most of my days are spent digging around for interesting things to highlight, and in the course of that daily quest, I came across a report dated November 20 from Richard Curtin, who runs the University of Michigan's monthly consumer sentiment survey.
The subject is "stock ownership and stock price expectations," and the data Curtin presents reveals an interesting trend.
Specifically, stock ownership rates for younger investor cohorts and also for investors with lower household incomes are on
What goes up must…keep going up. I don’t think one call it capitalism, but that’s where we appear to be.
Yes, that is where we are. The financial economy cannot be allowed to collapse. We have some experience over the last few years with what happens to sentiment when we hit a 20% dip. Selling panics ensue. We are in a new paradigm since at least the mid-2000s where we have to have continued expansion of credit and spending…or the whole thing collapses.
Liquidity events like we saw in March have to be managed. We are thankful we had the Fed. For if not for the Fed, the equities charts today would be more akin with 1929 and the ensuing quarters until the bottom in 1933(?).
It’s a tough spot. But, there’s no going back.
A type of financial product that I think is missing that I have wondered why we don’t have more of are things like variable rate annuities. You know, something that provides a return within some forward looking band (based on where we are in the economic cycle, rates, etc.) where the rate is adjusted from quarter to quarter. Heck, if I could plop a gob of capital into something and know I’m getting 4.18% next quarter (on an annualized basis), with no risk to loss of capital barring a financial crash and implosion of money markets, etc. I’d take it. (Yes, there are such products such as the TIAA annuity for retirement accounts).
I’m sure there are others who know what the score is on why we don’t have more products like this.
I would be curious to see where on the risk spectrum the folks in the lower quintiles have been allocating their money. Buying JNJ/dividend aristocrats and riding through the 10-20% air pockets is one thing (low end of the risk spectrum). Chasing JETS or the SPAK ETF and hitting an air pocket is quite another.
All that said, the seminal point (ok, one of like maybe five seminal points) is this: “…stock market cannot be allowed to collapse.”
This is anecdotal from a number of sources, but there may be a dynamic of desperation setting in amongst the lower tier, those who haven’t already been wiped out of savings that is, that sees the basics of normal life, like housing, education and healthcare spiraling further and further out of reach and is willing to take extreme risks to grab hold of the ladder before it is gone for good. There could be a nothing-to-lose type of dynamic setting in.
Is the the equivalent of the 1929 shoe shine boy?
Well, I wasn’t thinking, while reading, of that metaphor specifically, but rather the old market “wisdom” that when the great unwashed get involved, it’s ringing the bell for the end.
Stocks are now very liquid like a checking account.
Irony is an overused label, so I shall simply observe that it will be quite unfortunate if the market going down has a similarly exacerbating effect on inequality as it did going up.
The ‘trumpet shape’ logarithmic trend-lines forming on that QoQ net worth graph are frighting.. Will the next hit be in the two figure trillions?