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http://www.businessinsider.com/goldman-the-long-good-buy-the-case-for-equities-2012-3
Goldman portfolio strategists Peter Oppenheimer and Matthieu Walterspiler are out with a doozy of report, basically presenting a big bullish case for stocks, relative to bonds.
Undoubtedly this is going to be the story of the day, and will be discussed quite heavily.
The report is titled The Long Good Buy; the Case for Equities, and it essentially makes an equity-risk premium argument that stocks are just impossibly cheap relative to bonds, and that the scenario currently being priced into the markets is just unrealistically negative... even with the bug runup in stocks since early 2009.
This piece of history that Oppenheimer and Walterspiler present offers the backbone of the case:
'In 1956, George Ross Goobey, the general manager of the Imperial Tobacco pension fund in the UK made a controversial speech to the Association of Superannuation and Pension Funds (ASPF) arguing the merits of investing in equities to generate inflation linked growth for pension funds. He became famous for allocating the entirety of the funds investments to equities, a move
that is often associated with the start of the so-called ‘cult of the equity’.
Prior to this, equities were largely seen as volatile assets that achieved lower risk adjusted returns than government bonds and, consequently, required a higher yield. As more institutions warmed to the idea of shifting funds into equities, partly as a hedge against inflation, the yield on equities declined and the so-called ‘reverse yield gap’ was born. This refers to the fall in dividend yields to below government bond yields; a pattern that has continued, in most developed economies, until recently.
In his speech to the ASPF, Ross Goobey talked about the long-run historical evidence that the ex-post equity risk premium was positive and that investors ignored this at their own peril.'
chart
Goldman portfolio strategists Peter Oppenheimer and Matthieu Walterspiler are out with a doozy of report, basically presenting a big bullish case for stocks, relative to bonds.
Undoubtedly this is going to be the story of the day, and will be discussed quite heavily.
The report is titled The Long Good Buy; the Case for Equities, and it essentially makes an equity-risk premium argument that stocks are just impossibly cheap relative to bonds, and that the scenario currently being priced into the markets is just unrealistically negative... even with the bug runup in stocks since early 2009.
This piece of history that Oppenheimer and Walterspiler present offers the backbone of the case:
'In 1956, George Ross Goobey, the general manager of the Imperial Tobacco pension fund in the UK made a controversial speech to the Association of Superannuation and Pension Funds (ASPF) arguing the merits of investing in equities to generate inflation linked growth for pension funds. He became famous for allocating the entirety of the funds investments to equities, a move
that is often associated with the start of the so-called ‘cult of the equity’.
Prior to this, equities were largely seen as volatile assets that achieved lower risk adjusted returns than government bonds and, consequently, required a higher yield. As more institutions warmed to the idea of shifting funds into equities, partly as a hedge against inflation, the yield on equities declined and the so-called ‘reverse yield gap’ was born. This refers to the fall in dividend yields to below government bond yields; a pattern that has continued, in most developed economies, until recently.
In his speech to the ASPF, Ross Goobey talked about the long-run historical evidence that the ex-post equity risk premium was positive and that investors ignored this at their own peril.'
chart
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