"Relative to the past 50 years, this stock market has been abandoned and orphaned even as it had made participants wealthy," writes Bill Smead, drawing on a Howard Gold report showing only 37.7% of global investable assets were in equity at the end of 2012, the lowest since 1959 when records first began being kept.
Why? The mass movement to fixed income, the trendy move towards wide-asset allocation at the expense of plain-vanilla large-cap U.S. equities, the rise of alternative investing, and the echo-boomers - born between 1977 and 1996 - have been much slower to get married, have kids, buy houses, and invest in stocks than previous generations.
Smead's prediction: As rates rise over the next 10 years, fixed-income will sour and equity dividend payout ratios will normalize. Further returns from commodities and other esoteric asset classes won't match their once-in-a-lifetime moves from 1999-2012 and investors will lose interest. Rising rates will make LBOs less economic and private equity returns will decline.
"The lack of affection for US large cap equities will mute declines and reward patient long-duration owners of quality common stocks."