“An Entire Generation May Now Look At The Stock Market As A Losing Proposition."

- “We may have lost a generation of investors,” said Joseph Brusuelas, a director at Moody’s Economy.com. “People may now look at the stock market as a losing proposition, as some sort of Wild West where the undeserving become rich, and those who play by the rules end up losing.”



May 11, 2009, 4:46 pm
Shift to Thrift: How Will Americans Save?
By Catherine Rampell

http://economix.blogs.nytimes.com/2009/05/11/shift-to-thrift-how-will-americans-save/?hp

On Sunday I had an article about how many economists expect the days of zero or negative personal savings rates to be over, at least for a while.

While painful in the short run (since consumer spending makes up 70 percent of gross domestic product), a more lasting shift to saving could be good for the economy. More savings → more investment → more capital for American companies → greater economic growth → higher living standards.

This logic assumes, however, that Americans will be saving through financial institutions, rather than their mattresses. And even within financial institutions, their investment options are likely to evolve.

Historical research has found that people who live through a period of low stock market returns (and presumably declines, in the case of the last year) are less willing to invest in stocks, and instead prefer safer, lower-return investment alternatives like bonds. (Aside: On the other hand, people who lived through high-inflation periods tend to be wary of investing in long-term bonds.) More recent financial experiences also tend to have a stronger impact on these long-term attitudes toward investment decisions, according to the study’s authors, Ulrike Malmendier at the University of California, Berkeley, and Stefan Nagel at Stanford.

What does all this mean for near-term savings behavior?

“People are probably going to be thinking more along the lines of ‘How do I generate safe and secure retirement income?’ instead of ‘How do I amass the biggest balance in my account?’” said William Gale, director of both the economic studies program at Brookings Institution and the Retirement Security Project. Workers can invest their retirement savings in (among other things) stock funds, bond funds and annuities, and Mr. Gale expects there to be much more interest in the latter two categories.

Already it appears that financial institutions like Fidelity are developing more products for investors who “are seeking more conservative investment options.”

A shift to lower-risk saving opportunities may result in more secure retirement funds, but it has mixed implications for economic development.

“We may have lost a generation of investors,” said Joseph Brusuelas, a director at Moody’s Economy.com. “People may now look at the stock market as a losing proposition, as some sort of Wild West where the undeserving become rich, and those who play by the rules end up losing.”

This could make it harder for smaller-capital companies and start-ups to obtain financing, and could lead to institutional advantages for incumbent, large-capital companies, he said.

 

Baron really should consider taking you off the payroll. I am looking for original and substantial content. This is getting real boring.

 

very true.

I myself, dealing with equities for over 10 years, do not see the point of long term investing into stocks. And everyday, I see less and less.

 

You're such a little bitch whiner at times.

Grow a pair, cunt.

 

I don't know if this will come to pass or not, but I see genuine signs that many people really have lost faith in the equity markets as a secure form of saving for retirement, and as a stable saving mechanism.

If so, I blame the failure of regulatory agencies to effectively police criminal activity, let alone sanction it in any meaningful way.

People will have no faith in an institution that has less credibility than your average casino.

 

I mostly agree with the article except for this part. Small companies do not rely on the financial markets to obtain equity financing because of the fact that they are private.

You might argue that "small" in this article refers to companies with a market cap of $100 million to $1 billion, but in that case, the companies usually have access to debt financing that is simply unavailable to even smaller companies. Even then, most companies prefer debt financing because of the tax shield.

Private companies cannot simply issue stock like a public company - they must meet certain additional requirements in order to issue them. Friends and family, venture capital, and angel investors make up most of the financing for small companies. These 3 groups have little to do with the equity markets.

 

This is the best thing that can happen under the circumstances. People need to wake up and face the music. Nikkei wasted people's time for 20 years and it is unreasonable to believe that the Dow will make people at the mythical 8%/year forever.

401(k) is the biggest scam ever perpetrated.

 

None of these are scams, nor are expectations of better returns in equities unjustified.

Greed will drive people to equities. And people will always be greedy. And that is why this article is just garbage. 20 years ago, the "what if" possibility if the Nikkei could keep going would've offered amazing returns versus what actually happened. And by the same logic, "what if" is likely to result in even better returns after the government passes money out to every member of society, as that money has to go some place. In the end, it doesn't matter what actually happens, it matters what people hope happens. For that reason, stocks will always be in demand.

BuyHiSellLow: Your posts in this thread are absolutely uncreative.

PS: I am less risk averse now than when S&P was at 1500 and houses were $500k in the ghetto in California. Many people feel that way as well...

 

Notwithstanding plenty of well thought out arguments by economists, econometricians, and financial pundits, if history has taught us anything, it is that when the moods are grimmest and logical doomsday arguments are strongest, is when long term opportunity is at its best.

 

Do you mean the next generation of investors won't throw money at anything that makes the news?

How can we live in a world where people are careful with their money?!

Hopefully things will return to normal eventually...

I think my generation will look back on this and say, "I remember the good old days when you didn't need to make a dime to have a multi-billion dollar market cap." This generation was a joke.