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After any bear run in shares some folks always grab headlines by saying we have seen “The Death of Equities.” Heck, you have lost your shirt it sounds believable. And so when major bond investor Bill Gross proclaimed the Death of Equities on August 1st he grabbed the headlines. Before you rush out to buy bonds (a really hugely overvalued asset class) perhaps look back in history.
Jason Zweig (whose introduction and accompanying notes to the most recent edition of Ben Grahams’ The Intelligent Investor are superb) points out on his website that on this day 33 years ago
“Business Week’s cover proclaims THE DEATH OF EQUITIES: “Only the elderly, who have not understood the changes in the nation’s financial markets, or who are unable to adjust to them, are sticking with stocks…. the U.S. economy probably has to regard the death of equities as a near-permanent condition — reversible some day, but not soon…. It turns out that this “near-permanent condition” will last three years to the day.”
Because on this day 30 years ago, Zweig continues:
“It’s Friday the 13th, and one of the greatest bull markets of all time begins — but no one believes it is happening. The Federal Reserve cuts its discount rate by a half-point to 10.5%, and the Dow Jones Industrial Average jumps 11.13 points from the previous day’s level of 776.92, closing at 788.05. Ronald Koenig of Ladenburg, Thalmann & Co., tells The New York Times that the Dow Jones Industrial Average “could drop to as low as the 730 to 740 level before any meaningful recovery takes place.” Kenneth G. Catanella of E.F. Hutton & Co. tells the Wall Street Journal that the market is in the grip of “outright capitulation and panic selling by both large and small investors.”
I am not saying that we are about to set off on a great bull run. Just that Gross is not the first to call the death of equities and that in every case to date reports of that death were a) inaccurate and b) if accompanies by a lot of supportive commentary elsewhere, rather a good sign that we were at an attractive long term buying point.
I think he was basically saying that rates of return would be lower.
corporate profits should disappoint going forward (you have written about China, etc)
it is only the money printing environment which may help………
Graham
He used the phrase! Yes rates of return may be lower ( short term yes, LT we do not know) but does that make an asset class dead? Surely depends on pricing of that asset class as well
Best wishes
Tom