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FT: Markets: Out of stock


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I love seeing these articles...(the death of equities part)




I love when people treat stocks as one entity, as if they are all the same.


"I won't ever invest in stocks. They suck. Look at Facebook!"


Also what the hell is this:

"As equity markets shrink, so does the sway of the owners of that equity, reducing shareholder control over companies – and challenging accepted concepts of corporate ownership."


Are we in the time Buffett was in during his heyday?


"Some hope that the cycle is about to turn and that the preconditions for a new cult of the equity will emerge even if it takes time. Few people doubt, however, that the old cult of the equity – which steered long-term savers into loading their portfolios with shares – has died."


"Indeed, equities have not been so cheap relative to bonds since 1956, which turned out to be one of the best moments in history to have bought stocks. George Ross Goobey, the British fund manager who ran Imperial Tobacco’s pension fund, had announced to great scepticism that he was shifting his entire portfolio into equities, sparking the cult of the equity because dividend yields exceeded bond yields."


And finally, the epic quote that you'll look back on in ten years and laugh:

"For Mr Buckland, this is “the logical response to the collapse in investor appetite for equities evident in the past decade”. But it also implies that capitalism as currently conceived, where corporate managers are responsible to their owners through the stock market, is under threat.


With fund managers under pressure to buy bonds – and companies content to adapt to this rather than create the conditions where equities might look exciting again – it is easy to see why they believe the next cult of the equity is still up to a decade away. For Mr Utermann, there is “no natural flow into equities” for the next five to 10 years. “The rules of the game have changed”."



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Some of these statements are totally out of left field.  In corporate securities, stock and bonds are tied to the same set of cash flows.  The label stock and bond doesn't matter its the cash flows the securities have a claim on. They are right in their observation.  For example, look at LinTV.  Bonds are trading at yield of 8.0% but equity has a FCF of 42% (before acquisition) and 67% (after acquisition) and 4.3x Debt to EBITDA ratio and 3.0x EBITDA coverage.  So you have a modestly leveraged firm where the FCF yield is 5x to 8x the bond yield.  Just incredable.



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