To assess the future of the individual investor, one only has to look at the beleaguered middle class, including the “millionaire”
Jobs, the main catalyst of individual earnings growth, began disappearing at a rate unseen since the depression and today structural unemployment remains a long-term problem. The scandals involving Bernie Madoff and other financial icons further solidified mistrust of equity investing. Hedge fund managers were portrayed as evil for profiting from the crisis and openly vilified as were high-income corporate CEO’s. Hard work was replaced by government entitlements bringing into question whether those who made poor choices are rewarded and success punished. Once again, the Obama Administration is lining up an exhausting list of environmental and financial regulations. These laws are intent to transfer growth to redistribution of income away from productive resources. The middle class is being redefined to include those receiving entitlements as the will to succeed is stymied by government policies.
Initially following the financial crisis, the middle class and the corporations retrenched and for the first time since the early 90’s individual savings rose above 8%. This level remained in the 4%-6% range until recently. Coinciding with the recent decline in savings has been the rise of consumer spending and despite low overall growth in the economy, a substantial pickup in consumer sentiment indicators. So to answer the question, the potential individual investor is satisfying pent-up demand by shopping. Housing will be next and perhaps further down the road, a return to equities. The liquidity formally provided to the market by individual investors will remain in the hands of algorithmic traders.
Based on our analysis of the investment environment, we maintain a cautious investment strategy. Despite some improvements in the direction of European sovereign debt policy initiatives, the mechanics have not been employed. Not until improvement in US domestic economic growth and a viable resolution of the fiscal cliff will we become more aggressive.