The death of equities 2.0?

[umfundi]

Two interesting articles that attempt to find a herd mentality among investors:

http://www.npr.org/templates/story/stor ... =168146046

http://www.bloomberg.com/news/2012-12-2 ... tocks.html

It's enough to make me feel bullish!

Keith

[baw703916]

There does seem to be an empirical periodicity of 34 years or so (for example both 1966 and 2000 were market highs that it took an extended period of time to surpass--in the case of 2000, it still hasn't happened permanently).

So 1979 (the date of the Death of Equities article) + 34 comes out to...next week!

Even if you aren't convinced by the 34 year cycle, you probably haven't heard anyone use the term "irrational exuberance" lately.

[nisiprius]

The death of equities 1.0 was not herd mentality based on a crash. The full title of the famous article is "The Death of Equities: How inflation is destroying the stock market." It was a perfectly rational reaction to a 17-year-long period during which stocks failed to act as a hedge against inflation. In the words of the article,

Stocks were a reasonable hedge when inflation was low. But they proved helpless against the awesome inflation of the past decade. "People no longer think of stocks as an inflation hedge, and based on experience, that's a reasonable conclusion for them to have reached," says Richard Cohn, an associate professor of finance at the University of Illinois.

[telemark]

Even if you aren't convinced by the 34 year cycle, you probably haven't hear anyone use the dors "irrational exuberance" lately.

Funny you should mention that. It just turned up here

http://money.msn.com/investing/welcome- ... ion?page=0

but they're talking about corporate bonds.

[baw703916]

The death of equities 1.0 was not herd mentality based on a crash. The full title of the famous article is "The Death of Equities: How inflation is destroying the stock market." It was a perfectly rational reaction to a 17-year-long period during which stocks failed to act as a hedge against inflation. In the words of the article,

Stocks were a reasonable hedge when inflation was low. But they proved helpless against the awesome inflation of the past decade. "People no longer think of stocks as an inflation hedge, and based on experience, that's a reasonable conclusion for them to have reached," says Richard Cohn, an associate professor of finance at the University of Illinois.

I would claim that it is pretty much the same thing currently. inflation was much higher in the 1970s, but dividend yields were also considerably higher than they are now. The total real return in both cases has been negative. So how have stocks acted as a hedge against inflation these past 13 years? I'd say the primary difference between now and the 1970s isn't in equity markets, it's in bond markets and in real estate. Both of those are in a completely different situation than in the 70s (in opposite directions).

[baw703916]

Funny you should mention that. It just turned up here

http://money.msn.com/investing/welcome- ... ion?page=0

but they're talking about corporate bonds.

Interesting, thanks for mentioning it.