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[dTraderB]

The New Death-of-Equities By MICHAEL SANTOLI | MORE ARTICLES BY AUTHOR Eulogies for stock investors are premature. Reports on the death of the public stock investor may only be slightly exaggerated. But these reports have certainly gotten loud, shrill and rife lately. The Financial Times last week, in a much-discussed page one tease for a long article about investors' disdain of stocks, asked, "The Death of Equities?" Like the infamous August 1979 "Death of Equities" Business Week cover it echoes (which eventually proved a vivid contrary indicator), the FT piece is more descriptive of risk-averse institutional attitudes than an argument for why stocks ought to be shunned. A day earlier, the tech entrepreneur, investor and basketball-team owner Mark Cuban wrote on his blog: "Say goodbye to the individual investor on Wall Street. Whatever positive impression they had of the IPO market and the stock market in general was just torched to the ground." Striking the match, in this view, was the botched debut of Facebook shares (ticker: FB), which featured allegations of selective disclosure to favored Wall Street clients. (A week earlier, Cuban had blogged that the Facebook deal "could lead to individual retail investors coming back into the market"; note that absent among his numerous titles is "public intellectual.") Meantime, leading electronic trading network Liquidnet this week is staging a conference panel called "Crisis in Confidence: What is the future of equities investing?" While all of the attention on individuals' virtual boycott of stock investing is logical, the discussion tends to produce faulty conclusions. Specifically, that this phenomenon is somehow news, that it is poised to reverse soon, and that it is somehow central to the market's performance prospects. It's a stale observation by now that Main Street prefers bonds. Something like a net $1.4 trillion swing in money flow from stock to bond mutual funds began in 2007, not last month. The notion that such a preference is likely to reverse before long, simply because it's gone this far for this long, is sketchy. This is the common but untrustworthy "cash from the sidelines" reasoning. Such a shift from a state of risk aversion brought on by two 50% market drops in a decade and more scandals and scare headlines than you can count, won't occur spontaneously, no matter how many uninformative charts tracking Treasury yields versus earnings yields are waved in the air. For the last year, headline-fearing, stock-avoiding households have done just fine. Maybe the bond holdings they consider "safe" will have to produce losses for them to reconsider their stance, suggests Jason Trennert of Strategas Group. But that could take a while. A longer, calmer climb in the market is likely what will be required. Currently, the 10-year trailing annualized return (excluding dividends) has risen from below zero to a bit over 2%, a level and trajectory that in the past has implied pretty good multi-year returns to come. Upon request, Strategas calculated that if the S&P is at today's level on Oct. 9, the tenth anniversary of the 2002 bear-market low, the ten-year trailing return would be 5.5%. That's similar to post-bear periods in the late '40s and late '70s -- decent times to lay patient bets on equities, but not the start of bull-market manias. Finally, both optimistic and downbeat commentators wrongly use the public's wariness toward stocks as support for their market outlook. Bears, who claim broad investment flows are needed to hold up stocks, should note that the U.S. market just doubled in three years with retail selling into the move. Bulls are crowing about the contrarian implications of all the "death of equities" talk a bit too much; even the FT's own FT Alphaville blog assumed this posture. And they might recall that a dearth of popular excitement about the market hasn't prevented nasty downturns the past couple of years. Squaring the bear and bull positions, perhaps equities are unlikely to see the upside that comes from much-higher valuations without eager Main Street money and can still remain vulnerable to financial shocks, yet the longer-term forces of mean reversion should make for decent five- and 10-year results. Ronald O'Hanley, president of asset management and corporate services at Fidelity, ventured in a speech recently that "the next decade could look like the 1950s. It was a great decade for equities, but market participation was low." Doug Ramsey of Leuthold Group wrote this month that "a new market high could potentially occur with no help at all from the public." He cites the '74-'80 market, which in total rose 120% with small caps doing far better. "The sharp market declines of mid-2010 and mid-2011 have probably served the same purpose as the 1976-1977 decline -- flushing out retail investors just as they were finally preparing to tiptoe back in."Imagine that. Finding ourselves in a time when likening the present market moment to the malaise-stricken late '70s passes for an upbeat sentiment.