In another sign that the public does not believe the US government's line about the recovery, the New York Times reports that small investors are abandoning the market. According to the news report, they have pulled more than $33 billion from domestic stock market mutual funds in the first seven months of this year.
This is fascinating because it tells us about the psychology of the market. In every downturn, people pull their money out of the market, and then return when the recovery kicks in. But this time, earnings are rising but people don't trust the numbers.
And it's easy to see why. The only reason why the earnings of US companies are up is that they are hiring fewer people, and the ones they are hiring are part timers. Lower costs equals higher earnings. This is why unemployment in the US remains around 10%.
Indeed, Gerald Celente, founder of the Trends Research Institute, warns that the US is headed for the "Greatest Depression" with higher umemployment, poverty and violent class warfare. The riots we saw in Greece, he says, are a taste of things to come. Celente, who has been credited with predicting the 1987 stock market crash, the collapse of the Soviet Union and the subprime mortgage debacle, says the recovery was a fake. The recession is headed towards a depression.
Is it any wonder investors are scared and pulling money out of the market.
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