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Why The End Of The 'Equity Cult' Means Trillions In Upcoming Outflows From Stocks

Tyler Durden's picture





 

Citi's Robert Buckland is out with the must read report of the weekend, especially for all the optimists who believe that despite the ongoing depression (and as many have demonstrated, all the talk about a double dip is moot, as America has never left the depression, or as Rosie calls it a period of prolonged economic subpar activity: the latest NFP number merely reinforces the theme of economic deterioration), and despite the 17 weeks in retail equity outflows (which would be a contrarian signal if there was hope that retail would ever feel safe enough to return in stocks. After nearly 5 months of no change in trend, the debate can be put to rest, if at least for 2010) there is still hope. There very well may not be - Citi has just pronounced the "Equity Cult" dead: "It has taken 10 years, and two 50% bear markets, to reverse this cult. European and Japanese equities are already trading on dividend yields above government bond yields. US equities are almost there as well. An immediate reincarnation of the equity cult seems unlikely. Global corporates, especially the mega-caps,  rushed to exploit cheap financing as the equity cult inflated. They have been slow to redeem equity now that the cult has deflated. Equity oversupply remains a drag on share prices." And as more and more companies and investors shift to a de-equitization theme, the trendline in allocation for the US pension assets will soon revert to that seen when the "Equity Cult" began, or roughly 20% of all assets, with bonds taking on an ever greater precedence of asset allocation (incidentally the UK is already back to the equity/debt relative investment levels of the early 1960s). What does this mean for capital flows? "A reduction in equity holdings back to pre-1959 levels (around 20% of total assets) would indicate considerable selling pressure to come. For US private sector pension funds alone, that would imply a further $1900bn reduction in equity weightings. The evidence suggests that there could still be considerable institutional selling to come."

So let's recap what the medium- and long-term trends for the market are:

  • $2 trillion in equity sales from pension funds alone as capital flows normalize now that the "Equity Cult" is dead
  • A seemingly endless push into fixed income by an aging demographic meaning billions more in ongoing monthly domestic stock mutual fund redemptions
  • Hedge funds which are underperforming the market massively, and which will see an explosion in redemption letters as the end of Q3 approaches
  • An inevitable change in the tax regime over the next 4-5 months, which as Guggenheim pointed out, will force investors to sell billions in stock to catch a sunsetting beneficial capital gains tax.

And yet what happens - the market surges on a negative NFP number that was negative but better by a factor of noise, compared to whisper expectation, as robotic traders pick up on the positive feedback loops to take the market higher one more time as soon everything collapses.

For all those who believe in 17x forward P/Es (expecting a 20% rise in corprate earnings in 2011 with a flat GDP indicates a serious overdoes on medicinal hopium) - Good luck chasing the bouncing ball.

For all those others, who feel like micturating upon the grave of the "Equity Cult" here are the highlights from the Citi report.

Bond vs Equities - Then and Now (this will be familiar to all those who have read Albert Edwards' recent pieces):

In July, global equities rebounded despite continued falls in government bond yields. This defied the strongly positive relationship between equities and bond yields seen since 2000. Many equity investors worry that this decoupling will be resolved by the bond markets being proven “right”. The implications of this are worrying — the last time US treasury yields were down at these levels, the S&P (currently 1050) was nearer 800.

We have pointed out that equities actually have a decent track record when these decouplings have occurred in the past1. Certainly Citi’s equity and bond market forecasts suggest that this current breakdown in the relationship is more likely to be resolved through rising bond yields than falling equity prices. However, we also understand that many investors think we will be proven wrong.

We can’t help but suspect that this hot debate about the relative attractions of bonds against equities — whether one is pricing in the double dip but the other is not, whether one is pricing in deflation but the other is not — is mere froth on top of a much more profound reassessment of the merits of the two asset classes. In particular, has the “cult of the equity” been replaced by the “cult of the bond”? To answer this we first take a look at the origins of the cult of the equity.

The rise of the cult of the equity is reflected in institutional asset allocations. Figure 3 shows the weighting of US private sector pension funds in equities and fixed income as derived from the Fed’s Flow of Funds data. Back in 1952, US private sector pension funds held just 17% of their assets in equities compared to 67% in fixed interest. Over the next 50 years, these weightings reversed — at the peak in 2006, the same funds held 69% in equities and 18% in fixed interest. Of course, some of the increase in equities will reflect the outperformance over the period.

The picture looks similar in the UK (Figure 4). Back in 1962, ONS data suggest that UK pension funds held more in bonds than equities. That reversed in the 1960s, as equity weightings increased aggressively. At the peak in the early 1990s, UK pension funds held 76% of assets in equities compared to just 12% in bonds. It seems that UK pension funds embraced the cult of the equity more enthusiastically than their US counterparts, perhaps as a result of a desire to buy equities as a hedge against the UK’s more significant inflation problems.

We can also see the rise (and fall) of the equity cult in mutual fund flows. Figure 5 shows US mutual fund equity inflows going back to 1984. These peaked above $300bn in 2000. European fund inflows peaked in the same year at €180bn (Figure 6). US equity inflows recovered as markets rallied in 2003-07. European equity inflows did not.

Why the cult is now dead?

It seems that the cult of the equity began in the late 1950s. Why? Many justifications have been put forward. Most obviously, the 1950s marked the beginning of a welcome period of peace and prosperity following a tumultuous 50 years that included two world wars and a major economic depression.

The rise in equity weightings coincided with Markowitz’s first considerations of modern portfolio theory. This promoted the belief that a well-diversified equity portfolio could achieve superior returns while helping to reduce risk. It was clearly the view of George Ross Goobey, manager of the Imperial Tobacco pension fund who was generally perceived to be the godfather of the cult of the equity in the UK. Ross Goobey liquidated his entire fixed interest portfolio in the 1950s and invested the proceeds in equities. This was highly controversial at the time — he was banned from teaching students at the UK Institute of Actuaries.

Other factors may have helped to promote the cult of the equity. Most pension funds were relatively immature back in the 1950s, so giving them a better ability to absorb short-term equity volatility in search of longer-term returns. Equities were seen as a good match against the wage-driven liabilities of defined benefit pension schemes. Equities offered a decent inflation hedge long before index-linked bonds were ever invented. This characteristic was particularly attractive in the 1970s and 1980s. The list of academic justifications goes on and on.

Performance-chasers

But perhaps most convincing is the argument that the cult of the equity was the product of a period of spectacular  outperformance from the asset class. This became self-fulfilling. Pension funds bought more and more equities because they kept outperforming. Insurance companies (except in the US, where their exposure to equities has been limited by law) and retail  investors couldn’t resist the same trade. Figure 7 shows the annual returns from US equities and government bonds divided into decades since the 1920s. We also show the annual returns for the total period.

