Where is the Individual Investor - Shopping?

As Congress returns from their holiday break, investors are focused on the “fiscal cliff.”
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Fiscal Cliff

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Naples - Florida - US

Nov. 29, 2012 - PRLog -- As Congress returns from their holiday break, investors are focused on the “fiscal cliff.”  The headline news will cover the negotiations and political gamesmanship which will eventually result in some sort of agreement, not fully acceptable to either party, but will avoid the hard revenue and spending decisions and remove the cliff.  Market sell-offs and rallies will be attributed to a stalemate or progress during the negotiations.  Longer term this is another nail in the coffin of the individual investor, according to Hutchens Investment Management.

To assess the future of the individual investor, one only has to look at the beleaguered middle class, including the “millionaire” families whose gross income exceeds $250,000.  Included in this highly-motivated group are those who believe hard work is the key to getting ahead in life.  Middle class Americans invested their discretionary income in the stock market believing that long-term rewards would allow a comfortable retirement and the ability to pass on an estate to their heirs.  But since the financial crisis in 2008 that has all changed.  The 401(k) plans, which had largely replaced the defined benefit plans of the past, were decimated by the 58% decline in the stock market.  Many individual investors never recouped these loses and today remain invested in no real return bank savings accounts and money market funds.  Also, financial institutions, i.e. Wall Street, were demonized as the enemy of Main Street by politicians seeking cover for their own injustices.  

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.
Source:Hutchens Investment Mgt.
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Tags:Investing, Investment Management, Money, Fund, Fiscal Cliff
Location:Naples - Florida - United States
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