We're almost to "The Death of Equities"!

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baw703916
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We're almost to "The Death of Equities"!

Post by baw703916 » Thu Jul 08, 2010 9:29 pm

[As a bit of background for newer Bogleheads, The Death of Equities was an infamous article in Business Week which appeared in 1979. Infamous, because within three years the 1982-2000 secular bull market, which increased valuations 1000%, began. Will history repeat itself?]

A positive signal, I think:

Not quite a new proclamation of The Death of Equities, but pretty darn close. An article in The Telegraph, Mind the Gap: Why the Bond Markets are Signalling a Depression.
There are two ways of looking at the phenomenon. Either it is an aberration, and therefore a buy signal for stock markets, or much more worrying, it marks the final death knell for Europe's 60-year love affair with equities
(my emphasis)

:D

Brad
Most of my posts assume no behavioral errors.

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jeffyscott
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Post by jeffyscott » Fri Jul 09, 2010 8:29 am

I didn't even know Europe had been having a love affair with equities, I thought this was a monogamous relationship with only the US. I am very distraught to learn that equities have been cheating on us all these years, running around two-timing us with Europe.
Few economists think either Europe or the US are about to enter a double dip. The market signal sent by the equity/bond crossover suggests otherwise.
This cross-over does not seem nearly so exciting as the "death cross" I've been hearing about, but ...mmm...double-dip

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neverknow
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Post by neverknow » Fri Jul 09, 2010 9:25 am

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DartThrower
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Re: We're almost to "The Death of Equities"!

Post by DartThrower » Fri Jul 09, 2010 12:59 pm

neverknow wrote:
Not to rain on your happy parade of the time is near for equities again, but I think this bit has more significance then folks give credence too:
But it is not just fear of deflation which is destroying the cult of equity. There are structural reasons too. The UK stock market used to be largely owned by its UK corporate and institutional constituents through their pension funds and savings products. As these funds mature and diversify into more risk averse investment strategies, that relationship is being progressively broken. UK equities have been dumped and government bonds hoarded.
I'll take the middle ground on this one. Although baby boomer demographics is a powerful force in our lives, many investors have built in a dose of conservatism already to account for that, and also to account for the large debt burden our country shoulders. These things are well known and discussed often in the media.

When they say "UK equities have been dumped and government bonds hoarded." I find it interesting that the statement is in the past tense. If equities have already been dumped, does that give us information that they will be dumped to an even greater extent in the future? Or has the market already acted on the information we are now discussing?

In addition, the modern world of investing is increasingly international in scope. The global economy is far more diverse demographically and fiscally than the US or UK alone. Having a reasonably large allocation to foreign equity (30-40% of equity) makes me slightly less fearful than I might otherwise be.

Life is good in the middle ground!
A Boglehead can stay the course longer than the market can stay irrational.

neverknow
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Post by neverknow » Fri Jul 09, 2010 3:59 pm

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Toons
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Post by Toons » Fri Jul 09, 2010 4:09 pm

Thanks for posting the article,It just reinforces what long term really means :D
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

walkinwood
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Re: We're almost to "The Death of Equities"!

Post by walkinwood » Fri Jul 09, 2010 4:36 pm

neverknow wrote:
This structural issue is here in the US, as well. Just given the rule of thumb - 100 minus your age ... what is that demographic bulge called "the baby boomers" doing? They are selling equities and buying bonds. Their age range is approximately 45-65 presently. They are both at their peak earning years, and their peak capital accumulation "stage in life". This is "a lot" of money selling equities and buying bonds.
A good point, but didn't I read someplace that most baby boomers have very little savings?

But wait! Most of them have pensions and the funds will need to liquidate their holdings. So, equities will fall in value

But wait again! Most of the working stiffs have 401-Ks and a lot of effort is going into making enrollment automatic, so there is demand for those equities.

Oh! But, unemployment is high, so there are fewer people stuffing 401Ks!

I think you can go on and on with these scenarios. That's what makes predicting the future impossible. Too many variables.

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Re: We're almost to "The Death of Equities"!

Post by bob90245 » Fri Jul 09, 2010 4:55 pm

walkinwood wrote:
neverknow wrote:This structural issue is here in the US, as well. Just given the rule of thumb - 100 minus your age ... what is that demographic bulge called "the baby boomers" doing? They are selling equities and buying bonds. Their age range is approximately 45-65 presently. They are both at their peak earning years, and their peak capital accumulation "stage in life". This is "a lot" of money selling equities and buying bonds.
A good point, but didn't I read someplace that most baby boomers have very little savings?
Walkinwood is closer to the mark. I remember reading somewhere that equity ownership is highly skewed. Similar to the 80/20 rule. Roughly speaking, 80% of equities are owned by a comparatively small segment composed of the very high net worth population. You think the Bill Gates or the Warren Buffetts of the world will be selling their equities? If so, why?
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.

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Post by neverknow » Fri Jul 09, 2010 5:54 pm

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TigerNest
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Re: We're almost to "The Death of Equities"!

Post by TigerNest » Fri Jul 09, 2010 6:20 pm

bob90245 wrote:Walkinwood is closer to the mark. I remember reading somewhere that equity ownership is highly skewed. Similar to the 80/20 rule. Roughly speaking, 80% of equities are owned by a comparatively small segment composed of the very high net worth population. You think the Bill Gates or the Warren Buffetts of the world will be selling their equities? If so, why?
Jack Bogle mentioned in 'Battle for the Soul of Capitalism" that the top 100 investment firms own a little over 50% of US free float.