Since 1920, even including the dreadful experience of the last decade, US equities have generated a healthy annual return of 10.9% compared to a bond return of 6.1%. The most spectacular equity performance (especially relative to bonds) was not in the roaring 1920s, 1980s or 1990s, but in the 1950s. Perhaps this is what brought investor attention back to equities. It took  many years for the wounds of the 1929 crash to heal — US equities only managed to regain their pre-1929 crash levels in 1954. But from there, a new 40-year love affair with equities began. The 1970s were tricky, but equities did no worse than bonds. Indeed, by the end of the 1990s, the long-term outperformance of equities over bonds looked truly spectacular. $100 invested in US equities in 1950 would have been worth $58,380 at the end of 1999 versus $1,651 in treasuries. Those two numbers probably say more about the cult of the equity than any long academic study.

Why Is There A Cult Switch?

The evidence suggests that the cult of the equity began in the 1950s and peaked in the late 1990s — that’s a 40-year bull market. Since then, it seems that the investor love affair with equities has soured.

Many of arguments associated with the cult of the equity have since come under attack. Inflation seems much less of a problem. Equities have never been particularly good at hedging inflation anyway, and now index-linked bonds can do a much better job. The long duration of the equity asset class becomes less desirable for pension funds as populations mature and retirement dates approach. Defined contribution investors (where the individual takes the risk) may be less willing to tolerate volatile equity returns than the old defined benefit plans (where the employer takes the risk).

But most importantly, it is dreadful returns that are increasingly putting investors off equities. Since the end of 1999, global equities have returned just 4% in total. Not only have equity returns been trivial, but the volatility has been brutal. Having two 50% bear markets in one decade is enough to test the patience of the most determined equity cultist. Just as strong returns helped to build the cult of the equity in the 1950s, so weak returns are tearing it down now.

Investor appetite for global equities is falling. Figure 3 shows that in 2009 US private sector pension funds held 55% of total assets in equities compared to 70% in 2006. Figure 4 suggests that UK pension funds cut their equity weighting to 39% in 2009, down from the 76% high in 1993. The 2009 rebound in equity prices has helped to reverse some of this decline in equity weightings, but most investor intention surveys suggest that the secular reduction in equity weightings is likely to continue.

How much worse will it get?

How far could this go? A reduction in equity holdings back to pre-1959 levels (around 20% of total assets) would indicate considerable selling pressure to come. For US private sector pension funds alone, that would imply a further $1900bn reduction in equity weightings. The story looks similar amongst retail investors. Equity inflows into US mutual funds have not recovered from the 2007-09 bear market (Figure 5). European equity inflows never recovered from the 2000-03 bear market (Figure 6).

The evidence suggests that there could still be considerable institutional selling to come. Developed market pension funds have cut their equity weightings from peaks but there is still a long way before they get back down to pre-cult levels. For a broader global comparison, we look at the 2010 Towers Watson Global Pensions Assets Survey (Figure 8). Given different data samples, this might not correspond with the long-term historical data series that we have already shown for the US and UK, but it is a useful guide to regional variations.

What does Japan teach us?

Japan may be a useful guide to an unwinding equity cult. According to Towers Watson, in 1998 Japanese pension funds held 55% in equities, still remarkably high given the dire performance of the Japanese market through the decade. Japanese pension funds now hold 36% of total assets in equities and that number seems likely to head lower. Bonds have been the key beneficiaries of equity outlflows. Elsewhere in the world, Australian pension funds have a high equity weighting although our local strategists have argued that the compulsory superannuation fund structure has embedded the equity culture more firmly than in other parts of the world. Continental European funds are already firmly tilted away from equities towards bonds, so the scope for further equity outflows might be more limited.

Emerging Markets remain one bright area amidst the gloom. Figure 9 shows annual global equity inflows as measured by EPFR. This confirms the sorry state of developed market inflows, but it also shows that the appetite for Emerging Markets equities has been much more robust.

The cult is dead. Long-live the cult

As the cult of the equity fades, it is being a replaced by a new cult of the bond. It is argued that bonds are more appropriate in a world where deflation, not inflation, is the main threat. Liability Driven Investing (LDI) advocates usually promote the liability-matching benefits of bonds over equities. Ageing populations would seem to favour bonds over equities — most “lifestyle” pension schemes automatically switch equities into bonds as a worker approaches retirement age. Perhaps most importantly, bonds have handsomely outperformed equities in the past decade. Since 2000, global equities have returned 4% (0.3% per year), while global government bonds have returned 103% (6.9% per year). The list of factors favouring bonds is as long as that favouring equities back in the 1990s.

These arguments are reflected in rising pension fund bond weightings (Figure 3 and Figure 4). We can also see that mutual fund inflows now favour bonds, although not yet as consistently and heavily as they favoured equities in the late 1990s (Figure 5 and Figure 6).

But even if there is no bond cult, the stock chasing era is over: Conclusion

Of course we can (and will) carry on arguing about whether bonds or equities will be proven “right” after the recent decoupling. We can (and will) carry on arguing about the likelihood of a double-dip in the global economy. We can (and will) carry on arguing about whether the developed world is heading into a Japan-style deflationary spiral. Each outcome should have meaningful implications for the direction of global equity and bond prices.

However, we can’t help wondering if this misses the point. With the notable exception of Emerging Markets, what is really going on is a long-term shift in investor appetite for equities and bonds. It will take more than the avoidance of a double-dip to turn the equity outflows around. Sure equity prices would probably rise in the short term if that were to happen, but a sustainable rerating could only be achieved if investors were to be attracted back to the asset class. Although likely to be painful in the short run, an inflation-inspired global bond sell-off would probably offer the best chance of that happening. That still seems pretty unlikely for now.

The Citi view on the outlook for the global economy could be best described as “uninspiring, but not disastrous”. But rather than furiously arguing about whether that view is right and if it is already reflected in share prices, perhaps we would be better served by accepting that, from a valuation perspective, it is what it is. For all sorts of reasons, both cyclical and structural, equities are likely to remain “cheap” against bonds for some time yet.

So it is what it is. Investors are unlikely to pile back into global equities any time soon. It looks like they are likely to sell weightings down and move further into bonds. This is convenient for government bond issuers given that they have such vast amounts of bonds to sell. Equity and bond valuations will continue to reflect these flows. Maybe global equities can move higher with rising profits but, outside Emerging Markets, the prospect of a 1980/90s-style rerating still seems a very long way off.

Indeed, it is what it is: you can't fund a trillion dollar bond bubble, and see equity allocations at the same time. There is a reason why Albert Edwards sees the S&P in the 400 range: you can't have an increasingly more frugal investors buying both, and you can't have central banks buying everything without risking a completel collapse in the faith of all currencies. In retrospect, it is really simple. There are those who believe they are immaculate daytraders, and believe they can make money chasing everything dip in stocks. We wish we had their skill. Since we don't we would rather put our bet on where the age old adage of follow the money says stocks willl end up going. And that is much, much lower.

Full must read report.

 

 


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Fri, 09/03/2010 - 15:12 | Link to Comment Steak
Steak's picture

I present for y'alls listening pleasure, another two playlists.  The first is a mix of new and recent EDM productions, many of which can melt faces.  The second is for all y'all who like to funk it up, with an EDM twist of course.

2cool (4skool) <ass-kicking>: http://www.youtube.com/view_play_list?p=12689F04C0CEEF6C 

up with the get down <funky fresh>: http://www.youtube.com/view_play_list?p=4217E3682ABFEFB9 

Fri, 09/03/2010 - 15:50 | Link to Comment Gunther
Gunther's picture

Thasnk you, Steak.

