by Jeff Reeves | July 13, 2012 6:15 am
You read a lot of headlines about the fear and uncertainty in the capital markets these days. Will the euro currency zone break up? Will consumers or businesses cut spending and cause a “double dip” recession? What about a hard landing for China upending the global economy?
These are very real issues and very real fears. They are part of the reason that the stock market has been so volatile for the last few years.
But these days, many investors don’t even need to open up a web browser and surf the headlines to get the jitters. The issue isn’t politics or economics — it’s trust.
And investors, big and small, just don’t trust Wall Street.
Why should they? Here’s what’s weighing on their minds:
Who cares what’s going on in Washington or whether a stock is landing a new contract in Asia? Many investors can’t even get past these basic fears that the market is not going to serve them well no matter where they invest.
And the fact of the matter remains that many Americans are unemployed or underemployed with more pressing problems then retirement planning. They’re just trying to survive. Others who do have modest means are paying off debts or investing in themselves by going back to school or even starting their own business.
The bottom line is that there are fewer eligible investors than there were several years ago. And those who do have the cash aren’t interested because they think Wall Street is a sucker’s game.
They’ll take a paltry 1.1% yield in a jumbo CD (current return according to BankRate.com[9] today) if it means they can be sure their money is safe… even if that money doesn’t grow fast enough to keep up with inflation.
When Will Things Change?
So what does this mean for those of us who play stocks? Is this the buying opportunity of the century as the “cash on the sidelines” reaches mammoth proportions, and we can depend on a huge burst in the next year or two when that capital returns?
Fat chance.
Barry Ritholtz of The Big Picture posted a painful graphic series[10] in June that shows the “cash on the sidelines” at businesses and how it’s a bit of a fiction. And in March the gritty Zero Hedge blog blew up the idea of an influx of cash pushing markets higher[11] by pointing out that the market is not a closed system. If cash flows into the market, you can be sure folks will be taking profits and pulling out too.
And let’s not forget that back in 2008 when the debt window closed, many corporations and consumers found themselves cash strapped and struggling to survive. Some of this hoarding will not be undone because folks are building up their rainy day funds after being denied easy access to credit just a few years ago.
I don’t mean to sound like a permabear or one of those doomsayers. For the record, I believe that a recovery for the broader economy is slowly underway and we should see a significantly stronger American business sector in 2013 despite obvious macroeconomic risks from the labor market, the eurozone, et cetera.
This will translate to some improvement in the market, and there are profits to be had in the right stocks.
But the fact remains that many would-be investors don’t care. To them there’s also profit to be made finding antiques at the flea market and selling them on eBay, or profit to be made at a casino.
And right now, both of those alternatives seem less risky (and perhaps more fun) to Americans who just don’t trust Wall Street anymore.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.”[12] Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
Financial[13], Bank[14]
Source URL: https://investorplace.com/2012/07/forget-uncertainty-trust-is-the-big-issue-for-investors/
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