The Lonely Bull

You can’t win if you don’t play.

Bearish forecasters point out that small investors have been net buyers of equity mutual funds over the past few months. They claim that might be signaling a market top.

Mom and Pop are usually wrong at key turning points. Those who know stock market history, though, aren’t likely to be worried by that particular factor right now. Gallup just released its 2013 update as to the percentage of American adults who directly, or indirectly, own stocks.

This year’s reading set a new millennial low at just 52%.

When the DJIA set its previous record, in 2007, the number registered 25% higher, at 65% of the adult population. Many of the indicated holders have smallish stakes only via work-related 401ks.

The Crash of 2008-09 was scary enough to induce selling at the bottom. It was traumatic enough that many individual investors continued to lighten their equity holdings on every rally up until quite recently.

Perhaps that is why the traditional ‘wealth effect’ has failed to stimulate America’s economy.  It is certainly why this is the most hated bull market in memory. If you cashed out low it is galling to realize how much that mistake cost you. If you never owned stocks it is just one more proof of income inequality. The rich get richer while the average man is earning zilch under Bernanke’s ZIRP.

Valuations are no longer cheap but they are not especially dear. The public has shown little enthusiasm for stocks based on their real money investment allocation. Bonds look more vulnerable to decline than do equities even as they offer some of the worst yields in most of our lifetimes.

Fear of higher interest rates appears misplaced. With the national debt now over $17 trillion Washington owes so much money that the Fed will be directed to keep rates artificially constrained.  

Whether you like it or not, today's market is just like Obamacare. You can either participate voluntarily, or you’ll be charged a penalty for not buying.

Stick with stocks.