Fri, 09/03/2010 - 15:51 | Link to Comment Steak
Steak's picture

Keep on pimpin, pimpin :)

Fri, 09/03/2010 - 16:55 | Link to Comment Yits and the Yimrum
Yits and the Yimrum's picture

very sweeet!

Fri, 09/03/2010 - 18:17 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

yeah funky electronic dance music, FEDm. new 2 me. you got it all, my man,

ya got it all.

Fri, 09/03/2010 - 20:33 | Link to Comment rocker
rocker's picture

I needed that. Now for bottle of Bass Ale.  THX

Fri, 09/03/2010 - 21:45 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

HAIL to my new M A E S T R O.

Fri, 09/03/2010 - 15:16 | Link to Comment Sudden Debt
Sudden Debt's picture

Just got a call from the FED, Benny said he'll cover that. So no probs!

HAVE A GREAT WEEKEND GUYS!

DRINK IT AND FUCK IT ALL!!

Fri, 09/03/2010 - 16:03 | Link to Comment assumptionblindness
assumptionblindness's picture

I don't understand why the fuck your comment got junked...good weekend to you too!

Fri, 09/03/2010 - 16:22 | Link to Comment Sudden Debt
Sudden Debt's picture

Mormons... what can I say... :)

Fri, 09/03/2010 - 20:17 | Link to Comment ebworthen
ebworthen's picture

I'm in Utah, not Mormon, loved it.

Rock on.

Fri, 09/03/2010 - 22:13 | Link to Comment Sisyphus
Sisyphus's picture

You are an effin' riot. :>}

Fri, 09/03/2010 - 17:21 | Link to Comment -1Delta
-1Delta's picture

OMFG im so full of Kool- Aid after today's data im not sure if I can go drink this weekend

Fri, 09/03/2010 - 20:40 | Link to Comment rocker
rocker's picture

Finally someone mentioned the "Supply" factor and what it means.

I thinks you are rights. Bennys going to be addings to his supplys.

I abused the Ss and Benny is abusings our taxes moneys.

This has been going on for 6 years. How much stock can the FED buy?

Audit the Fed, nows.

 

Fri, 09/03/2010 - 15:19 | Link to Comment TraderTimm
TraderTimm's picture

Equities go higher - until they don't.

Damn right. Buying PUTS on the close this Friday, don't want to miss the downturn train!

(Even if I have to take 100 points or so of 'heat', it will be worth it.)

Fri, 09/03/2010 - 16:56 | Link to Comment tunaman4u2
tunaman4u2's picture

The more Puts & Shorts we put on the more HFT can take from us... we're better off being OUT of the market & forcing them to feed on Longs instead. 

Fri, 09/03/2010 - 18:31 | Link to Comment SheepDog-One
SheepDog-One's picture

I agree, let the FED crooks flop around there pumping to no one all by themselves. Make the FED the all-time record bagholder.

Fri, 09/03/2010 - 19:41 | Link to Comment DosZap
DosZap's picture

Bingo..............let them PLAY by themselves for a while.

Why feed the friggin leeches?.Let em' rot.

Fri, 09/03/2010 - 15:20 | Link to Comment Sudden Debt
Sudden Debt's picture

The longer Benny waits, the more messy it'll get and at the end it will only cost more to "rebuild/buy" the economy.

 

Fri, 09/03/2010 - 15:20 | Link to Comment I am more equal...
I am more equal than others's picture

Scobby Do says "uh oh"

Fri, 09/03/2010 - 15:21 | Link to Comment rle1221
rle1221's picture

one question please. if all these funds are going to sell, whose left to buy?

Fri, 09/03/2010 - 15:25 | Link to Comment centerline
centerline's picture

The Fed I suspect.

Fri, 09/03/2010 - 16:09 | Link to Comment SheepDog-One
SheepDog-One's picture

The FED already has what, $2.2 trillion worth of equities a junk real estate purchases? MIGHTY big bag the FED is holding there!

Fri, 09/03/2010 - 15:25 | Link to Comment Mad Mad Woman
Mad Mad Woman's picture

Nobody.  Maybe the Fed. Nobody's going to be in a hurry to buy anything for a while.

Fri, 09/03/2010 - 15:41 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

cept' G O L D

Fri, 09/03/2010 - 20:39 | Link to Comment zoomer
zoomer's picture

I'm with you, Girl,  I like my trashy cash!

Fri, 09/03/2010 - 15:28 | Link to Comment AccreditedEYE
AccreditedEYE's picture

RLE: It's not a "one and done" the implications of this are long term and will play out so. With less capital flowing into the "equity" allocation in 401k and pensions, there is less firepower for the asset class to perform as most have been used to in the past. Multiples will contract and prices come down. Volatility will, despite today's performance, increase. In a nutshell, much less wind will be flowing into the sails of equity for a long time to come. Of course, the short answer is the Federal Reserve... LOL!!

Fri, 09/03/2010 - 15:43 | Link to Comment tmosley
tmosley's picture

Contrarians.

Fri, 09/03/2010 - 15:22 | Link to Comment midtowng
midtowng's picture

Speaking of withdraws, has anyone else noticed this yet?

http://blogs.wsj.com/deals/2010/09/03/kabul-bank-moral-hazard-personified/

In Afghanistan, investors in Kabul Bank are counting on U.S. support to stem a run on the country’s largest bank.

“America could support Kabul Bank to the last penny,’’ Mahmood Karzai, the Afghan president’s brother and largest bank investor, said in a WSJ interview. “The full faith and credit of the U.S. government behind the Kabul Bank–what more could you want?”

Afghanistan, which is receiving billions in humanitarian and military assistance from both the U.S. and Europe, is arguably a ward of both those states. What’s a few more billion to back up a failing Afghan bank?

Another reason bolstering Kabul Bank’s argument for a bailout: Its executives seemed to have followed the western play book for ruining their bank.

As the WSJ points out, Kabul Bank is accused of giving “clandestine” loans to themselves and Afghan government insiders.”

Fri, 09/03/2010 - 15:26 | Link to Comment centerline
centerline's picture

As the WSJ points out, Kabul Bank is accused of giving “clandestine” loans to themselves and Afghan government insiders.”

 

I guess we taught them well.

Sat, 09/04/2010 - 11:32 | Link to Comment SWRichmond
SWRichmond's picture

Wait, you mean that government is, by definition, corrupt? 

Who knew?

Fri, 09/03/2010 - 15:45 | Link to Comment knukles
knukles's picture

Whadday want?  How's about some of that $8 billion of US money just disappeared.

Owhhhh.... I got another one!  Is this piece of shit bank audited by any credible outside entity?  Betcha answer is "FuckNo".  Just like the Fed, "FuckNo".  No Audit. 

So, let's all just sing along....

So where oh where did the money go,
Oh where oh where can it be? 
In the pocket of an Kazari man,
Or a representative from DC?

Ya' just can't make this shit up, ya' know? 
If there were to be answers instead of indignation and threats, then there'd be an audit, like are done in some real, honest countries.  Somewhere.

