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Who’s the REAL Dumb Money?

Stock-Markets / Financial Markets 2010 Mar 23, 2010 - 03:18 AM GMT

By: Graham_Summers


Best Financial Markets Analysis ArticleI apologize for being out of touch. Typically I make every effort to publish an essay every day, but the last few weeks have been extremely busy on the back-end of the website.

As you can see, I’m in the midst of a total website overhaul. Right now we’re about 80% done, but I’ve got a lot a new content to add. So don’t be alarmed if some of the sections are blank right now. They’ll all be filled in with hard, hitting in-depth research soon.

On to the markets!

Stocks in the US continue to trade in “la la land” completely and totally disconnected from reality. The talking heads seem to think this is fantastic though individual investors (the so-called “dumb” money) continues to flee the market, pulling an estimated $3.7 billion out of equity based mutual funds in February.

The mainstream media seems stunned by the fact that average investors don’t want to participate in the stock market anymore. Honestly, there’s nothing stunning about it. Consider that in the last ten-years, we’ve seen:

  1. Two of the biggest asset bubbles of all time, both of which resulted in major crashes
  2. None of the so called regulators even SAW the bubbles or crashes coming
  3. None of the key issues that caused the Financial Crisis in 2008 have been addressed, instead…
  4. The Government’s idea of fixing all of this is to ask taxpayers to pick up the tab for every mistake Wall Street has made.
  5. Wall Street is back to handing out 2007 level bonuses while everyone else in the US is getting SCREWED

Gee… I wonder why someone wouldn’t want to buy stocks right now? You’d think that after having been completely screwed twice in ten years (wiping out 25-50% of their wealth/savings in the process) individual investors would be just tickled pink at the prospect of handing off MORE of their money to the market.

This is one of the greatest ironies of this Financial Crisis. Indeed, virtually ALL of the alleged experts (the so called “smart money”) failed to see it coming.  On top of this, they have completely failed to learn anything from it, instead choosing to address the problem with the EXACT SAME strategies that caused it.

In contrast, the individual investor who is commonly called “the dumb money” and ridiculed by the Wall Street elite, has managed to figure out that not only are the Federal Reserve and regulators asleep at the wheel, but that the economy is not improving, and that the powers that be have yet to apply any real remedies to the core problems facing the financial system.

Who’s the REAL dumb money here? The folks who have figured out that the game is rigged and are trying to scrape together whatever retirement they have left… or the guys who didn’t even see the Crisis coming and still cannot figure out anything to do to fix it other than “get someone else to pay for it?”

Is it any surprise that public outrage is growing? We’ve got Ivy-League educated idiots going on TV saying the Recession is over. You think some guy who’s been laid off or is now working 33 hours a week, trying to get by with food prices up and oil is close to $80 a barrel is going to want to hear that?

No, the reality is that even the average guy who has absolutely virtually ZERO experience in finance or the markets knows that the game is rigged and he’s the one getting screwed. Just the other day I was standing in line at the bank and the guy in front of me (covered in mud, missing teeth, and clearly not a day trader) started going off about the Federal Reserve and the Dollar.

The Dumb money is not dumb for pulling money out of the market. It’s the folks buying stocks (going long) right now that are the real dumb money, not because you can’t cobble together a few sound arguments for buying, but because they’re falling for the same trick for the third time in 10 years.

Warren Buffett once said something to the effect of, “if you’re playing poker and can’t figure out who the patsy is within 5 minutes, the patsy is you.” Well, Joe America looks at the headlines and read “Unemployment Up, Home Prices Down, Energy and Food Costs Up, and Wall Street Back to 2007 Bonuses” and figured out the deal.

And he, like anyone who’s sensible, has been cashing out.

Good Investing!

Graham Summers

PS. I’ve put together a FREE Special Report detailing THREE investments that will explode when stocks start to collapse again. I call it Financial Crisis “Round Two” Survival Kit. These investments will not only help to protect your portfolio from the coming carnage, they’ll can also show you enormous profits.

Swing by to pick up a FREE copy today!

Graham Summers: Graham is Senior Market Strategist at OmniSans Research. He is co-editor of Gain, Pains, and Capital, OmniSans Research’s FREE daily e-letter covering the equity, commodity, currency, and real estate markets. 

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

    © 2010 Copyright Graham Summers - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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