Why Charles Larsen will be staying out of the market

The California-based investor won't be putting money in stocks again until the economy recovers – which he says it patently hasn't done.

While many Americans may be flirting with buying stocks again, Charles J. Larsen isn't one of them. He wants to keep his wallet as far away from Wall Street as he can.

"It's crazy that anyone would think now is the time to get back in equities, fixed income, or real estate," says the California-based investor and onetime portfolio manager. "If anything, investors should be increasing positions in precious metals. But with all the propaganda about how great the stock market is supposedly doing, most people believe it."

Mr. Larsen exited stocks in 2008, in the middle of the downturn, and expects to stay out for at least the next three to five years. He's waiting for a more active but stable trading market and for the economy to recover – particularly small business.

"Main Street is not buying this recovery," he says. "We're not feeling it. Wall Street and [Washington] D.C. are selling it, but we're not buying it. It's just not happening yet."

Larsen isn't alone in urging caution. Similar warnings are coming from some of the corner offices of Wall Street. Bill Gross, the highly regarded founder and managing director of PIMCO, a global investment firm overseeing more than $1.9 trillion in assets, warns about a market too pumped up by expansionist Federal Reserve monetary policies and a migration of investors to the "grassier plains of risk assets."

"Investors should be cautious and temper their enthusiasm," he wrote in his March investment outlook.

Former Reagan administration budget director David Stockman is even more dire – and direct in his advice. "Get out of the markets and hide out in cash," he warned in a recent op-ed in The New York Times. "The flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.... When the latest bubble pops, there will be nothing to stop the collapse."

Americans don't necessarily discount such warnings. Some 58 percent think it's likely that the stock market will fall by more than 30 percent in the next 12 months, according to a December survey by the Chicago Booth/Kellogg School Financial Trust Index. Only 22 percent say they trust the US financial system.

Nevertheless, Americans are edging back into stocks. The same Booth/Kellogg report found that three-quarters of the 1,026 surveyed planned to leave their investments unchanged for the next year and 16 percent planned to increase their stock investments. In January, the Lipper Fund Flows report showed that investors poured a net $62.2 billion into stock and mixed-asset mutual funds, the biggest net inflow since at least December 2006. Net inflows were also positive for February and March, although at lower levels.

Gold, an investment often urged by analysts who fear a financial meltdown, has lost more than 25 percent of its value since hitting record highs two years ago. "I've got a pretty good feel for the market after being in it for 25 years," says Larsen, who has parked his money in precious metals. "But I have never seen a market where we just don't know what to do and where to go."