Time for a Thorazine and Ativan Enema with a sooting Jerry Springer tape. 
(Quite Sobs)

Fri, 09/03/2010 - 16:11 | Link to Comment SheepDog-One
SheepDog-One's picture

Heh heh heh

Fri, 09/03/2010 - 18:01 | Link to Comment Translational Lift
Translational Lift's picture

"Mahmood Karzai, the Afghan president’s brother and largest bank investor"

This Mother-Fer is the largest poppy grower, drug dealer, crook, crime syndicate in Afghanistan.  He probably has the bank's funds in a Swiss bank along with his other funds..........

Fri, 09/03/2010 - 21:47 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

stoner dude. splendor in the grass.

Fri, 09/03/2010 - 15:23 | Link to Comment Mad Mad Woman
Mad Mad Woman's picture

Wow.  Very interesting read.  Time for some changes.

Sat, 09/04/2010 - 11:48 | Link to Comment SWRichmond
SWRichmond's picture

http://economicedge.blogspot.com/2010/03/most-important-chart-of-century...

The government's ability to pay off debt is directly related to growth in the tax base and therefore, of course, the underlying economy.  The "Cult of the Equity" must be seen for what it was: a cult of faith in the productive capacity of the economy, and a willingness to invest capital in actual productive economic activity.  That faith is the thing that has died, and will not be reborn due to demographic as well as other factors (regulatory malfeasance, tax policies, etc). 

The flight intoTreasuries might make the government's balance sheet possible, but only temporarily, as it also guarantees that productive economy activity will NOT occur in the future.  Government borrowing and spending is not productive, as the chart linked above shows.  Government borrowing is strictly for consumption.  Debt is only productive when some of it is directly invested in actual productive economic activity.  In my humble opinion, the marginal productivity of debt has gone negative as a direct consequence of the dominance of unproductive sovereign borrowing.  As such, the dominance of sovereign borrowing virtually guarantees the collapse of the revenues upon which sovereign debt repayment relies.  The federal government is eating its tail.

Fri, 09/03/2010 - 15:24 | Link to Comment centerline
centerline's picture

As bonds go, so do stocks.  Nothing shows the monumental effort being put into propping up this zombie economy than the current decoupling.  Talk about pissing into the wind.

Fri, 09/03/2010 - 15:30 | Link to Comment SheepDog-One
SheepDog-One's picture

Bonds are acting as if a huge meltdown in stocks has already been ongoing for the last few weeks! MONUMENTAL pumping going on to keep this equity bubble inflated! 'Just 1 more day' is their morning rallying cry I believe.

Fri, 09/03/2010 - 15:44 | Link to Comment vote_libertaria...
vote_libertarian_party's picture

Pull up a chart with TBT and SPY.  Bonds spiked in January 2009.  Stocks (you know, the retarded little brother) didn't hit bottom until 3 months later.

 

That timing could be repeating.

Fri, 09/03/2010 - 16:41 | Link to Comment FranSix
FranSix's picture

Huge meltdown in stocks has been on-going on an inflation-adjusted basis for 10 years:

http://dshort.com/charts/N225-SP500-deflation-series.html?N225-SP500-ove...

http://www.nowandfutures.com/forecast.html#bear_markets

Fri, 09/03/2010 - 18:47 | Link to Comment SheepDog-One
SheepDog-One's picture

BTW, whoever junked THIS post, well I hope you die of cancer of the anus! Youve got to be a REAL fuktard!

Sat, 09/04/2010 - 11:23 | Link to Comment ElvisDog
ElvisDog's picture

I'm a little slow this morning. Bonds up means money is flowing into bonds, which means less money is flowing into stocks. Can both bonds and stocks go up in price on a long-term basis?

Fri, 09/03/2010 - 15:29 | Link to Comment camoes
camoes's picture

70's  "stocks are dead" = bull market

90's "internet stocks are hot" = bear market

00's "CDO's are hot, high return, safe investments" = Depression 2.0

Shittybank says stocks are dead = BUY BUY BUY BUY buy them all bitchez

Fri, 09/03/2010 - 16:14 | Link to Comment functionform
functionform's picture

Yeah I'm kind of with you there... Equity outflows being mutual funds?  Isn't that the 'dumb money'? 

Fri, 09/03/2010 - 19:46 | Link to Comment DosZap
DosZap's picture

Not necessarily, it can be the 401k schmucks, that have ZERO choices.Worst part, is what's left for them, Bonds,and T Bills.

Out of the pan,into the fire.

Fri, 09/03/2010 - 15:31 | Link to Comment SheepDog-One
SheepDog-One's picture

Dont let Leo in on the fact that equities are due for a huge crash, he'll get all uppity and put up some solar stock chart that gained 8 cents again.

Fri, 09/03/2010 - 15:32 | Link to Comment RobotTrader
RobotTrader's picture

Euro is making new highs for the move.

CRB Index still going up.

Financials are outperforming the last two days.

Yet, everyone is buying puts hand over fist.

Eventually the outflows from mutual funds will reverse.

Maybe after the S & P 500 is up 30% from these levels, people will start paying attention to stocks and forget about real estate.

For now, everyone is still shorting all rallies.

Fri, 09/03/2010 - 15:36 | Link to Comment SheepDog-One
SheepDog-One's picture

Puts hand over fist, at year high? How do the pumpers get around that? Think I'll load a bunch too on Tues morning.

Fri, 09/03/2010 - 15:52 | Link to Comment AccreditedEYE
AccreditedEYE's picture

CRB Index still going up- To the non-elite, this acts as a tax, killing off consumption. (especially when wages stay flat/negative)

Financials are outperforming the last two days- Leaders of the last Bull are NEVER leaders of the next one.

Eventually the outflows from mutual funds will reverse- Don't count on it, at least not for the long term. Demographics are against you Robo. :)

Fri, 09/03/2010 - 16:01 | Link to Comment william the bastard
william the bastard's picture

my chart shows 1.82. Chow down.

Fri, 09/03/2010 - 17:33 | Link to Comment -1Delta
-1Delta's picture

i think this one is better- found that one to be misleading..

http://www.cboe.com/publish/ScheduledTask/MktData/datahouse/equityPC.csv

Fri, 09/03/2010 - 22:10 | Link to Comment andyupnorth
andyupnorth's picture

What the hell?!?

Robo shows 2.4 on his chart, William says 1.84, and -1Delta's chart says 0.56!?!

Fri, 09/03/2010 - 18:13 | Link to Comment unununium
unununium's picture

everyone is buying puts hand over fist.

Someone is, anyway.

Fri, 09/03/2010 - 18:50 | Link to Comment SheepDog-One
SheepDog-One's picture

Man Robo, I got to tell you I cant WAIT for the morning soon where everyone wakes up and sees all this garbage is whacked down -10% on open! Look at all the premabull 'tards, theyre talked back into BUY N HOLD utopia, convinced theres NO CHANCE anything goes down from here on out? WOW are these bulls ever ripe for the slaughter!!

Fri, 09/03/2010 - 20:52 | Link to Comment rocker
rocker's picture

So we will buying from the FED through C, GS, JPM, AIG, and Paulson. So, who decides

what they are worth, When they go up, When they go down, and when they get out.

