Investors often flee the stock market and then jump back in, but too late for their own good. The evidence of the past year fits the pattern: New money coming to stock mutual funds has been negligible even as returns have been among the best on record. An influx into stocks in the coming months would suggest investors once again waited too long. They have reasons to be cautious, of course, While the market is up almost 70% in the past 12 months, many mutual funds are still below their pre-crisis peak. "There's still some sensitivity to how much was lost [in the bear market] – investors are still opening their 401(k) statements and seeing losses," said Todd Rosenbluth, mutual-fund analyst at Standard & Poor's. The question is whether the losses were so big that they scared investors away from stocks not just for the next few months, but also for years. "I don't know if we're seeing the demise of actively managed mutual funds – if we are seeing a big change – but a lot of people seem to have decided to stay away from stock funds," said Tom Roseen, senior analyst at research firm Lipper Inc. From March 1, 2009, through Jan. 31, stock mutual funds saw net inflows of $21.22 billion – trivial for a sector that has about $4 trillion in assets. In the same period, bond funds saw net inflows of $328 billion. – Wall Street Journal

Dominant Social Theme: They're missing the boat?

Free-Market Analysis: After the Great Depression, the American stock market was decimated. In the latter 1940s, the New York Stock Exchange, in desperation, came up with the idea of road shows to explain to American investors the benefits of investing in stocks. The publicity campaign worked over a period of time. Eventually, the US stock market took off and really hit its stride in the 1960s, culminating in a perception that a list of nifty fifty corporations offered a "can't miss" opportunity to guarantee (hopefully) the eternal solvency of one's family.

Nifty Fifty was an informal term used to refer to 50 popular large cap stocks on the New York Stock Exchange in the 1960s … as they were viewed as extremely stable, even over long periods of time. [They] were assigned extraordinary high price-earnings ratios. Fifty times earnings was not uncommon. – Wikipedia

Of course, perceptions of the nifty fifty began to change after a 1969 stock retreat, which helped usher in the chaotic 1970s. The 1980s were kinder to equity; a lengthy stock market rally was signaled by the infamous Business Week cover proclaiming the equity market dead. Stocks immediately began to rise on this analysis and continued to do so until 1987 when the market crashed again, partially as a result of certain Western and American monetary policies. The stock market limped along until the late 1990s when it became clear to Americans especially that if only they bought "tech stocks" the solvency of one's family could (hopefully) be guaranteed. This perception was once again dashed with the tech bust in 2000 and subsequent recession.

In the later 2000s it became clear to certain people that they could guarantee the solvency of themselves and their families (hopefully) by buying real estate in Florida and "flipping it" because all the baby-boomers in America were going to retire to Florida, which meant that real-estate prices in Florida, especially, were never going to come down. Similar sentiments were voiced in the Arab Emirates where leaders received the epiphanic insight that Dubai was the Paris of the Middle East and real estate prices would never come down because hordes of European and Russian expats wanted to live there – eternally.

All right … sarcasm off. The point is that there may have been too many ups and downs in the American market for the average baby boomer to easily tolerate. As a huge mass of Americans become older, their financial prospects have not kept up, and they are likely grumpy about it. The grumpiness is starting to manifest itself in various activities. The signs are evident though the mainstream American media does not seem to be stringing them together. There is a growing "tea party" movement in the United States, and if Democrats do by some chance pass health care "reform," the chances are that the tea party movement will further expand.

It is possible if securities markets continue to make good progress that investors will flock to them once more, especially the American market, which is still the biggest and most liquid equity market in the world. But if Americans do not come back to the stock market any time soon, the ramifications are significant. The power elite depends on the stock market to put money in the pockets of the average American so that this individual will consume and also "invest" in real-estate, and other ventures as well.

Without stock market participation, average investors will not feel flush and the economy will not "rebound" as quickly. Additionally, the lack of participation in the stock market is a concern from the point of view of American leadership because it shows the lack of support for the current economic system. This is probably a larger, worrisome trend, and it is one reason why investing in stocks is such a primary, lynchpin promotion. People invested in stocks, especially blue chip stocks, may feel they have a personal relationship with the multinationals that are bringing them a wealth of returns. People invested in stocks are therefore invested in the system itself.

Bonds do not have similar panache. Bonds are offered by most if not all countries regardless of the political system. But when one invests in a stock, especially an American multinational, one is making a particular statement of belief and subscribing to a certain world view. Stock investing, and its efficacy, is a dominant social theme of the power elite, right up there with the "competence of central banks."

We have no idea if Americans, who constitute the largest stock-buying public, will return to the market anytime soon. If there are further problems – sovereign defaults, etc. – the disaffection will deepen in our opinion, with attendant ramifications. Securitizations would fall and bankruptcies would rise further. Gold and silver prices would also continue to rise and the elite, no doubt, would get a collective stomach-ache.