To All, this story funnied my tickle bone for some reason. Damn it,either get the market up or we're going elsewhere with our retirement money. As if somebody is holding it down on purpose. Lucretius, perhaps? <g> Also, I find it amazing that so many employees sat silent while compaies set up these elaborate retirement plans where they get a tax scam, but lousy investment choices. Oh, well, time to close the barn door after the horse is in the Alpo can. <g>
Investors Tell Street to Shake Bear Funk
Saturday November 10, 8:57 AM EST
By Pierre Belec
NEW YORK (Reuters) - Heads up, Wall Street. If the stock market doesn't get out of its nasty bearish funk, investors will be running for the exits by the end of this year.
A lot of people who have invested their hard-earned cash and seen their retirement money go up in flames over the last 20 months are mad. And, they won't take any more of this market butchering. Or, so they say.
Nearly half of Americans in a survey said they will be looking at investments other than stocks if their retirement accounts are lower at the end of 2001 than they were in January.
Surprise? Not really.
The market has been a money-losing proposition for nearly two years after tremendous double-digit rewards from 1995 to 1999.
MUTUAL-FUND LAND UNHAPPY PLACE
The Cigna Retirement & Investment Services' sampling of 1,000 U.S. investors conducted after the Sept. 11 attacks on the United States was important because it shows people view the stock market as a monstrous money-eating machine.
The market is on course to post its second consecutive negative year.
Forty-seven percent of investors said they will make changes in retirement accounts if their 401K or IRAs are worth less at the end of 2001 than in January. Seventeen percent will invest in more conservative assets; 15 percent will save a bigger chunk of their salaries; 10 percent will invest in more aggressive assets.
The rest either said they would stop contributing to retirement plans or just plain didn't know what they'll do.
The just-ended third quarter was the worst three-month period in 10 years as fund investors saw nearly 9 percent of their assets vaporize. So far this year, the average pension fund is down more than 9 percent.
Investors are already firing warning shots across Wall Street's bow.
In September, they pulled a record $29.51 billion from U.S. stock mutual funds, eclipsing the old high of $20.67 billion in March. A net $35.6 billion flew out of stock funds in the third quarter, according to the Investment Company Institute, a mutual fund trade group.
The last time stock funds were hit by a quarterly outflow was in the third quarter of 1990 when Iraq invaded Kuwait. But the outflow amounted to only $3.21 billion.
The survey's findings are significant because they fit with the view of one of the sharpest market strategists that the curtain may be going down on the "Greatest Financial Story Ever Told."
Greg Smith, investment strategist for Prudential Securities, who announced this week he was leaving the firm, warns that the investment cycle, after two decades of explosive growth, has matured and life may get tougher than it has already been for the market beginning in 2002.
"This maturity of two business cycles -- the consumer cycle and the investment cycle -- at the same time poses interesting issues for investors moving," says Smith, a strategist since the 1970s.
The market has had a nearly vertical drop since the bulls stopped charging in March 2000. Over the last 20 months, it has been slammed by the gradual devastation of industries. First the technology sector, then advertising got hit and it was manufacturing's turn. The Sept. 11 attacks stunned the airline and tourist industries, which had survived the immunity challenge.
The Nasdaq Composite index is down a bone-jarring 63 percent from its March 2000 high.
Just this year, the Dow has fallen 11 percent, Nasdaq is in a bear market with a loss of more than 25 percent and S&P 500 is down 15 percent.
"Most equity fund managers haven't been able to make any money for their clients for going on two years now," he says. "Some, of course, have lost considerable amounts of capital. It stands to reason that their customers whose assets they've lost might be ready for a substantial change."
What's happening is that the days when the global economy was constantly expanding and stocks were rocketing to spectacular multiples are over.
Investors can no longer throw a net out and draw big fat fish. The economic fundamentals have changed and Corporate America can't depend on the same easy growth strategies that worked so well in the days of forever improving demand for stuff to dig them out.
The Federal Reserve has done as much as it can to provide enough liquidity and 10 interest rate cuts this year to keep the market from crashing. It's fair to ask: Would the market have fallen a lot harder if it hadn't been for all of these interest-rate cuts?
Still the problem is that the Fed's liquidity is not working as it traditionally does in firing up the stock market because there's a whole bunch of new investors who are scared out of their wits.
They see the economy in the teeth of a recession for the first time since 1990-91. The new breed of investors who have never seen a bear market believe that since the market forecasts the economy and tells us what's happening down the road, then there's no reason to bet on a major economic rebound early next year, as some analysts are predicting.
But veteran analysts say history shows there's a gap of six to nine months between the time the slide in corporate profits bottoms out and the economy bounces back.
CAN WALL STREET MEET CHALLENGE?
Businesses have laid off hundreds of thousands of people in a desperate bid to survive the hard times. But the big question is whether the Street has the right stuff to meet the challenges of a dramatically different investment environment.
"The investment industry now is ill-prepared to deal with a climate where other issues outweigh simple stock selection in the minds of their clients," Smith says.
In the 1970s, investors struggled with the type of money-losing market that forced them to hunt for better rewards in real estate and bonds.
"As in the 1970s, I think there will be opportunities for investors participating in the stock market in the way that doesn't involve tens of billions of dollars," Smith says. "During the second half of the 70s, investors who were flexible were in a position to make very decent returns by participating in a market of stocks as opposed to simply being in the stock market."
Smith's bet: 2002 could mark the start of a market that will remain within a broad trading range but headed nowhere fast. And it could last for years.
For the week, the Dow Jones industrial average was up 285 points at 9,608. The Nasdaq composite index rose 83 to 1,828 and the Standard & Poor's 500 index gained 33 at 1,120.
©2001 Reuters Limited.
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