No Trust Nation: Why Everyone Distrusts the Financial Industry

No Trust Nation: Why Everyone Distrusts the Financial Industry

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Do you trust the United States financial system? If so, you'd be among the mere 23% – a startling minority – of Americans who still have faith. If not, you may also relate to the 62% of Americans who describe themselves as "angry"or "very angry" about the nation's economic system.

These numbers come from The Financial Trust Index, a joint project of the University of Chicago Booth School of Business and Northwestern University Kellogg School of Management, that has been tracking public sentiment toward the financial system for over three years.

The recent numbers, taken from their latest quarterly survey, should be unnerving to the powers that be (especially electoral candidates). Americans haven't been this angry since March 2009, a period of horrifically low gains.

Economists vs. Americans:

The survey also questioned a variety of Americans on a series of economic assertions and compared their responses against a panel of economists. Here are some of the "striking" results, as reported by the Wall Street Journal:

Question: "Permanently raising the federal tax rate by one percentage point for those in the top income tax bracket would increase federal tax revenue over the next 10 years."

Answers: Economists: 100% agree with that statement (regardless of their political orientation). Americans overall: 66% agree (50% of Republicans; 80% of Democrats).

Question: "Mandates that Federal government purchases should be ‘buy American’ have a significant positive impact on U.S. manufacturing employment."

Answer: Economists: 10% agree. Americans overall: 75% agree

Question: "Very few investors, if any, can consistently make accurate predictions about whether the price of an individual stock will rise or fall on a given day."

Answer: Economists: 64% strongly agreed. Americans overall: 54% agreed. On this point, survey respondents who had at least a college degree answered more closely to economists — 70% agreed. And among people who make more than $75,000 a year, 63% agreed.

Business Section: Investing Ideas

Main Street doesn't trust Wall Street. But it doesn't end there–we've also found plenty of examples where sophisticated investors don't trust the viability of major financial institutions.

To illustrate this concept, we identified a list of financial stocks that have a very high short float (i.e. short sellers think the share prices of these companies will decline).

This is significant, especially when you consider that short sellers tend to be more sophisticated investors (due to the fact that they require strict credit approval to perform these trades). So if these investors are turning bearish on a stock, it's worth paying close attention.

In addition, all of these companies have seen significant institutional selling during the last 3 months.

Is this excessive pessimism justified? If you're a contrarian, you might be interested in this list.


Interactive Chart: Use the Compar-O-Matic to compare market caps for all the stocks mentioned below:

List sorted by short ratio.



1. CompuCredit Holdings Corp. (CCRT, Earnings, Analysts, Financials): Provides credit and related financial services and products to underserved consumer credit market, a market represented by credit risks that regulators classify as "sub-prime", in the United States. Short float at 35.56%, which represents about 78.07 days of average trading volume. Net institutional sales in the current quarter at 432.3K shares, which represents about 7.01% of the company's float of 6.17M shares.


2. iStar Financial Inc. (SFI, Earnings, Analysts, Financials): Operates as a finance company focusing on the commercial real estate industry. Short float at 22.63%, which represents about 20.69 days of average trading volume. Net institutional sales in the current quarter at 4.6M shares, which represents about 7.55% of the company's float of 60.95M shares.


3. RAIT Financial Trust (RAS, Earnings, Analysts, Financials): Operates as a self-managed and self-advised real estate investment trust (REIT). Short float at 15.19%, which represents about 8.79 days of average trading volume. Net institutional sales in the current quarter at 28.4M shares, which represents about 77.05% of the company's float of 36.86M shares.


4. MGIC Investment Corp. (MTG, Earnings, Analysts, Financials): Provides private mortgage insurance to the home mortgage lending industry in the United States. Short float at 19.75%, which represents about 5.19 days of average trading volume. Net institutional sales in the current quarter at 23.7M shares, which represents about 12.02% of the company's float of 197.13M shares.


5. Radian Group Inc. (RDN, Earnings, Analysts, Financials): Provides credit-related insurance coverage and financial services in the United States and internationally. Short float at 19.71%, which represents about 4.07 days of average trading volume. Net institutional sales in the current quarter at 15.1M shares, which represents about 11.44% of the company's float of 132.01M shares.



(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. Institutional data sourced from Fidelity. Short data from Yahoo! Finance.)


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