IMO we likely already have lower liquidity, it's just masked by the churn on HFT bots raping each other for tenths of a penny at a time. Everything I see and feel tells me "retail" has, for the most part, already abandoned active participation in the markets. Many never came back after 2000, and those that did, bailed for good after 2008. What's left is mostly bot on bot at one timeframe end and one semi-compentent pension fund manager against another at the other timeframe end.
I have a different theory, but somewhat related. I honestly don't think that many investors got back in post 2008. Lots of liquidation at losses and the upside volume was abysmal the entire ride higher. I sort of thought of it as a shell game played between the Fed and the money center banks just playing hot potato and cornering the market higher. Sure, pension funds, hedge funds probably did supply some more fuel for the fire and many have been fully invested throughout (trying to target those 7-8% returns for pensioners). For whatever reason, alot of the bull logic seemed to find no problems with the S&P doubling in just over two years. All the tell tale signs of a bear market rally (yes, I know it's hindsight now, but many felt it was a bear market rally as it was occurring).
" #Bernanke out of bullets. #Europe out of money. #Obama out of support. #Congress out of guts. #China out of patience. #Economy out of luck. " Down, down, down, down ...
Thats what I keep telling my amateur friends who want to participate. They need let a bottom form. You don't have to pick the bottom exactly right. You just need to avoid the slaughter and get back in when the trend is going the way you like to trade.
All we need is more liquidations tomorrow to trigger a spiral. Only thing that can stop it is ben. I hope he doesn't.