Monday, August 15, 2011

The RICH Bail on the Stock Market!

Who would have thought or surmised it? The richest in the nation are bailing on the stock market! (WSJ, 'Once Bit, Rich Shy From Risk of stocks', p. C3). The article notes a large retrenchment of stock holdings for a majority of the wealthier folks, who suffered major losses and don't wish to be hammered any more.

According to one rich guy quoted:

"Today, my first principle of investing is, do no harm..don't make mistakes!"

He added:

"It's not about chasing returns any more. For me, it's about not being dependent on traditional equities."

Which makes eminent sense, so why are so many of the hoi polloi ordinary guys over loaded with equities in their 401ks? Are they just itching for added major losses? Are they hankering to work another 20 years? (Like the guy quoted in the W/E Journal who admitted he lost one third of his 401k in the past week, and now "will have to work another 11 years".) Don't people ever learn or process that if their disposable income is nil then the markets are the last place for them, never mind Ben Bernanke trying to coerce them using almost zero interest rates, for bank passbook accounts. Of course people will want more money, but don't let Ben shoo you into the risky equities markets! And, as the authors of The Great 401k Hoax (Wlliam Wolman and Anne Colamosca) have observed: 401ks were never set up to be investment vehicles, but savings vehicles!

Back to the rich: According to the Journal (p. C3):

"The worried wealthy now look like the smart money. Their caution signals a psychological shift from the mid-2000s, when many of the rich took a casino approach to rising markets."

But then the shit hit the fan, as they say, in the 2008 meltdown. At that time, the article notes, households with $1 million or more in investible assets lost on average 30% of all their holdings. Result? They pulled back from the risky casino. On the other hand, ordinary little guys have been impelled by pundits (like Jim Cramer, and loud mouth Rick Santini) to "jump back in", often with disastrous results.

Shouldn't more of the less well to do be following the example of what the wealthy are doing now?

Another wealthy investor quoted in the piece, a Deborah Midanek, opted out of stocks completely (except for one company stock on whose board she sits) in 2008, and is now totally invested in "real estate, cash and farmland". She asserted:

"Who cares about the stock market? I'm going to invest in something I understand!"

Would that the little schmoes would do likewise as opposed to continuing to be shark bait for the "Great Whites" on Maul St. Who usually refer to little guy investors as "chickens to be plucked" and "dumb order flow".

On the not so sanguine side, the article also coughs up a dire truth that most of the austerity and spending cut bird brains don't want you to know: the rich are not investing in jobs! As the WSJ article puts it:

At the same time, they (rich investors) are imposing a national price. Recoveries are often led by the investing and risk-taking of the wealthy and the rich have traditionally been more optimistic than ordinary investors. Yet current surveys show the rich are among the most pessimistic about the economy.

Rather than investing in companies that create jobs they are betting on continued volatility and slow growth by hoarding cash, gold and other defensive assets.

So much for the repuke myth that the rich - via tax cuts - "create jobs". We've had the rich feasting on the extended Bush tax cuts - passed back in December- for nearly eight months now, and how many new jobs have been created? Well, 117,000 last month! In other words, not even above population addition level!

Again, this portends a horrific economy because it shows investor demand is crashing as well as consumer demand (driven by purchases). Together they make up "aggregate demand". The dual retrenchment of both investor demand and consumer demand means we are in a DEMAND -POOR environment, which necessitates MORE spending, not less. Thus, the spending cut frenzy we are seeing, and the obsession with deficits, is in fact a prescription for job reduction, not creation! And if the consumer won't spend, and businesses won't spend (hoarding cash instead), then if the government also doesn't spend, we are looking at a fiscal calamity of the first order. This is irrespective of what the magic numbers of the DOW do on any given day!

This ought to be a wake up call for the little guys with their 401ks still exposed. One hopes they will follow the example of the wealthy and their "smart money" before it's too late! In other words, hang on to what money you can because you may need it if your job is turned into fish bait for the repukes! (Especially if you're a postal worker, soldier, Vista volunteer, CDC researcher or any other government worker - since the GOOPers and their Tea Bag morons don't believe that government creates jobs! 37,000 gov't jobs were lost last month by the way).

To quote one of the genius rich guys in the article (who sponsors a club for rich guys with investible assets over $1 million):

"Right now it's easier to save a buck than to make one. So you save whatever you can!"

Just bear in mind the stock market is not a saving venue!

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