Droves, Fleeing In

by wjw on August 24, 2010

Yesterday’s New York Times featured an article noting that small investors were fleeing the stock market in droves, taking $33.12 billion with them.

Could it be that they’re looking for more secure investments, such as perpetual motion machines, the Dean Drive, and the Danish space program?

After past recessions, ordinary investors have typically regained their enthusiasm for stocks, hoping to profit as the economy recovered. This time, even as corporate earnings have improved, Americans have become more guarded with their investments.

“At this stage in the economic cycle, $10 to $20 billion would normally be flowing into domestic equity funds” rather than the billions that are flowing out, said Brian K. Reid, chief economist of the investment institute. He added, “This is very unusual.”

The notion that stocks tend to be safe and profitable investments over time seems to have been dented in much the same way that a decline in home values and in job stability the last few years has altered Americans’ sense of financial security.

Yah, d’ye think?

Consumer confidence can’t exactly be enhanced by stories like this concerning the Nexus of Financial Evil (e.g., Goldman Sachs), which advised its “very special clients” to sell gold at the exact moment it told its own brokers to buy.

Wow!  That’s chutzpah!

(Now, if you’re a Goldman client, can I ask you why you have your money there?  Are you stupid, or do you think it Just Won’t Happen to You?  Or do you just trust that while they’ll certainly screw you, they won’t screw you all the time?)

So with power-intoxicated sociopathic organisms like Goldman Sachs lurching around the financial system like rampaging elephants, why should the average solid citizen take his money and strew it in their way?

Back to the Times article:

Until two years ago, 70 percent of the money in 401(k) accounts it tracks was invested in stock funds; that proportion fell to 49 percent by the start of 2009 as people rebalanced their portfolios toward bond investments following the financial crisis in the fall of 2008. It is now back at 57 percent, but almost all of that can be attributed to the rising price of stocks in recent years. People are still staying with bonds.

. . . On Friday, Fidelity Investments reported that a record number of people took so-called hardship withdrawals from their retirement accounts in the second quarter. These are early withdrawals intended to pay for needs like medical expenses.

So citizens are pulling their money out of the stock market in order to pay for, say, that second round of chemotherapy.  But don’t despair, Wall Street!  The money’s going to pharmaceutical companies, and that’s good for America!

(As a personal note, I halved my investment in American equities a couple months ago.  Though I didn’t shift it into bonds— that 1.3% yield wasn’t all that attractive— I put it into emerging markets instead.

(Not that I’m a financial genius or anything.  Don’t do as I do, just because I do it.  Just do me a favor and pray that Brazil doesn’t go belly-up.)

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