MARKET CURRENTS
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- Friday, September 3, 2010, 6:15 PM The "equity cult" is dead, proclaims Citi's Robert Buckland, and it will mean trillions in outflows from stocks - a reduction in equity holdings to ~20% of total assets, implying a further $1.9T reduction in equity weightings from U.S. private sector pension funds alone. Brace yourself for "considerable institutional selling to come."
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No, I'm just observant of the folly of "pronouncements" from nobodies. Only fools, with bated breath, no doubt, follow this kind of nonsense.
When Warren Buffet says there's no value in equity investment, then, perhaps, I'll stop to assess that, and even then, I'll ask if there's some self serving incentive for such a statement. meanwhile, I stick to my own strategy, which keeps making me money.
think about it for a split second
why be bullish? because if you pick 100 stocks - at most 10 will go to zero and maybe 30 will be stagnant but the rest will move up over time. that is why the S&P is 1100 now vs. 10 about 100 years ago. this equation works at any point in time but at some times works much better which leads me to point 2
you can only get good returns if you buy when things look bad. when everyone loves stocks you are guaranteed low future returns. why? because when stuff is bid up the risk premium is low - when stuff is unloved or cheap the risk premium is there to compensate. a lot of you believe stocks are overvalued here - you are mistaken - what is happening is that you limbic system is telling you to be afraid and to fear more pain at precisely the time when your cortex is screaming 8% earnings yield, zero inflation, low rates, global growth, moderate US growth - how can you not buy - but you cannot - your are frozen in place and the risk premium goes up for people like me who have the means and the inclination to go all in on equities. I am now down to 10% bonds and back into margin. My buying was done at 1075 on the S&P. I may fill up the corners with a little STD and TEF if I can snaffle some on pulbacks and I am looking to add some OCN if it dips to my target.
one last piece of advice. check your stocks and holdings infrequently. try once every 6 months maybe oncce per year if you are brave. it will help you to manage the fear. you can make money if you allow yourself to win.
good luck folks but remember the battle between your cortex and your limbic system and take note of what is going inside your skulls as well as in the market.
E
In any case, the fact (not an opinion) is that most advisers and professionals still recommend/have equity allocations of more than 50% of liquid wealth REGARDLESS of age (i.e. even for retirees).
That is unheard of in the History of the world before 1985 USA.
M&A activity may increase as well as share buybacks on Wall Street - that improve stock prices. Are institutions really going to sit on cash or feeble yield Treasuries? For how long? How about more companies paying dividends? And more yield?
You've got some demographic problems with investment but that isn't bottomless. And specialists may not go along with dropping all prices everywhere (Thank you Richard Ney)
Eighthman
I means 50 equities/50bonds.
And 50us/50non us
Give space to precious minerals equities and oil equities.
Don't overweight emerging.
Australia and Canada are better.
Stay long in bonds and short in equities.
Be opportunistic and cynic
Equities are commodities-like,i.e.p... of paper
You aren't a shareholder,just a paperholder.
Equities must be considered exactly like bonds
And take it easy,don't buy snakeoil.
If there is a constant money leak from a system, in this case leaking to the manufacturing powers (Asian countries), is it truly possible to regain our economic strength in the world?
From a birds eye view of economic theories, (specifically Keynesian) it may be possible to sustain a local economy by everyone giving everyone else manicures unless the materials are being sourced from outside the local area.
How can experts say the market will go up in 20 years? They can't even predict the next day!
And yes we destroyed our manufacturing base that made this country what it was.
Hey,I thought the "cw" amongst the cynics was that the Big Banks and Goldman always told you the opposite of reality, so they could buy low or sell high.
What happened? You mean, if a Citi guy says something that supports the pessimistic mantra, then, it has veracity; it's only suspect if it's bullish?
Does this mean equities are a buy or a sell, guys?
Many will just wait until equities are ultra cheap and therefore much less risk. Who knows when it will happen, but it likely will happen. If S&P gets back down to 600-800 levels, then it will be worth taking a look at, but not until then unless one somehow thinks they can out-trade the prop desks, HFT'ers, and algo traders all getting free Fed money.
These are the times of the cult of unopposed economic expansion -- the Spring-Summer seasons.
