Investor Confidence Is Broken, and Trust Is Eroded

Doug Kass TheStreet.com September 21, 2010

This blog post originally appeared on RealMoney Silver on Sept. 20 at 8:03 a.m. EDT.

Consider the following: A zero-interest-rate policy coupled with massive fiscal stimulation has led to a subpar economic recovery and a still-high unemployment rate. Record cash positions at large corporations and a moderate domestic economic expansion failed to revive capital spending. A multi-decade view that one's home is among the best investments extant has been replaced by an antipathy toward home ownership and a greater propensity to rent. As announced on Friday, confidence among U.S. consumers (the Thomson-Reuters/University of Michigan Index of Consumer Sentiment) unexpectedly dropped to a one-year low in September. P/E multiples have been eroding for several years despite low interest rates and quiescent inflation. An unprecedented popular Presidential candidate (Barack Obama) has gone from hero to goat in the approval ratings. An aversion to the wealthy, to large corporations and to any incumbent has been seen in the Democratic tsunami in 2008 and in the apparent conversion of the Republican Party into the Tea Party. Little-known Senatorial candidate (Christine O'Donnell upset a more experienced, more moderate and much more respected opponent (nine-term congressman and former governor Mike Castle) in the Delaware Republican primary. Individual investors invested nearly a half trillion dollars into fixed-income funds while withdrawing tens of billions of dollars out of domestic equity funds. Investors' preference for broad-based exchange-traded funds dominates the investment landscape as individual stock selection loses its appeal. Trust and confidence can both be considered as dominant forces that are lacking in today's economic, investment and political landscape. Their return is a necessary stimulant to improving domestic growth, a necessary catalyst for higher stock prices and a condition required to produce a balanced and productive executive and legislative agenda. Confidence is contagious but so is lack of confidence. For now, it is lost and will likely take some more time to be regained. In the fullness of time, trust will be regained as (a contagion in) confidence. Similar to other series, is ultimately mean-reverting. The lost decade of the U.S. stock market or, conversely, the three-decade love affair with home ownership and the more recent cycle of generous credit extension, however, are examples of how long cycles can swing to one side, so we just don't know when the reversion of confidence will occur. Unlike many, I suspect it will take more than the clarity of midterm elections to revive trust. In the meantime, with confidence low, we will likely be mired (to various degrees and for an unspecified amount of time) in an economic (and housing) malaise, characterized by substandard and inconsistent growth, indifference toward stocks and a disruptive and raucous political backdrop. It is the absence/lack of any improvement in confidence and trust that is the single most impeding factor to recovery in the U.S. economy and in the U.S. stock market. Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here. Add Comment Tweet Doug Kass is the general partner Seabreeze Partners Long/Short LP and Seabreeze Partners Long/Short Offshore LP. Under no circumstances does this information represent a recommendation to buy, sell or hold any security. var OutbrainPermaLink='http://www.thestreet.com/story/10865402/kass-votes-of-no-confidence.html'; var OB_Template = "thestreetcom"; var OB_demoMode = false; var OBITm = "1276003897985"; var OB_langJS ='http://widgets.outbrain.com/lang_en.js'; if ( typeof(OB_Script)!='undefined' ) OutbrainStart(); else { var OB_Script = true; var str = ''; document.write(str); } adsonar_placementId=1341527;adsonar_pid=879768;adsonar_ps=-1;adsonar_zw=600;adsonar_zh=280;adsonar_jv='ads.adsonar.com'; Featured Photo Galleries var galljs = document.createElement('script'); galljs.src = 'http://js.thestreet-static.com/files/tsc/v2008/js/_1284585720400/min/pages/gallery.js'; var head = document.getElementsByTagName('head')[0]; head.appendChild(galljs); Go to Slideshow Archive Business News From The Web I.S.S. Backs Burkle Slate for Barnes & Noble's Board New York Times China to Get iPhone 4 Saturday The Wall Street Journal. Take Advantage Of Dollar-Cost Averaging Forbes.com: Personal Finance News Verizon Names President, COO The Wall Street Journal. For the Unemployed Over 50, Fears of Never Working Again New York Times Lost tiger population discovered Earth | Earth News 'Boring' Clorox Excites Wary Investors BusinessWeek Online It's over The Economist False choices The Economist Mark Fast: Body-Conscious and Eco-Conscious WSJ.com: Heard on the Runway More Headlines TheStreet Premium Services Compare All Services Jim Cramer's Action Alerts PLUS: Now any level of investor can trade right alongside a Wall Street pro — and enjoy 24/7 access to his portfolio! Learn More Login RealMoney Silver: Get Doug Kass's exclusive trading diary + 5 of TheStreet's top premium services including Action Alerts PLUS and RealMoney — all on one streamlined page. Learn More Login Stocks Under $10: Break into the market with small- and mid-cap stocks... all $10 or less! David Peltier tells you exactly which low-priced stocks he's buying and selling. Learn More Login OptionsProfits: Get 50+ trade ideas a week from the industry's top options experts. Plus — exclusive commentary on market trends and essential trading tools. Learn More Login Breakout Stocks: Find tomorrow's household names today. Bryan Ashenberg finds hidden gems in exciting up-and-coming markets that he believes are ready to break out! Learn More Login RealMoney Portfolio PLUS ETF Action Daily Swing Trade Market Movers ETF Shark Alerts TheStreet Ratings Top Gun Trader Top Stocks try { function DM_onSegsAvailable(segs, cust_id) { for(var i=0;i //* Global Functions *// function metadataRegisterNS(ns){ var nsParts = ns.split("."); var root = window; for(var i=0; i Dow Jones S&P 500 NASDAQ 10-Year Note 10,753.62 1,142.71 2,355.83 27.06 Oil * 79.42 UP 145.77 UP 17.12 UP 40.22 DOWN 0.40 10 Yr 2.71% SPDR Gold 124.87 +1.37% +1.52% +1.74% -1.46% Data delayed 20 minutes Latest Trade Alerts See all function renderFeedContent(data){ for(var i=0; i < 2; i++){ document.write('' + data[i].headline +''); document.write('' + data[i].productName+' ($) - ' + data[i].publishDate + ''); document.write('

