The Majority of America Does Not Care About Stocks

Yes, I said it. The majority of America does NOT care about stocks. Am I Crazy? Perhaps a bit, but how many crazy calls has man made that later turned out to be true? So why does America not care about stocks? Because the majority do not OWN/have Exposure to stocks. And if you count the ones that own a little stock (not a significant amount), more than 2/3rds of the country is not really effected heavily or even at all by drops in the market.

Now this does not mean that when the stock market drops, it does not effect some Americans and/or does not effect the sentiment of the population. But I believe the correlation between the market and the “economy” or “Americans losing money” is overblown as most do not own enough equity in order to be effected heavily by the drop in the market.

In fact, I made the argument on my personal blog that the stock market drop could actually be good for consumers. Charles Hugh Smith from oftwominds.com also had a solid blog post a few weeks ago in which he layed out the evidence for the thesis of my argument.

So what are the stats? Well the chart below should be pretty self-explanatory. Basically ~51% of Americans own $0 in stocks. That already is a majority. However, if you factor in those that own equity worth $1-10,000, the amount of people with little/no Stock exposure or ownership jumps to over 68%! That my friends is a super-majority. And dont forget, these stats are from 2007 which was obviously before the 2008 Market Crash, 2010 Flash Crash, and 2011 Debt Crises, which we all know helped scare out more people from the markets.

 

 

 

 

 

 

 

 

 

 

 

 

US Equity (and Bond) fund flows (Jan 2007-Jan 2011)

As you can see below, there has been a outflow from equities over the past 3 years. This does not even include the crisis/panic that we faced/are facing now (which includes the debt ceiling crisis and the European sovereign debt crisis-which in my opinion, probably scared more investors out of the market).

And even if the market drops, for those that do have a majority of their wealth in equities, they are going to be more than fine as that constitutes households in the Top 10%-those making over $141,000/year. A drop in the market might effect their wealth and some of their income (assuming they collect gains from dividends), but its not going to kill their spending power significantly, thus helping to affirm my argument that a drop in the market could be good for consumers.

So in conclusion, dont believe the “hype” the media puts behind the drop in the markets. It does not effect a majority of Americans as much as they want you to believe. So we don’t need the Federal Reserve (Bernanke) to step in to help prop up the market in order to get consumer spending/confidence up. A natural growing economy could do that itself.

Tags: $SPX, $DJIA,$SPY, $FED, $MACRO

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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