“Where is everybody?”

Written May 7th, 2012

Josh Brown, famous for his Reformed Broker blog and new book, Backstage Wall Street has a response to the NY Times article on the disappearing trading volume. We’ve discussed here sporadically, but his response goes through a few different factors:

  • High frequency traders, combined with the stock exchanges being profit centers has pretty much meant that the profits go to the highest bidder.
  • The money is no longer in the public markets, but rather in the private trading spheres. Going public is just a liquidity event AFTER the money has been made.
  • Active investing isn’t all it’s cracked up to be.
  • People don’t feel like the market reflects the economic realities anymore.
  • Active traders have moved on to currency markets and other instruments away from equities.
  • Boomers are taking money out of the stock market, for all of the above reasons, and because they need to live off it.

Good summary, but my favorite is his last paragraph:

Paradoxically, this entire dystopian rant actually sums up the bull case for equities and investing rather nicely.  There’s very little room for things to get any worse and the piling up of negatives is usually what you get at the bottom of a cycle rather than at a top.  So smile.  It won’t always be thus, history teaches us that the darkest hour does, in fact, occur just before the dawn.

Regardless of whether you’re a bull, bear or in between, you have to admire his self-reflection.

Relevant ETFs: SPY, SH, IWM, RWM