Cramer: A decline in volume and trust
Jim Cramer | firstname.lastname@example.org
I think the answer depends on where you sit. If you work on an exchange or at a brokerage firm, you have to wonder whether there isn't some incredible secular decline going on, one that's irreversible and severe.
I think the relentless decline in volume has to do with the disintegration of as asset class as a method of saving, particularly for retirement. Stock returns en masse have become too inconsistent--they've made you no money for ages, though some individual stocks have produced incredible returns.
But the mechanism for the buying and selling of stocks seems to have stopped working well enough to keep the trust of the average American. Instances such as the flash crash of 2010 and the Facebook IPO are emblematic of this lack of trust.
Before the flash crash, people believed and understood that they took economic and fundamental risks when they bought stocks. But the crash of May 2010 revealed a system that could lose you fortunes simply because you had bought stocks, not because of the fundamentals behind the companies of the shares you owned.
Sure, stocks have always, at times, decoupled from the fundamentals of the companies they represent. But the sudden decline in the face of, well, nothing, revealed that perhaps stocks were just some sort of game for hedge funds that have nothing to do with savings or retirement. I think the flash crash changed things to the point where you could even argue that you were being reckless if you owned stocks.
Facebook took it one step further. As horrible as the flash crash was, you still had an opportunity to sell when the market came back.
Not with Facebook. They didn't even let you sell, and that's a difficult and dispiriting issue, especially when you didn't even know if you owned the stock at all.
I keep thinking of that sickening moment a month ago when people were watching the decline in the stock, anxiously wondering, "Do I own it, do I not, what do I do?" It was the equivalent of having your bank card swallowed by the ATM without an 800 number to call. That's the definition of what you can't bank on for retirement.
What's amazing to me is how little the institutions that have so much on the line are doing to try to reverse the volume trend. I never hear brokers address the issues head on about the frailty of equities. The exchanges aren't doing much at all to help their cases, either.
In fact, you would expect that the brokers and the exchanges would engage in some rigorous self-examination about what is wrong with equities, perhaps in conjunction with the government. But there is no urgency among any of these constituencies about the volume issue.
Personally, I don't care about it. I do care about the price issue, as in, can people make money owning the right equities? Can they buy stocks that can climb in price? As long as they can, I am indifferent to volume.
Nevertheless, it does shock me that those who are dependent upon volume to make money and not price do nothing to reverse the volume trend. In the end, they--not the owners of good stocks--are the real losers in the post-flash-crash, post-Facebook regime.
Disclosures: Cramer's charitable trust has no positions in the stocks mentioned.