The financial media loves a catch phrase and, with the apparent emotional hook of the ‘fiscal cliff’ diminished, we needed a new one. The current best candidate is the so-called ‘Great Rotation.’ The idea here is that investors, finally and completely fed up with the dismal returns from bonds, are going to move heavily back into equities. This is the ‘Great Rotation.’ When I Google the term, there are 820,000 search results. Not bad for a phrase that was invented in October 2012 (in a research note from Bank of America, apparently). Continue reading
In general, I ignore the spate of market predictions that experts issue at the start of each year. There are exceptions, and after reading Jason Hsu’s outlook for this year, I am pleased to recommend it to readers. Dr. Hsu is the Chief Investment Officer at global money management firm, Research Affiliates. I found his article both insightful and appropriately skeptical of all forecasts. How can you not appreciate a money manager who starts his prediction for the year ahead with John Galbraith’s quip that “the only function of economic forecasting is to make astrology look respectable”?
I am going to mention a few of the elements of Hsu’s outlooks and add some thoughts. Hsu first examines the drivers for bonds and then equities. I will follow this structure. Continue reading
One of the defining features of the last twenty years has been a persistent and fairly continuous belief that investing in the stock market was something of a sure road to wealth. The downturns in the stock market in the aftermath of the Tech bubble and, more recently, in the financial crisis, have shaken investors’ faith in the maxim that stocks are inevitably a good bet. The tendency of people to take it as an article of faith that equities will, ultimately, deliver high returns has been referred to as ‘the cult of equity.’ Two recent articles by experts that I respect propose that this phenomenon is dead or dying. Continue reading
Investors don’t trust the equities markets. That’s the theme of a number of articles out over the past couple of days. The Wall Street Journal’s portrait of panic on the day of the Flash Crash details how massive institutional traders’ behavior lead to the the amazing downward spiral and how only a market rumor — of a “fat” fingered mis-typed trade — slowed it. Plenty of people in the piece are worried we could see a repeat. Continue reading