CNBC carried an article today, via Financial Times, that talked about how much investors hate stocks. Some excerpts from the article:
…institutional investors, from pension funds to mutual funds sold directly to the public, have slashed holdings in the past decade. Stocks have not been so far out of favor for half a century. Many declare the “cult of the equity” dead.
Compared with bonds, stocks have not looked so cheap for half a century. During this period, the dividend yield — the amount paid out in dividends per share divided by the share price, a key measure of value — has been lower than the yield paid by bonds (which moves in the opposite direction to prices). In other words, investors were happy to take a lower interest rate from stocks than from bonds, despite their greater volatility, reflecting their confidence that returns from stocks would be higher in the long run.
But now investors want a higher yield from equities. According to Robert Shiller of Yale University, the dividend yield on U.S. stocks is today 1.97 percent — above the 1.72 percent yield on 10-year U.S. Treasury bonds.
Some hope that the cycle is about to turn and that the preconditions for a new cult of the equity will emerge even if it takes time. Few people doubt, however, that the old cult of the equity — which steered long-term savers into loading their portfolios with shares — has died.
Indeed, equities have not been so cheap relative to bonds since 1956, which turned out to be one of the best moments in history to have bought stocks.
In the U.S., inflows to bond funds have exceeded equity inflows every year since 2007, with outright net redemptions from equity funds in each of the past five years.
I swear I’m not making this up. Side-by-side, the article discusses the death of the equity cult while it mentions that stocks are at the best buying point in 50 years, apparently without irony. Wow.
Somewhere down the road there will be a catalyst—I have no idea what it will be, but it could be much sooner than most think. Contrary opinion would suggest that we look closely at the presumption that equities are really dead. It’s quite possible that stocks, like Monty Python’s Norwegian Blue, are just resting. When sentiment gets so highly tilted to one side it is worth examining to see if, in fact, the opposite is true.
Are Equities Dead or Just Resting?
maybe equities are dead because wall street heaps fraud after fraud on the american people, and while we can’t do anything about our equity exposure in our pensions, we sure as heck can vote with our own allocations. and we’re voting enough is enough.
We have been hearing about bond bubbles for over a year now. U.S. Bond yields continue to fall as equities continue to be shunned.
My guess is that the so called “bubble” continues until 10 year hits 0% or people across the globe realize that your current standard of living/retirement/healthcare/vacation, etc. is not the government.
It should be a rude awakening…