People who own stock feel better about the economy than people who don't - WSJ

[ergophobe]

Paywall
https://www.wsj.com/economy/consumers/economy-sentiment-stock-market-investors-2eb1e772?mod=hp_lead_pos7

"Sentiment among people who don't own stocks is at the lowest level on a three-month moving average since the university began tracking it in 1998,"

Honestly, I find this surprising. My brother and I were on the phone the other day and we're both pretty freaked out *because* we own stock and are (mostly) retired. Same with some other friends.

The current economy seems incredibly fragile
 - possible AI/datacenter over-investment
 - concentration of the S&P within 10 stocks all in the same sector
 - risk coupling due to index investing*
 - huge federal deficits**
 - etc

I think I understand the psychology. I often hear people talk about the "value" of their house, but they give me a blank look when I say that until the day they close on a sale, the "value" of their house is what it is worth to them as shelter. I would think people with a lot more stock than I have would be attuned to the risk in their portfolio, but I guess not.

* risk coupling. This is kind of theoretical and debated, but before index investing, people would panic and sell one company. Only in the rarest circumstances would they panic and sell all equities. But now, if I panic and pull money out of my target date retirement fund, I'm pulling from every US equity, a broad selection of non-US equities, as well as US and foreign bonds. In other words, I would be pulling out of both low-performing companies and high-performing companies. With the tech companies having such weight in the market, if they drop, a lot of people will panic and cash out their S&P 500 or Total Market index funds, which means that they will essentially sell the whole US market, which means that even companies who are doing great on the fundamentals could see their stocks pulled down by the big tech stocks in a way that just wasn't possible in the crashes of 1987 or even 2000 when index investing had a much much smaller share.

**federal debt. I think most people are underestimating the risk there. We look back and say that we learned lessons from the Great Depression and we haven't had another one because in 1987, 2000, 2008, 2020 the government stepped in and shored up markets. However, that was possible because the government could borrow. As the level of US debt goes higher and fewer and fewer investors trust US debt (and T bills have lost their AAA rating from all three ratings agencies now), the cost of borrowing goes way up. In addition to that, US debt is increasingly held by hedge funds. If there is ever a moment where the debt is not seen to be a good hedge against, say equities downturn, the hedge funds will flee the bond market. So you combine those two things and we are fast approaching a fiscal situation where in the event of a downturn like 2008, the government may not be able to step in like it has in every downturn since 1933. That's a scary thought.

And by the way... I am an optimist in general. But, now I kind of think that I would be in a much better position if I had listened the the pessimists and bought a bunch of gold.