Why is stock ownership falling?

An interesting divergence is occuring in stock markets as they reach ever higher levels, imbibed by helicopter money and/or century low interest rates, the ownership of those stocks is changing. Aside from the near complete crowding out of the volume – most of which is now done by robo-traders by only a handful of institutions as trading algos proliferate – but who used to own stocks has changed fundamentally.

A recent poll in the United States shows that just half of Americans have money in the stock market – the lowest in nearly 20 years:.

The most recent trend is obvious, a fallout from the GFC was a significant increase in the distrust of markets, as it became apparent to almost everyone that “free markets” equates to “free bailouts for investment banks”.

One reflection of that distrust is the hollowing out of the American middle class, something that has yet to happen here as the property orgy continues apace, bloating household wealth and keeping wages rising with cost of living while the average American is seeing their wealth evaporate and their “paycheck” get smaller each year.

Here’s the gist from Gallup:

Though the Dow Jones industrial average has made great gains since bottoming out in 2009, Americans’ stock ownership has yet to recover to the level reported prior to the recession.

Although Americans in all income groups are less likely to have stock investments now than before the Great Recession, middle-class Americans have been the most likely to flee the market.

Nearly three in four middle-class Americans, with annual household incomes ranging from $30,000 to $74,999, said they invested money in the stock market in 2007.

Today, only half report having stock investments. This 22-percentage-point drop is more than double the changes seen in stock investing among higher and lower income groups.

As for the local experience, where bricks and mortar has historically been seen as the stable horse for investing, while the stock market is more casino, the latest study by the Australian Securities Exchange (ASX) also shows a similar drop in share ownership, nearly 20% in 10 years – just as superannuation was supposed to ramp up.

From Stockspot:

 

asx-share-report-ownership
Source: ASX The Australian Share Ownership Study, June 2015

Most Australians still prefer cash or property, even as interest rates plumb new lows:investment-brain-preferred-savings
Source: Westpac survey

My own explanation is that like Americans, the average Australian does not equate putting their savings into stocks as investing.

And they’re right. The stock market is a place where people trade already invested funds – not new investments – with each other. Just like the property market, with a ticket clipping industry in the middle, it is not about real investment it is simply trading for speculative gain.

The real investment which is done on the primary market through IPOs or the debt market through selling bonds. Both of these areas have historically been a poor place due to two factors and as seen below, net capital raisings (outside of banks sucking in shareholder money to fund bonuses, I mean, meet rising funding costs):

australian-net-equity-raisings-small

First, most IPOs are, for want of a better word – crap. Or recycled crap, like the Dick Smith Electronics “investment”. Or for those who bought into Michael McGraths “investment” at the top of the Sydney property market. And as much as PM Turnbull clangs the bell about the smart economy, almost no new IPO is a local investment in added value technology or research.

As for the traditional way existing companies raise funds by selling bonds, thus providing retirees with stable incomes and businesses with opportunity to expand, this mechanism has been taken over by financials, not by industrials. Outside of that sucking sound you hear called the mining boom, industrial listed companies in Australia are not investing, the pathetically small bond market remaining at pre-GFC lows. Its just banks using the funds to flip housing loans:

non-government-bonds-on-issue-in-australia-small

Its time to re-educate the public about what investing is really about. But as long as the dual casinos of stocks and property keep floating along on a sea of ever lower interest rates, with governments and monetary authorities hell bent on supplying the crack to the industries holding them up, real investment in Australia is a long, long way away.

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