'+ data[i].callout +'

'); } } adsonar_placementId=1341369;adsonar_pid=879768;adsonar_ps=-1;adsonar_zw=320;adsonar_zh=280;adsonar_jv='ads.adsonar.com'; Brokerage Partners YAHOO.util.Event.on(window,"load",function(){ setTimeout(function(){ TSCM.util.attachScript('scr_intellitxt','http://thestreet.us.intellitxt.com/intellitxt/front.asp?ipid=10685'); },1200); }); document.write(unescape("%3Cscript src='" + (document.location.protocol == "https:" ? "https://sb" : "http://b") + ".scorecardresearch.com/beacon.js' %3E%3C/script%3E")); var beaconurl=""; if(TSC.util.isDefined(document)){ beaconurl=document.URL; try{ if (top.location != self.location){ beaconurl=document.referrer; } }catch(e){} } COMSCORE.beacon({ c1:2, c2:"6036014", c3:"", c4:beaconurl, c5:"", c6:"", c15:"" }); (function () { var d = new Image(1, 1); d.onerror = d.onload = function () { d.onerror = d.onload = null; }; d.src = ["//secure-us.imrworldwide.com/cgi-bin/m?ci=us-thestreet&cg=tsc&cc=1&si=", escape(window.location.href), "&rp=", escape(document.referrer), "&ts=compact&rnd=", (new Date()).getTime()].join(''); })(); Free Newsletters from TheStreet

After the Bell

Before the Bell

Booyah! Newsletter

ETF Daily

Midday Bell

TSC Top Ten Stories Newsletter

Winners & Losers

We respect your privacy. Manage Newsletters Podcasts [Select Podcast] The Real Story Wall Street Confidential Podcast Daily RSS Updates

TheStreet Mobile Edition

Connect with TheStreet

YAHOO.util.Event.on(window,"load",function() { try { var loginlink = YAHOO.util.Dom.get("logonoff"); var cookie = new UserStatus().streetCookie; if(cookie.indexOf('|')== -1){ loginlink.setAttribute("href",""); loginlink.innerHTML = "Log In"; } } catch(e) {} }); TheStreet Mobile | MainStreet | StockPickr | BankingMyWay | Jim Cramer | Doug Kass | RealMoney | Try Action Alerts PLUS - FREE TheStreet Corporate | Home | About Us | Advertise | Customer Service | Employment | Privacy Policy | Sitemap | Topic Archive | Terms of Use document.write('

Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Terms & Conditions. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

