If The Market Crashes, Who Owns Enough Stock To Even Care?

18-Aug-2011

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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.







by Tyler Durden, Zero Hedge,

Submitted by Charles Hugh Smith from Of Two Minds

If the Market Crashes, Who Owns Enough Stock to Even Care? 

Since 81% of all stocks are owned by the top 10%, a stock market crash has little effect on the bottom 90% of Americans.

It is assumed without question that the stock market is some quasi-sacrosanct barometer of the U.S. economy. But who even cares if the market crashes? Only the top 10% who own it. Yes, millions of (generally government) workers have an indirect stake in stocks and bonds via their state/union pension funds, but it’s still informative to look at the distribution of who actually has a stake in the market’s rise and fall.

This data is from pre-recession 2007, so I suspect ownership has become even more skewed to the top 5% as those below liquidated stocks to pay the bills as household income and housing equity plummeted.

 

So 81% of stocks are owned by the top 10%, and 91% by the top 20% of households. Thus we can conclude that 11.7 million out of the nation’s 117 million households will actually be adversely affected by a stock market crash, while the consequences to the remaining 105 million households will be slight to zero.

 

A severe decline in the “wealth effect” would probably crimp the top 10% tranche’s carefree spending, which accounts for some 40% of the nation’s consumer spending. If the market crashes, high-end retailers and restaurants would likely see sales fall significantly. While there would be consequences, we should be careful not to overstate the stock market’s role in the nation’s Main Street economy.

And what are the chances of a real crash? For insight, we turn to the The Chart Store‘s chart overlaying the current rally and collapse with the Dow circa 1907. The similarity is rather uncanny:

 


The only difference is the Fed launched QE2 late in 2010, which kept the rally alive for another 6 months. But as we can see, it didn’t change the future decline, it simply set it forward a few months: the current market has now caught up with the 1907 decline.

 

The past is simply one possible pattern of many to consider, but the remarkable similarity of these two charts suggests that there may be more downside ahead.

One last point: those who exited the stock market won’t care if it crashes because they opted out of playing the risky game altogether.

 


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