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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

August 23, 2010 at 10:15 AM

Goodbye, Shareholder Nation

Back in the jubilant late 1990s, I wrote one of the first newspaper blogs on the stock market. I called it “Shareholder Nation.” It marked what appeared to be the rise of a broad investor middle class (and was where I first wrote these haikus). Average Americans had the opportunities that were once reserved for the very rich and it was going to produce momentous changes. To be sure, there were tradeoffs: Traditional pensions were fading, and Shareholder Nation would be conflicted by its several hats: As investors, employees, customers and citizens.

It turned out to be mostly a sham. To paraphrase an old expression, never confuse a clever blog title with a bull market. Most average investors have been savaged by two speculative bubbles and the secular bear market that is now nearly a decade old. They’ve learned that they are just along for the ride at a casino rigged against them (flash trading, anyone?), however much your neighbor claims to be a successful day trader or having bought Ford at just the right time. Now many will have to return to work, if they can find jobs, or postpone retirement.

Even the mainstream media is catching on. The New York Times on Sunday led with a story about the exodus of average Americans from the stock market, reporting that “investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year.”

It’s not just that small investors are “losing their appetite for risk,” as the story quotes one expert. For one thing, millions are having to cash out their investments just to pay the bills as the recession lingers, wages continue to stagnate, unemployment stays high and net wealth is savaged by the housing bust.

I also suspect more people realize that almost all the strategies and tips and commandments about stock investing just don’t hold anymore. This is a reset. It took 20 years or more for the market to recover from the speculation-and-fraud-led crash of 1929, and Depression-era adults never trusted it again. Investors were similarly skittish in the 1970s and early 1980s, when Wall Street operated with much more prudence and oversight.

Unfortunately, most pensions are gone and many employees are stuck in the market whether they like it or not. Companies and governments ignored pension funding during the bull years, and now they want to renege on solemn obligations made to workers. And we the people happily participated in the game as the market was going up, even when it was heavily fueled by mergers that killed jobs and competition, setting up many of today’s troubles.

It will take many changes and time for Wall Street to win back many investors’ trust, no matter how many Money Honeys chirp on CNBC. But the capital markets are so disconnected from reality — off on a derivative-meth high — that one wonders whether the players even care. All of which is bad for the economy and more. Shareholder Nation, RIP. If only these stresses would allow for peace.

Today’s Econ Haiku:

Cornering potash

It’s not just another deal

It’s a disruption

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