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Individual Investors Are Steadily Abandoning Stocks — Wisely

Posted on August 6, 2014

From Zero Hedge:

Of particular note to me is how investment professionals are experiencing markets. What does it mean to be a professional investor or investment advisor in the Golden Age of the Central Banker? Two observations surprised me, and I believe they’re connected.

First, when I had these conversations six months ago I would get a fair amount of resistance to the notion that narratives dominate markets and that we’re in an Emperor’s New Clothes world. Today, everyone believes that market price levels are largely driven by monetary policy and that we are all being played by politicians and central bankers using their words for effect rather than direct communication. No one requires convincing that market price levels are unsupported by real world economic activity. Everyone believes that this will all end badly, and the only real question is when.

Second, trading volumes are abysmal. I know it’s summer, but this is more than just seasonality. Here’s a chart using data from my friends at Barclays showing the 10-year trend in US cash equity volumes.

Source: Barclays Capital (July 2014)

I love charts that require absolutely no explanation. Since the outbreak of the Great Recession, with a few exceptional months marked by panic selling, trading activity in US equity markets has done nothing but go down. And when you take into account the growth of algorithmic trading and other machine-to-machine activity, which now accounts for as much as 70% of daily trading volume, the decline in actual human beings buying or selling stock in order to acquire a fractional ownership share in an actual real-world company is much more dramatic than this chart shows.

But wait, there’s more. Here’s a 50-year chart (!) from my friends at Deutsche Bank showing the steady growth rate of trading volume in the S&P 500. With an r-squared trend line fit of 96%, this growth rate of 9.3% is an incredibly strong and stable pattern. Until late 2008 or early 2009, that is, at which point the pattern breaks like a thin, dead twig.

(For the rest of the article, click the link.)

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2 thoughts on “Individual Investors Are Steadily Abandoning Stocks — Wisely

  1. Those charts are great punctuation to the, fairly obvious, scenario that we are being played by those with control over both markets and monetary policy. They now realize that they have the"tiger by the tail" and can't figure out how to get out of the cage. It will not be without pain. Not for them. For us! The article said that "everyone believes that market price levels are largely driven by monetary policy". Not everyone. Our President actually claims to believe that "by all metrics the economy is doing fine". Really? Can he really believe that? I just pray that we come out of this with our country in a repairable condition. See my blog at http://cranky-conservative.blogspot.com

  2. It would not be totally incorrect to say that market price levels are manipulated and are driven by some politics, bankers and monetary policy. The reason behind the recession in US is somewhat linked to this scenario. People play with these kind of policies in their hand and run the entire system as they wish to, I read an article about Jawad Rathore where a lot of investors were played by him and he looted a lot of money by passing wrong information though he was penalized for this later but for a while others had to bear the consequences.