I know, I know, I know, they go down when they all get out.

GS just like Bernie, best trader who always wins.  

Sat, 09/04/2010 - 11:27 | Link to Comment ElvisDog
ElvisDog's picture

Damn Euro. I'm going to France in October. I want parity by then, damnit.

Fri, 09/03/2010 - 15:33 | Link to Comment knukles
knukles's picture

I get the rest of the article, but what pray tell is a buck eyed optimist?

Fri, 09/03/2010 - 15:40 | Link to Comment old_turk
old_turk's picture

a buck eyed optimist = democrat from Ohio or Cleveland's mayor.

Maybe the Cav's owner thinking the Cav's win it all next year would fit.

Fri, 09/03/2010 - 15:36 | Link to Comment Chemba
Chemba's picture

THE END OF THE EQUITY CULT?

Are you kidding me?

The SPY sells for > 20x normal earnings, when 12x is fair value?

The SPX dividend yield is barely 2%, which idiots want to compare to the rate on a 10Y UST?

CNBS pipes equity cult pom pom circus into homes and shops 24/5?

Sorry, but the equity cult is alive and well.

Fri, 09/03/2010 - 15:42 | Link to Comment SheepDog-One
SheepDog-One's picture

Well the equity cult is alive and well, for the FED and gubmint, retail has left the building long ago. Hey if Big Dumb Ben and Timmay likes equities so much, let them buy them all and leave them holding the bag!
Go ahead, switch off the trading bots, remove the free money backing, and lets see what would happen then.

Fri, 09/03/2010 - 16:39 | Link to Comment mule65
mule65's picture

The equity cult has moved into equity derivatives.  Equities will do whatever WOPR says.

Fri, 09/03/2010 - 18:33 | Link to Comment SheepDog-One
SheepDog-One's picture

Well until WOPR gets bored of churning the same trade to itself all day, whittling down the edge of a penny, and it goes berserk! Permabulls WAY overdue for a haircut here! 1,000 DOW points on WORSENING eco data!

Fri, 09/03/2010 - 15:39 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

it is what it is.

sayin' of the century.

long weekend, bitches, with a splash of funk music.

steaky enjoy†

EDM = electronic digital music?

Fri, 09/03/2010 - 15:43 | Link to Comment old_turk
old_turk's picture

EDM = electronic dance music 

:-)

 

Fri, 09/03/2010 - 15:59 | Link to Comment knukles
knukles's picture

Not Russian for eat... 
Oh, never mind.  An inside Cleveland joke.  Talk about "jokes", remember when the Cuyahoga River caught fire back in the '70's?
Now that was cool. 
And Dennis Kucinich who was mayor when it went bankrupt, no?
Ah, the good old days; pickin' coals off the Pennsylvania RR main line tracks for heat, Dick Nixon, Hunter Thompson, Jefferson Airplane, 3.2 beer, dancing the Freddie. 
Back when a $1 Federal Reserve Note bought a whole grocery bag full of White Castle sliders, watching the Reds on TV whilst listening on the radio, picking up those drunk hilljack women with one tooth, love handles and a pony tail at some Gawd awful bar out in the boonies and scramblin' out the door before the Boy's beat the tar outta us Hippies.   
The Good Old Days. 
When bad people resigned from office for misdemeanors.    

Fri, 09/03/2010 - 17:45 | Link to Comment Uncle Remus
Uncle Remus's picture

Thanks for the flashback...it was so real I got the heartburn from the sliders...

And why TF does my office smell like a head shop?

Fri, 09/03/2010 - 18:08 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

$1 gasoline, bastards.

love handled, bitches.

glad we all have our, minds cause we'll b fine.

Fri, 09/03/2010 - 15:40 | Link to Comment whatsinaname
whatsinaname's picture

a beggar - all he sees are bucks that he hopes to have in his pocket but never does.

Fri, 09/03/2010 - 15:42 | Link to Comment Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

Here's how chairmen Ben will be shilling UST's in the near future:

http://www.youtube.com/watch?v=_LFdsillFkU

 

Fri, 09/03/2010 - 15:51 | Link to Comment deathwing
deathwing's picture

ahhh… memories  "bagashi ajima"

Fri, 09/03/2010 - 17:34 | Link to Comment Translational Lift
Translational Lift's picture

Go 7th Cav Avn..........

Fri, 09/03/2010 - 18:54 | Link to Comment deathwing
deathwing's picture

hoo-ah, if you ain't guns, you ain't sh*t  ;)

funny if you replace money for blood the battlefield looks very similar - i'm adapting quickly

Fri, 09/03/2010 - 20:11 | Link to Comment Hephasteus
Hephasteus's picture

The battlefield is all about money. When you do something cruel or harmful to a person it's known on the street as getting juice. You then use that unpunished harmful act as a means to scare and intimidate other people into complying with your wishes. You have to continually do harmful things to maintain the control or up the extremity.

The officers who "authorize" military violence give you the unpunished go ahead for doing damage. Discipline and respect for the chain of command is how you are controlled and conformed and focused on who needs violence right now. The battlefield is not about who dies, it's about who lives and the winners ability to create the same fate for them. So you're considered basically a dumb animal by your shepard.  The people who control you control the "juice" you create.

So I hate to break it to you but you have failed to understand blood or money.

Fri, 09/03/2010 - 21:07 | Link to Comment deathwing
deathwing's picture

 

it's asses like you why i have woken up - yes, i have lost my soul because i trusted fuckers like you in the past. here's a dose of real world - everyday we get closer to where the only thing that's going to matter is what i used to do and i know it's your fault. thanks.

 

Fri, 09/03/2010 - 21:51 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

v i c t i m , bastards.

Fri, 09/03/2010 - 22:54 | Link to Comment Hephasteus
Hephasteus's picture

Ya I hear ya. Seems inevitable. I mean if it's just a never ending assemlbly line of killing, everybody is probably going to throw down all at once anyway.

I mean it's not like peoples moms is going to tie their sons down and break thier knees and tell 'em you aint joining the army.

Fri, 09/03/2010 - 16:03 | Link to Comment bruiserND
Fri, 09/03/2010 - 16:15 | Link to Comment RobotTrader
RobotTrader's picture

Pretty much a huge day for the bulls.

Lots of new 52-week highs on the IBD Top 100:

http://clearstation.etrade.com/cgi-bin/bbs?post_id=9474802

Fri, 09/03/2010 - 16:16 | Link to Comment SheepDog-One
SheepDog-One's picture

Yep big day for the bulls. There are 2 of them left actually trading. Bernanke, and Geithner.

Fri, 09/03/2010 - 16:21 | Link to Comment RobotTrader
RobotTrader's picture

I loaded big a couple of days ago, just in case the market was going to run for awhile.  Breadth the last three days has been very strong, so odds are good we keep going for a few weeks.

Richard Russell's PTI turned positive 2 days ago, and the Summation Index turned up yesterday.

I never fade the Summation Index, ever.

Fri, 09/03/2010 - 18:33 | Link to Comment Lux Fiat
Lux Fiat's picture

I never fade the Summation Index, ever.

Yep, it has kept me on the right side of the market on many an occassion, against my "better" judgement.

