Session 48–A Battle of Wits Between Three Unarmed Opponents

The question asked and debated in the attached clip is;  “Is distrust in Wall Street hurting the market?“  (see link at the end of this post)  A better question might have been, “Is distrust in Wall Street and the market a positive or negative sign, vis-a-vis where we are in the current market cycle?”  To the second question my answer is emphatic.  It is positive!   I will explain later in this post. Before we get to the “main event,”  a little set-up may be in order.  It is my feeling that the three combatants had a chance to make a constructive contribution to investor thinking.  They blew it due to a lack of knowledge and historical perspective on the part of two of the players and a third participant who had the knowledge, but sacrificed it to talk his own book.

The Combatants

–Maria Bartiromo, the most pushy (pushy to the point of being obnoxious) and least perceptive anchor on CNBC, was the moderator. –Jeff Cox (a.k.a. “The Bad News Bearer”).  Jeff reminds me of the little tot on the old cereal commercial “Mikey.”  Remember, “Let Mikey try it.  He doesn’t like anything.”  We should all be thankful we are not Jeff Cox.  It seems he doesn’t like anything and comes across as a spiteful, negative, unhappy person.  Based on recent experience (i.e. his many wrong calls), he may have  reason to be this way.

–Mark Martiak is the third-party in this missed opportunity.  Mr. Martiak is a vice president of Premier Financial Advisors/First Allied Securities (a financial planner / advisor type). Martiak made a good point in the clip about the public shying away from stocks.  Essentially, he said the trauma of 2008 was hard for many to get past (i.e. once burned, twice shy).  Then he makes a self-serving comment about ‘clients needing to trust their advisors (…hand-holding and counsel)’ that got both Maria and Jeff in a snit.

At this point in the discussion Maria confused Martiak’s ‘advisors’ (the personal financial kind) and their advice with money managers and their performance stats. Cox continued ranting on the evils of high frequency trading, the “Flash Crash” and Fed policy (his main culprits for this lack of trust).  The entire discussion went off the tracks. The  blown “teachable moment” was that after the horrendous bear markets of the past it took many years to again peak the public’s interest in common stocks.

For example,  in the bear market that began in 1966, bottomed in 1974 and finally broke out to new highs in 1982, a whole generation was lost to stock investing.  That generation had an alternative in which to invest; very high interest rates, like 15%, long-term treasury securities.  Even so, the stock market over the next 20 years still provided a much better return (ten times your principal plus the dividends on the Dow vs. three times your principal on the bond and your principal back).  Today’s investor does not have the luxury of decent fixed income alternatives.

Interestingly, according to the Gallup Poll quoted in the clip,  that period of 67% of Americans owning some interests in common stocks came 20 years after the Dow’s definitive break-out above 1000.  The year was 2002 and the Dow had risen ten-fold in those two decades.  No wonder everybody wanted to own stocks back then.  Today that number has dropped to about 52%. Most importantly, based on market history, it is a perfectly normal and positive development when individual investors become distrustful and skeptical about stocks and the markets after major market breaks.  And, it is not just individual investors who are guilty of this.  Just check out the musings of the media and many so-called professional investors over the past five years.

This current distrust gives us strong evidence that we are no where near the long-term top of this bull. Martiak was right to assert that we may just be in the “middle innings’ of this run. He was never given the chance (or he blew the chance by getting the “advisor” discussion rolling) to explain the positive correlation between the distrust, “that wall of worries,” and good stock performance. Now there is a corollary to all of this and it is that you should probably be pulling in your “investment horns” the next time you see surveys with 67% of Americans owning some sort of interest in common stocks. Finally, as it pertains to the clip,  you may now see that the Gallup Poll results gave us a teachable moment, not something to worry about, and why I titled this post “A Battle of Wits Between Three Unarmed Opponents.” Take a look at the clip I have been referring to.—” Is distrust in Wall Street hurting the market?”

What do you think?

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