*Oil Data in Market Overview is Brent Crude Pricing

'); TSCM.ads.AdPlacerx.sz = "728x90"; TSCM.ads.AdPlacerx.resetTargets(); TSCM.ads.AdPlacerx.calltype = "adj"; TSCM.ads.AdPlacerx.includeDcopt = true; TSCM.ads.AdPlacerx.additionalTargeting = ";;storytype=investingOpinion;kval=investingOpinion"; TSCM.ads.AdPlacerx.writeTag(); TSCM.ads.AdPlacerx.sz = "233x224"; TSCM.ads.AdPlacerx.resetTargets(); TSCM.ads.AdPlacerx.calltype = "adj"; TSCM.ads.AdPlacerx.adtype = "cau"; TSCM.ads.AdPlacerx.additionalTargeting = ";;storytype=investingOpinion;kval=investingOpinion"; TSCM.ads.AdPlacerx.writeTag(); TSCM.ads.AdPlacerx.sz = "336x280,336x850,300x250,468x648"; TSCM.ads.AdPlacerx.resetTargets(); TSCM.ads.AdPlacerx.calltype = "adj"; TSCM.ads.AdPlacerx.additionalTargeting = ";;storytype=investingOpinion;kval=investingOpinion;;storytype=investingOpinion;kval=investingOpinion"; TSCM.ads.AdPlacerx.writeTag(); TSCM.ads.AdPlacerx.sz="336x280,300x250"; TSCM.ads.AdPlacerx.resetTargets(); TSCM.ads.AdPlacerx.setSite("remnant.thestreet.com"); TSCM.ads.AdPlacerx.additionalTargeting=";box=second"; TSCM.ads.AdPlacerx.calltype="adj"; TSCM.ads.AdPlacerx.writeTag(); /** * function wrapper that places all DART ads using TSCM.ads.positionToPlaceholder * if positionToPlaceholder can't find the elements specified, it just returns and is ready for the next call */ TSCM.ads.placeLazyLoadingAds = function() { // DART 1 (banner) TSCM.ads.positionToPlaceholder({ ad: 'ad728x90', placeholder: 'bannerContainer', flexibleHeight: false }); //DART 2 TSCM.ads.positionToPlaceholder({ ad: 'customUnit', placeholder: 'cauContainer', flexibleHeight: true }); //DART 3 TSCM.ads.positionToPlaceholder({ ad: 'boxAd', placeholder: 'boxAdContainer', flexibleHeight: true }); //DART 4 TSCM.ads.positionToPlaceholder({ ad: 'secondBoxAd', placeholder: 'secondBoxAdContainer', flexibleHeight: false }); }; TSCM.ads.placeLazyLoadingAds() window.setTimeout(function() { TSCM.ads.placeLazyLoadingAds() }, 2000); window.onresize = function() { setTimeout(function() { TSCM.ads.placeLazyLoadingAds(); }, 1000); }; YAHOO.util.event.onDOMReady( YAHOO.util.Dom.setStyle("lazyLoadedObjects", "visibility", "visible") ); var disqus_shortname = 'thestreet'; (function () { var s = document.createElement('script'); s.async = true; s.src = 'http://disqus.com/forums/thestreet/count.js'; (document.getElementsByTagName('HEAD')[0] || document.getElementsByTagName('BODY')[0]).appendChild(s); }()); var _gaq = _gaq || []; _gaq.push(['_setAccount', 'UA-6534317-1']); _gaq.push(['_trackPageview']); (function() { var ga = document.createElement('script'); ga.type = 'text/javascript'; ga.async = true; ga.src = ('https:' == document.location.protocol ? 'https://ssl' : 'http://www') + '.google-analytics.com/ga.js'; var s = document.getElementsByTagName('script')[0]; s.parentNode.insertBefore(ga, s); })(); /* */ NM_SmartSite_ID = '1001'; BF_BB_DATA = null; (function( ){ document.write(''); var sid="76IOF7"; var c=""; var b=""; BF_BB_SCRIPT=document.createElement('script'); BF_BB_SCRIPT.type="text/javascript"; BF_BB_SRC="http://buzzbox.buzzfeed.com/wd/BuzzBox?sid=" + sid + c + b + '&it=1&cb=' + (new Date()).getTime(); setTimeout(function() { document.getElementById('BF_BUZZBOX').appendChild(BF_BB_SCRIPT); BF_BB_SCRIPT.src=BF_BB_SRC; },1); })();