Fri, 09/03/2010 - 18:36 | Link to Comment SheepDog-One
SheepDog-One's picture

see this is why I dont even believe you...youre holding 400 point DOW pop, over a 3 day weekend, just assuming of course it will be higher on Tuesday? So in THIS MARKET, youre 'buy n hold long' method? LMAO I do NOT believe it! Sorry man. BTW anyone can scour the markets for a few charts to post, big deal, lets hear something of substance, Mr Buynhold bull.

Sat, 09/04/2010 - 11:31 | Link to Comment ElvisDog
ElvisDog's picture

I've been a Russell subscriber since the 80's. The PTI is a lagging indicator (he may not think so). By the time it crosses the zero line you've missed a lot of the move. In this case, the PTI has been oscillating around the zero line, so I'm not sure much can be made from it crossing zero.

Fri, 09/03/2010 - 20:35 | Link to Comment done with them all
done with them all's picture

NICE :)

Fri, 09/03/2010 - 16:21 | Link to Comment SheepDog-One
SheepDog-One's picture

52 week highs, and why SHOULDNT they be in the land of no laws, nothin but lies, and free money for all! Well, free money for the FED and govt anyway, no money to actual people, no jobs no homes... but HEY got to keep up market appearances!

Fri, 09/03/2010 - 16:18 | Link to Comment RobotTrader
RobotTrader's picture

Cleared the 150-day with ease.

Fri, 09/03/2010 - 16:22 | Link to Comment SheepDog-One
SheepDog-One's picture

And why shouldnt it clear the 150 day with ease? All is well, Dept of Makin Shit Up did their part, and printing presses fully loaded with Mobil-1 extreme condition oil.

Fri, 09/03/2010 - 16:34 | Link to Comment william the bastard
william the bastard's picture

Look like that movie's been played before.

Fri, 09/03/2010 - 16:47 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Silver, helping dreams everywhere to stay alive.

Fri, 09/03/2010 - 17:57 | Link to Comment sheep92
sheep92's picture

Yes indeed.  All the talk is about where to sell this baby short cause for sure we are headed back to the lows.  Listened to David Rosenburg this morning on Bloomberg.  Sounded downright angry.

All the 'wrong stuff' is going up hard, housing, airlines, primary metals producers, industrials etc.

For a minute I was thinking about taking a few three day wonders off the table but it looks like its time to sit back and watch the latest round of shorts get blistered.

People forget that the US economy is not the world, nor are US equity prices determined by the marginal construction job in the US.  Unemployment rate in the US for people with a college degree is 4.6%, or basically full employment.

 

 

Fri, 09/03/2010 - 18:38 | Link to Comment SheepDog-One
SheepDog-One's picture

Yea and 99% of people with degrees dont produce shit except paperwork.

Fri, 09/03/2010 - 19:22 | Link to Comment SheepDog-One
SheepDog-One's picture

Also, be careful about chewing your cud in dreamland out in the cloverfields there bulls, youre looking real fat, content and happy and the market manipulators would just as soon take a big bite out of you rather than the 'shorts' every day. I even see permabulls saying its for sure not going down for months, man youre all fattened up big for the slaughter.

Fri, 09/03/2010 - 20:26 | Link to Comment pitz
pitz's picture

4.6%, yeah right!  Almost everyone in my 2002 graduating class is unemployed, from a top university. 

Sat, 09/04/2010 - 11:36 | Link to Comment ElvisDog
ElvisDog's picture

Yeah, that 4.6% number is meaningless on its own. I would ask "employed doing what?", waiting on tables? The better question is "what percentage of people with college degrees are working in their field of study at a high-paying job?". For recent graduates, that number is very low from all anecdotal evidence.

Sun, 09/05/2010 - 16:23 | Link to Comment RoRoTrader
RoRoTrader's picture

Like I said before Robot; Thx for posting the charts and comments, ie., Summation Index etc., as followup to the trigger, or the 'fix' as you so aptly described it, for the reversal higher; 200,000 Emini SP futures contracts buy at the close at 4PM on Tuesday Aug 31.

The timing of that trade had 'deliberate' stamped all over it.......maybe text book perfect too, just before Asian open as a prop for the flagging Nikki struggling below long term support of 9000 and then into the primary prints AUD GDP, CNY PMI, US Mfg ISM and NFP.......Labor Day weekend and a holiday.

Who knows, this maeuver may have bought the FED time for 3 weeks until its next FOMC date?

Debates over the issues are very important. At the risk of stating the obvious; when trading, so is being on the right side of price discovery, up or down.

Fri, 09/03/2010 - 16:26 | Link to Comment Bolweevil
Bolweevil's picture

Cults are so 20th century. Equity junkies are bloodied, but will return to the teet on promises of easy $. If it can go down 50% imagine the upside!

Fri, 09/03/2010 - 16:26 | Link to Comment SheepDog-One
SheepDog-One's picture

You know what I'll laugh about some morning in the next couple weeks- Whatever they have planned for the Oct emergency surprise hits overnite and all indexes are down -10% on open for a nice bull castration session.

Fri, 09/03/2010 - 16:29 | Link to Comment SheepDog-One
SheepDog-One's picture

Im convinced in Sept they have wild things planned, they want QE badly, not finding any new retail bagholders the higher they push on no volume, so theyll get it all done at once with terrorist attacks setting off Iran war, big market dump to crop any long who got in, and do their emergency QE too! This ones gonna be great, watching them all say 'what the hell HAPPENED, everything was going along so great! My charts were all perfect'! lol

Fri, 09/03/2010 - 16:33 | Link to Comment FranSix
FranSix's picture

The report can be found in much simpler form here (and much better expressed, imo)

http://www.safehaven.com/article/17982/the-rare-buy-stocks-signal-that-aint

What this article suggests is that equities may actually return to their historical mean, now that the bubble has truly blown, and that dividend yields must either reflect the risk of owning the stock, or that non-producing companies that cannot provide a yield will go the way of the dodo.

Fri, 09/03/2010 - 16:35 | Link to Comment SheepDog-One
SheepDog-One's picture

Thanks.

Fri, 09/03/2010 - 16:39 | Link to Comment Waterfallsparkles
Waterfallsparkles's picture

My Father grew up in the Depression.  He NEVER during his lifetime invest in stocks.  He lived to 73.  Those that have been burned will be gone for a life time.  Wall Streeters keep thinking they will be back and pump stocks to entice them.  But, most will never come back.

My Son is getting an offer for his Company.  I told him that no matter what you do, never put that that Money in the Stock Market.  Why have someone else determine your fate or your wealth?

I am so lucky that I invested in Rental Property instead of the Market.  I would be seriously hurt right now.  Although, the propertys have lost some value an I have lowered the rents from previous highs and I have had vacancys it still gives a decent return.

I am not braging because it took me 40 years to buy, maintain and pay off some of the propertys but  I still have my principal and have at least doubled or trippled my money.  Plus the Tenants helped to pay off the loans.

I do have a very small account in the Market and seem to get burned every time.

Fri, 09/03/2010 - 16:51 | Link to Comment FranSix
FranSix's picture

You have to remember that dividend yields were taxed at a 90% rate eventually, so the emphasis was on equity returns.