The US is different than other markets in that our equity ownership is far more diffuse than Europe/Asia, due in part to our private pension/401k funds. In countries where pensions are government-run (similar to Social Security), there's less of a pension-investor influence in companies and far more majority-owned, family businesses.

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Post by jeffyscott » Fri Jul 09, 2010 6:47 pm

neverknow wrote:What are the 65 year old boomers doing? They are selling equities and buying bonds, as the rule of thumb 100 minus your age would imply.

I think most of them have very little to be shifting. Most income for 65 year olds is from SS, pensions, and working...not from their personal stock and bond portfolios.

In 2005, Social Security was the largest source of income for those currently age 65 and older, accounting for 40.1 percent of their income on average. Pension and annuities income was 19.3 percent, income from assets 13.6 percent, and income from earnings 24.8 percent.

http://www.ebri.org/publications/notes/ ... nt_id=3813
press on, regardless - John C. Bogle

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bob90245
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Re: We're almost to "The Death of Equities"!

Post by bob90245 » Fri Jul 09, 2010 7:36 pm

TigerNest wrote:
bob90245 wrote:Walkinwood is closer to the mark. I remember reading somewhere that equity ownership is highly skewed. Similar to the 80/20 rule. Roughly speaking, 80% of equities are owned by a comparatively small segment composed of the very high net worth population. You think the Bill Gates or the Warren Buffetts of the world will be selling their equities? If so, why?
Jack Bogle mentioned in 'Battle for the Soul of Capitalism" that the top 100 investment firms own a little over 50% of US free float.

The US is different than other markets in that our equity ownership is far more diffuse than Europe/Asia, due in part to our private pension/401k funds. In countries where pensions are government-run (similar to Social Security), there's less of a pension-investor influence in companies and far more majority-owned, family businesses.
Even if your counter argument is that pensions are influential, that influence is sure to diminish in the future. Many pension funds are a hurting. To cope, they are either freezing benefits or having new employees enroll in defined contribution plans.

As for 401k plans, employees, for the most part, are notoriously undisciplined buying stocks in rising markets and selling stocks in falling markets. I doubt that will change.
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.

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Post by trico » Fri Jul 09, 2010 8:19 pm

We will know when the death of equities is for real. When this website shuts down it will be close. Too many investors here need to be 0-100 allocation first. :idea:

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Re: We're almost to "The Death of Equities"!

Post by sommerfeld » Fri Jul 09, 2010 8:52 pm

bob90245 wrote:As for 401k plans, employees, for the most part, are notoriously undisciplined buying stocks in rising markets and selling stocks in falling markets. I doubt that will change.
According to a Vanguard study, the vast majority of 401(k) participants left their investments alone.
Despite the ongoing market volatility of 2009, only 13% of participants made one or more portfolio trades or exchanges during the year, down from 16% in 2008. As in prior years, most participants did not trade. Not only did participant trading activity return to lower levels during 2009, but trading activity in both 2008 and 2009 was lower than the trading activity during 2004–2005, when markets were more benign.
(source: Resilience in volatile markets: 401(k) participant behavior (PDF))

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bob90245
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Re: We're almost to "The Death of Equities"!

Post by bob90245 » Fri Jul 09, 2010 9:32 pm

sommerfeld wrote:
bob90245 wrote:As for 401k plans, employees, for the most part, are notoriously undisciplined buying stocks in rising markets and selling stocks in falling markets. I doubt that will change.
According to a Vanguard study, the vast majority of 401(k) participants left their investments alone.
Despite the ongoing market volatility of 2009, only 13% of participants made one or more portfolio trades or exchanges during the year, down from 16% in 2008. As in prior years, most participants did not trade. Not only did participant trading activity return to lower levels during 2009, but trading activity in both 2008 and 2009 was lower than the trading activity during 2004–2005, when markets were more benign.
(source: Resilience in volatile markets: 401(k) participant behavior (PDF))
Recall, I said for the most part. Meaning, there are exceptions like the one you cited. Vanguard plan participants are, no doubt, well aware of the buy-and-hold tradition that embodies the company Jack Bogle founded.
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.

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baw703916
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Post by baw703916 » Fri Jul 09, 2010 9:55 pm

I had never read the original Death of Equities article before (the link in the OP is to a reprint of the article). It was obviously an infamously bad bit of market prediction. But what's interesting in reading it is how much is similar to the present day:

-Only old people own stocks, so what future do equities have? (the main thesis of the article)
-Americans have a notoriously low savings rate, and are too reliant on appreciation of the price of their homes to bail them out.
-Buy Gold!!!
-We have a terrible budget deficit, a terrible trade deficit, and are at the mercy of geopolitics in terms of our energy supply

The major updating to the present would be simply to change "inflation" to "deflation" in a few places.

The more things change...

Brad
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Post by EO 11110 » Sat Jul 10, 2010 12:03 am

i think more likely the death of treasuries -

equities have been crushed for a decade (purchasing power adjusted).....death of equities is looking in the rear view mirror....been dead and stinking up the place :twisted:

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Post by EO 11110 » Sat Jul 10, 2010 1:36 am

EO 11110 wrote:i think more likely the death of treasuries -

equities have been crushed for a decade (purchasing power adjusted).....death of equities is looking in the rear view mirror....been dead and stinking up the place :twisted:
question is...does everyone hate equities...yet? that's when the "death" bottom is here (just mo). sentiment is the tell -

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