R.I.P. Equities?

“The equity party is over.”

If this were the lead on a story in Time or Newsweek, it might be a contrarian signal that stocks are heading for a prolonged bull market. But “The Equity Culture Loses Its Bloom” is in the December ’09/January ’10 issue of Institutional Investor.

In a somber but interesting long-term look at the markets, II lays out demographic, psychological and legal reasons for a cooling of the passion for equities that investors felt from the ’80s through the ’00s (with occasional nasty setbacks).

Pundits no less than Jeremy Siegel and Roger Ibbotson weigh in on how aging baby boomers, bruised by two bear markets in 10 years, are fleeing from stocks. On the upswing: funds that invest in bonds, infrastructure and hard assets that produce income, seen as more retirement-friendly.

A few images from the article’s crystal ball:

  • About 68 million Americans reach retirement age in the next 10 years will favor investments less prone to “wild fluctuations” than equities.
  • Pension funds are shifting toward bonds, driven by a 2006 law.
  • A Grant Thornton study shows the number of public companies in the US dropped 38% in the past 11 years.
  • Waning interest in equities will discourage new IPOs, and investment banks will put more emphasis on debt underwriting.
  • “Banks’ equity research departments can expect to feel a pinch,” including continued cutbacks in analyst coverage.
  • Smaller companies will find going public, or staying public, more difficult.
  • Private equity firms will continue to struggle to find profitable “exits.”

Of course, the obituary of equity markets has been written before – and II emphasizes it is talking about a loss of vitality, not the death of stocks. We should never bet too much on taking recent datapoints and drawing a line through them.

And then there are those who see the trend through a contrarian prism. Clifford Asness, head of AQR Capital Management, talks about the long-term decline of IPOs and shift in investor preferences toward bonds. But then he adds:

The decline of the equity culture means, all else equal, it’s time to invest in equities.

So there. What’s your thought on it?

© 2010 Johnson Strategic Communications Inc.

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One Response to “R.I.P. Equities?”

  1. Tweets that mention R.I.P. Equities? « IR Café -- Topsy.com Says:

    […] This post was mentioned on Twitter by irbloggers, Luis Oliveira. Luis Oliveira said: I haven't seen any mentions but Dick Johnson's IR Café http://bit.ly/6zNjUA on the I.I. article on the end of equities http://bit.ly/4IeIMk […]

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