Fri, 09/03/2010 - 18:14 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

rental property, gift from above, who i mean the IRS.

write off e v e r y t h i n g, including your grandma.

Fri, 09/03/2010 - 18:39 | Link to Comment SheepDog-One
SheepDog-One's picture

My grandfather also, refused to ever put a dime in any bank and never bought a stock, he said theyll always take it from you sooner or later. NOW I know what he was talking about!

Fri, 09/03/2010 - 16:44 | Link to Comment Caviar Emptor
Caviar Emptor's picture

It's all about the GM IPO. 

That has to come off and stay afloat for a bit or else all hell will break loose. If GM has to start downsizing with big layoffs and plant closures then we can turn Michigan and most of the Great Lakes states into a national park and at least charge admission. 

Fri, 09/03/2010 - 18:40 | Link to Comment SheepDog-One
SheepDog-One's picture

Guess GM's 26% sales plunge isnt helping the 'buy GM' hype much.

Fri, 09/03/2010 - 19:42 | Link to Comment Blano
Blano's picture

I don't think GM will have any big layoffs or plant closures anytime soon no matter what the market.  Hell, during this latest sales downturn they didn't shut down the plants for July break like they have done EVERY year since who knows when.  They'll keep those puppies running somehow.

Sat, 09/04/2010 - 10:33 | Link to Comment Translational Lift
Translational Lift's picture

That's the Gubment way............Keep all the machines running.....including the printing presses....

Fri, 09/03/2010 - 16:54 | Link to Comment Yits and the Yimrum
Yits and the Yimrum's picture

very sweeeet!

Fri, 09/03/2010 - 17:02 | Link to Comment max2205
max2205's picture

IWM UP 8% for Sept. TNA up 24%. Just saying.....MORE COWBELL Bitchezzs

Fri, 09/03/2010 - 17:05 | Link to Comment Johnk
Johnk's picture

Didn't BusinessWeek cover this story in August 1979?

Fri, 09/03/2010 - 17:07 | Link to Comment Gimp
Gimp's picture

-Steak- Great song list thanks brother!

The Algerian pop artist Cheb Khalid is a nice surprise. Who says the muslims don't like to party!

Fri, 09/03/2010 - 17:11 | Link to Comment shushup
shushup's picture

If no one is buying and there are billions in retail outflows for 17 weeks then why are the indicies holding up so well?

Fri, 09/03/2010 - 18:41 | Link to Comment SheepDog-One
SheepDog-One's picture

Um, its called printing trillions of dollars and throwing it at stock indexes for the last 2 years! Did you just come out of a cave?

Fri, 09/03/2010 - 23:05 | Link to Comment pitz
pitz's picture

If the stock market was manipulated higher, then why is it that bonds, and not stocks, have been setting all-time highs? 

Sometimes I really wonder...  This zerohedge thing might just be a cult of equity haters!

Fri, 09/03/2010 - 17:14 | Link to Comment pitz
pitz's picture

The more people out of stocks, the better.

More returns left for the rest of us!  And cheap financing to boot if they go into bonds or cash.

As long as the stocks have a dividend return greater than my cost of financing, I'm happy!

Fri, 09/03/2010 - 19:24 | Link to Comment SheepDog-One
SheepDog-One's picture

WOW this is wild reading posts of people convinced full on economic boom is going on, nevermind everything says 'DEPRESSION'!

Fri, 09/03/2010 - 20:24 | Link to Comment pitz
pitz's picture

And just how exactly do you figure we emerge from a depression and see hiring?  Equity, not debt, is behind hiring decisions in the long run (a macro picture, of course).  Firms that have no equity or worthless equity do not hire. 

By most measures, the depression began not last year, but rather, back in 2000/2001.  So we're closer to the tail end of it, than the beginning. 

Sat, 09/04/2010 - 00:21 | Link to Comment Astute Investor
Astute Investor's picture

Flat stock market perfomance over 10 years does not equal a depression.  Stocks did nothing for 13 years from 1969-1982.

Sat, 09/04/2010 - 12:21 | Link to Comment pitz
pitz's picture

Flat job market performance (actually worse than flat once you adjust for immigration and population growth!).  A domestic economy over the past decade only supported by foreign imports.  Its not just the stock market, although the stock market's dramatic 80-95% (depending on how you measure) devaluation over the past decade definitely smells depression-like to me.

Sat, 09/04/2010 - 17:30 | Link to Comment Astute Investor
Astute Investor's picture

...although the stock market's dramatic 80-95% (depending on how you measure) devaluation over the past decade definitely smells depression-like to me.

I'd be curious to see the actual data / calculation(s) that supports this statement.

Sat, 09/04/2010 - 18:54 | Link to Comment FranSix
FranSix's picture

Couple of examples, adjusted for inflation:

http://dshort.com/charts/N225-SP500-deflation-series.html?N225-SP500-ove...

http://www.nowandfutures.com/forecast.html#bear_markets

Dividing by the gold price is the simplest way to go:

http://stockcharts.com/h-sc/ui?s=$TSX:$GOLD&p=M&st=1990-01-01&en=(today)&id=p86904071605&a=206968740&listNum=2

Sat, 09/04/2010 - 19:42 | Link to Comment Astute Investor
Astute Investor's picture

I clicked on the first link which was a little ambiguous.  Clicked on the chart for real (inflation-adjusted) return for the S&P 500 since 1970.  The SPX looks to be down about 38% since 2000 on a real basis.

I can only assume that the down 80-90% statement is based on a comparison with gold based on the second chart which looks to be down about 83%. 

 

Sat, 09/04/2010 - 20:46 | Link to Comment FranSix
FranSix's picture

Yes I can see why saying that a 90% decline would be an exaggeration.

Now and futures uses their own statistics, and they compare results on several bases.  So in adjusting for inflation, they arrive at a very close comparison between bear markets, which may be a way of forecasting the onset of the next bear and where it will wind up. (I've been following this one for quite some time, they seem to have it spot on.)

Gold is trailing somewhat behind shadowstats, so perhaps a modest way of arriving at depicting inflation-adjusted returns.

I am assuming using shadowstats, you would probably arrive at the 90% decline.

Mon, 09/06/2010 - 23:26 | Link to Comment pitz
pitz's picture

Nasdaq = 5000 in 2000, or roughly 25 ounces of gold.  Today, Nasdaq = 2000, or roughly 1.75 ounces of gold.

1-(1.75/25) = 93% down from the peak.

So, no, no Shadowstats required.

The Dow, obviously has done a little bit better, but not much. 

 

 

Fri, 09/03/2010 - 17:17 | Link to Comment Gimp
Gimp's picture

Trade the market don't invest. F**k the ponzi masters.

Long term investors are the ones who wall street relies on and the ones who are led to the abattoir!

Fri, 09/03/2010 - 17:20 | Link to Comment Bolweevil
Bolweevil's picture

Cults are so 20th century. Equity junkies are bloodied, but will return to the teet on promises of easy $. If it can go down 50% imagine the upside!

