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Without wanting to be accused of being melodramatic, I did want to put this type of title into our current market outlook piece, as much to highlight what has been going on in stock markets for over a decade now as well as to try to look objectively beyond the current rhetoric and see if this could really be setting up as one of the better buying opportunities for stocks of the past few decades. Stocks have not been so far out of favour for half a century. Many declare the “cult of the equity” dead. With equity returns virtually flat for more than a decade, the incentive for investors to take risks has declined – which has lead to a huge flow of public and private funds out of stocks and into bonds. Two bear markets in ten years and a near collapse of the global financial system have served to undermine the confidence of investors across the globe. Add to that the increase in fraud (Bernie Madoff), financial time bombs (recent JP Morgan $2 billion trading losses), failures of the trading system (May 6, 2010, rout known as the ‘Flash Crash’ erased $862 billion in less than 20 minutes) and pure, unadulterated greed (the Facebook IPO) and we can see further evidence of why trust in the system has broken down.
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