Buckland -- which is an interesting name by the way -- doesn't say that Wall Street is dead or that stocks are finished...just that the cult is dead (read "American Psycho" to get a true picture of the cult at its apex). He says prepare for major contractions from the extremes we've assumed would be permanent.
2010-2019 has prototype (Material Hades -Autumn-Winter Season) time periods: 1974- 1983; 1938-1947; 1902-1911; 1866-1875; 1830-1839; 1794-1803; 1758-1767....these are time periods where nothing much of anything in material existence goes well. It's a time of karmic payback for the Spring-Summer period when the cult was built, when hubris ran the world, and when a lot of 'sins' against the balance were committed.
Especially when savings accounts are barely paying 1 percent, these outflow are good news for those of us who have cash ready to put to work.
I realize I am attacking a quasi-religion by equating equities to a roulette wheel, but try to look beyond the horizon; the world may very well NOT be flat - and equities may simply have become a vehicle for legal theft from those who can least afford it.
The church did not want it's world view questioned because it debased their power, influence, and income.
Do you believe in equities in a free market that is unfettered by corruption and provides capital for companies that create jobs and build the nation - or are you simply selling indulgences?
Excerpts from FT www.ft.com/cms/s/0/b23...
„...excessive messaging traffic, the dissemination of proprietary market data catering to high-frequency traders, and order-routing inducements all may be combining in ways that cast doubts on the depth of liquidity, stability, transparency and fairness of our equity markets...“
„...retail investors...look at this and say: ‘this whole Wall Street thing is just rigged...“
„...HFT now accounts for 56 per cent of all equity trades in the US and 38 per cent by value in Europe. Another sign that Asia is the latest growth spot...“
„...investors are being put off by the volatility that ...HFT can cause. NYSE volumes were the lowest last week since 2006 ... attributes in part to a loss of trust in US equity market structures. “Our business is Main Street, not Wall Street,” ...“
Have a good day
Ignore the doomsayers and volatility as you remain disciplined.
Avoid extremes, manage risk, and maintain a proper asset allocation mix.
Bill Gross is correct on this one! Good luck investing.
What you need to know is what he does, not all the blathering on TV.
While he promotes Treasuries and stagnation, last month his fund significantly reduced Treasuries in favor of expanded investments in mortgage debt, high yield and emerging markets. Those are all entities which perform better in recovering economies, not declining ones.
Bill Gross aside, everybody would make far better judgments if they tuned out all the punditry and deflation/inflation hysteria mongers and focused on corporate revenues and earnings. All the remainder are prognostications, sentiments and estimated and often inaccurate government macro data. The corporate data represent the most accurate and indicative bottom line.
It got below that in 2009 (adjusted for seven additional years of growth).
A stock can be valued as a combination of a bond and a call option. Gross is clearly an expert on the "bond value" of the Dow.
And sometimes option values "time decay" (disappear).
Now look at the USA and ask yourself if you think there is "political risk". Personally I think there is - and that would justify a more conservative valuation of companies based in the USA. Not pleasant to admit that but I think its true.
The only real catalyst I see for equities is that more and more companies are forcing employees to opt out of 401K contributions..... of course they've opted out millions just through firing them.
In then last ten years they saw two major market crashes (when will NASDAQ ever hit it's 2000 highs again?) a credit crisis, and real estate crash. To top it off this year they saw the new flash crash bringing to light hft and seeing the system is stacked against them.
They were fed the lies that if you invest and buy and hold, you always make money. Also buy real estate because it always goes up.
At best we will likely go japanese. Trailing down and sidewise for decades. Their nikkei was 39000 in 1989 and where is it now? Barely 9000.
See the logic of my predictions at
www.hoalantrangallery....
Lander is really beautiful country. The Wind River Canyon drive (and area really) is one of my favorite parts of Wyoming.
There will be ups and downs in the bond cult. Investors will shift into stocks, get scared, shift into bonds. The bond cult I'm talking about is mostly US treasuries. US treasuries will get killed if Europe doesn't fall first. I'm pretty sure Europe will fall first, and there will be another flood of money into US Treasuries. Why? Hard to say. Not enough gold in the world for everyone to have a share. Gold and silver will rocket up. That's my view.