A reader asked me to comment on the following from Barry Ritholtz;
My single biggest concern regarding equity markets is not a bear or a bull phase — it's the wholesale abandonment of investing by the broader public. That is the reason it took 25 years to regain the 1929 peak — til 1954. It required an entire new generation to be born, grow up and start again. I figure we are about 40% of the way there now.
Clearly a stretch like the last ten or 12 years for the US economy and US markets is going to cause a lot of ripples in a lot of different places in terms of confidence, psyches, optimism, faith in the country's direction - all of which could (and in this case, has) effect, or maybe that should be distort, prices of equities and bonds.
As far as domestic equity prices, whatever they do over the next period of time that is meaningful to you, they will do it with the weight of having some segment of the population - that would otherwise be buying stocks - not participating. Stocks could have a fantastic decade or a lousy one but there is a segment of the population that will not come back to stocks.
Coincidentally, another reader asked why I did not include the aging of the US population as a theme in Friday's post. From my perspective it seems there are far more negative effects from this trend than positive ones, with one of the negatives being the boomers pulling back from stocks as a matter of asset allocation.
So we have potentially fewer new investors and potentially more existing investors rotating out of stocks permanently. These are not new thoughts here so the argument for US equities muddling at best continues to be my base case. I'm not too concerned with trying to quantify this only because based on bigger trends, US equities seem to have less going for them, so it makes more sense to spend time on markets that have more positives than negatives. This has generally been one of the long term building blocks in client portfolios and by extension this blog.
There are obviously plenty of well reasoned, contrary opinions which leaves you needing to solve this for yourself. One contributing factor: the bearish tone I have had on US equities since the beginning of the site has been the weighing out of all the negatives and all the positives and drawing the simpler conclusion.