Fri, 09/03/2010 - 17:41 | Link to Comment Hall 9000
Hall 9000's picture

 

Tyler wrote:

"So let's recap what the medium- and long-term trends for the market are:

  • $2 trillion in equity sales from pension funds alone as capital flows normalize now that the "Equity Cult" is dead"
Last year my government stepped in and put a temporary freeze on outflows from my corporate pension plan.  Since I hope to be a recipient of it one day, assuming there is anything left over, this did not inspire me with great confidence, especially when the asset ratio mix is 70% equity and 30% fixed-income. Fortunately I have a plan B and C.

 

Fri, 09/03/2010 - 18:41 | Link to Comment Rob Jones
Rob Jones's picture

Another change since the 50's is that a much smaller percentage of many companies' earnings is making its way back into the pockets of the shareholders due to much higher compensation for upper management. For example, there are some tech companies that are making lots of money but have never paid a dividend. Every year they buy back roughly the same number of shares that they issue to management, so the only thing that the buybacks accomplish is to hide the earnings dilution from the shares issued to management. There is really no net benefit to shareholders. Even if a company has earnings of $100 billion per year, what good does that do if most of those earnings go into the pockets of management?

I think a lot of the blame for this situation can be assigned to mutual funds which just try to pick stocks without paying much attention to how the company is managed. They just approve whatever the management proposes and guess what: management proposes gigantic compensation packages for itself.

So if 90% of earnings went into the pockets of shareholders in the 50's, and now only 50% of earnings make it to the shareholders, you cannot really compare the PE ratios for the two time periods. Really you should compare the price/shareholder_earnings ratios, and I feel this ratio would be much higher now that it was in the 19th and early 20th centuries.

 

Fri, 09/03/2010 - 18:45 | Link to Comment SheepDog-One
SheepDog-One's picture

Rob, the company that you hold stock in will scalp you every time! Theyll lower their dividend, or play quarter end games with the share price, its ALL a damn rigged casino!

Fri, 09/03/2010 - 20:53 | Link to Comment pitz
pitz's picture

Yup, weren't share buybacks illegal "back then"?  

I have sympathy for those who claim that all the corporate profits go into executive compensation.  Because that is somewhat true.  But payrolls of non-executives have been severely depressed over the years (ie: the average US worker hasn't received a wage increase, in real terms, in the past 30 years).  So corporate profitability isn't overly impaired.

 

Sat, 09/04/2010 - 11:47 | Link to Comment ElvisDog
ElvisDog's picture

Bingo. Stock buybacks are almost exclusively done to prevent share dilution due to stock options and other gifts to higher executives. Ignore any other "analysis" for why companies buy back their own stock. Your take on how you can't compare the 50's and the present is also spot on, and yet the market is still driven by earnings yield and other nonsense. The proper question to ask is "how much of the recent company earnings will I see as a private investor?".

Fri, 09/03/2010 - 18:43 | Link to Comment SheepDog-One
SheepDog-One's picture

I NEVER understood the fascination with stocks anyway, you dont know the company unless you work there, all these CEO's look at their shareholders as people to scalp, and theyre all crooks! Throw in the BULLSHIT 'bid/ask' Ponzi ripoff technique that really only a MORON would buy into, and frankly I could never come up with a SINGLE reason to be in the stock market!

Fri, 09/03/2010 - 19:15 | Link to Comment bobert
bobert's picture

Bonds are as unpredictable today as stocks.

I know, I hold a lot of them.

Fri, 09/03/2010 - 19:23 | Link to Comment geopol
geopol's picture


Why The End Of The 'Equity Cult' Means Trillions In Upcoming Outflows From Stocks

And for other things

http://www.youtube.com/watch?v=VPr_T7btVgA

 

Fri, 09/03/2010 - 21:55 | Link to Comment kathy.chamberli...
kathy.chamberlin@gmail.com's picture

good twitter comment, from you geo, anyway.

Fri, 09/03/2010 - 20:02 | Link to Comment bobert
bobert's picture

The contrarian in me thinks that the equity cult persists.

Stocks will be good for something albeit nothing less than trading material.

Last Friday's slam dunking of bonds is a clear indication of why you would not wnat to feel safe in bonds at this time.

Where to go???

Fri, 09/03/2010 - 21:23 | Link to Comment dukeness
dukeness's picture

40-year bull market?  I guess 66-83 was great for equity holders... NOT!

Fri, 09/03/2010 - 23:01 | Link to Comment digilante
digilante's picture

Cult of equities over? Great! The "half-empty" crowd will find company for their misery. Meanwhile equites look well-positioned to grind higher and make fools of said crowd. I love ZH - always a glum prognostication when I need one...

d

Fri, 09/03/2010 - 23:48 | Link to Comment hettygreen
hettygreen's picture

Yes I am lazy and I did not read the whole fucking report. However all I need to know was in the "Market Outlook" (conclusions): "We think that current fears of a global double dip are overdone."

Move along people, nothing to see here but please continue to buy stocks even though reviewers of our "alarmist" rhetoric actually believe the tripe we write.

And SheepDog One I do like the cut of your jib.

Sat, 09/04/2010 - 11:04 | Link to Comment tom
tom's picture

An overall very good piece and a theme that we'll be hearing a lot more about. Even if the US can somehow avoid a flat-out fiscal crisis, which I doubt, P/E ratios will be grinding lower as boomers try to dump the low- and no-dividend equity portions of their retirement savings on a smaller, less hot-for-paper-profits generation.

But go ahead and short-term trade those pretty guppies however you want.

Sat, 09/04/2010 - 12:30 | Link to Comment pitz
pitz's picture

*delete*

Sat, 09/04/2010 - 23:47 | Link to Comment honestann
honestann's picture

The missing category (and alternative) is, the cult of the real.

The most obvious is real, physical platinum, gold, silver, nickel, copper, helium, rare-earths or other [take your pick] real, physical utilitarian material and productive equipment.

The real tension is between:

the cult of fiction
...and...
the cult of reality

Maybe, just maybe, some small but sufficiently finite minority of humans will recognize the fundamental story of human beings:  predators versus producers and fiction versus real.

Of course, these two are intimately connected.  The predators control the most powerful fictions (fiat currency == fiction, corporations and government == fictions (and accurately called "fictitious entities" in fundamental law) in order to steal real goods from producers, and effectively enslave the producers of the real physical goods that everyone needs to survive, predators included.

Note that producers of real, physical goods do not benefit AT ALL from fiction or predators, while predators positively need fiction --- to enslave, defraud and steal from producers the real, physical goods that predators and producers alike need to survive and enjoy life.

What is your cult?  What is your choice?

Join the cult of the real, the honest, the producer.
... or ...
Join the cult of the fiction, the dishonest, the predator.

Because, in fact, those are your fundamental choices.

Sun, 09/05/2010 - 08:52 | Link to Comment skippy9
skippy9's picture

Mr. Durden' You and the Citi crowd are behind the curve. Now that the small investor lemmings have been coaxed into low yielding paper bonds,the stock market will boom. Then when we're at fifteen hundred S&P you all will be coaxing the lemmings back into stocks. Get it?

Wed, 09/29/2010 - 05:49 | Link to Comment Herry12
Herry12's picture

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