AP: People have been burned before, but they always come back. The '70s were terrible for investors, yet they ended up buying stocks the next decade, and borrowed more and spent.

Holzhausen: After the oil shock of the 1970s, I don't think there was such mistrust. That was seen as an external shock. (Now) people think something is rotten in the financial system. People see financial markets as a casino.

When I started (as an economist) in the '80s, the mood was you have to buy stocks. You heard it even in China, "To get rich is glorious." Now, people don't feel that anymore. People want to get as much distance as possible from the financial system. They want to be in control of their financial matters.

AP: How much longer do you think households will continue to spend slowly, sell stocks and shun debt? Is it five years? Ten years?

Holzhausen: That's hard to predict, but look at the Japanese: They have not been in the mood (to spend and invest) for more than two decades. That might be an extreme case, but with low growth in the foreseeable future (in Europe) and a rapidly aging society, the revival of animal spirits is certainly not around the corner. Five years at least.

AP: In the U.S., investors are starting to inch back into stocks. The Japanese stock market is up 45 percent in nine months. Some households there are buying again, too.

Holzhausen: There is some movement on the margins. People are repositioning their portfolios to try to take advantage of recent equity booms. But overall, the stance is very cautious.

AP: What about in Europe?

Holzhausen: People in Europe are talking about a "great rotation" (back to stocks), but it's still early. Is this really the return of the risky investor or is it a false dawn? There's slow improvement. But the euro crisis is not yet over. People are still too fearful to get back into the markets. There is still a lot of angst. There is a lot of mistrust.

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