dailyreckoning.com.au / By Greg Canavan / November 29th, 2012
Is it laughable, or lamentable? The market, that is. In the past few years, it has become a joke…a tool of manipulation, an unreliable source of information. Despite the outperformance of the US equity markets this year, ordinary investors (presumably people with savings they would like to invest in productive and attractive businesses) are not interested.
Reuters columnist Felix Salmon recent posted a few charts to highlight this trend. This one, originally appearing at ZeroHedge, shows the decline in trading volumes since the credit bubble bust in 2007/08.
Using the Monday after Thanksgiving as the comparison date (which is the first day of trade after the 2-day Thanksgiving holiday) trade volumes in 2012 are back to 1997 levels. So while you’re being told a recovery is underway, it’s clearly not a recovery in investor confidence or involvement in the stock market.
The modern financial system is one based on credit. Credit and confidence go hand in hand. At an individual level, if people have confidence in you – confidence derived from ‘good character’ – they will give you credit. Not necessarily in the monetary sense, but the point is essentially the same. That is, confidence equals credit.
It should be no surprise then, that five years after the credit bubble bust, confidence remains low. That’s because the rebound in markets and recovery in economies is not the result of genuine credit creation. It’s a result of the efforts of governments and central banks to reinflate the bubble. It’s artificial, and not surprisingly, people aren’t buying it.