It is summer time, but the livin' feels far from easy on Wall Street. In recent weeks, the main equity indices have been trending higher, helped by good US earnings and the European stress tests.

But while the S&P 500, say, rose about 7 per cent last month, the mood is anything but euphoric. As my colleagues Francesco Guerrerra and Michael Mackenzie reported this week, one striking feature of this summer is that trading volumes in many asset classes have tumbled

This is partly because many institutional investors have quietly gone on strike, choosing to sit on their cash rather than trade.

But something curious is happening in the retail world too. In recent months, US retail investors have continued to put money into government and investment grade bond funds. More recently, there have also been some flows into junk bond funds.

But in the equity world - which is perhaps the most visible cornerstone of American finance - retail investors are also on strike. Last week there were $1.5bn outflows from US equity mutual funds, after $3.2bn and $4.2bn of outflows in each of the previous two weeks. Indeed, in the past 12 weeks - or since May - there have been continuous outflows of more than $40bn.

So what on earth is going on? Optimists like to blame it on a summer lull, or temporary jitters about US unemployment or the eurozone. They may be right. But personally, I suspect that there is something more fundamental going on too.

The most pernicious issue hanging over the system right now is a loss of confidence - not merely in the idea that the future will be a brighter place, but also, most crucially, about whether anybody is able to predict that future at all.

David Fuller's view How much of this loss of confidence is due to justifiable concern and how much is irrational pessimism? The answer is some of both, not surprisingly.

If globalisation works, and it has, it creates a more level economic playing field. This is painful for some of the former 'haves' who see their standard of living decline, relative to the previously 'have nots' in other countries who are on the way up.

However too many of the West's problems are self-inflicted. They include a decline in governance at many levels, not least among banks. An entitlement mentality has also led to chronic debt problems at federal government, state and personal levels. The good news is that these self-inflicted wounds can be resolved and they are being addressed. Unfortunately, it takes time and the process is painful.

What about the lemming run into bonds and out of equities?

Some of this has been attributed to 'baby boomer' generation investors seeking greater safety and higher yield. This rationale is less credible today, now that one can easily find equities with higher covered yields than government bonds offer. Additionally, at today's valuations equities arguably have much greater scope for capital appreciation than corporate bonds, unless one really does believe that the sky is falling.

Also, a US-centric view of the world ignores booming Asia and booming commodity producers, as Fullermoney has repeatedly pointed out.

Irrational pessimism has been fanned by pundits who sense parallels with the Great Depression and offer nightmares as analysis. Veteran subscribers will recall forcasts of economic depression during every decade of their adult lives. The end of the world as we know it has been unsuccessfully forecast too many times for me to attempt to improve on that record, especially when monetary conditions remain favourable and valuations are reasonable.

Gillian Tett mentions that "the memory of the May 6 "flash crash" haunts the markets." This is surely correct. Many investors feel that the market is either a rigged game or inherently unstable due to various factors including poor regulation and high-frequency trading. Perhaps but stability is not a word that I associate with markets. Opportunities and risks are created because markets are usually more stable than we fear but less stable than we would like.