News Brief from AXA Equitable:
Highlights from recent notable market news reports
Feb. 10, 2012
The stock market has now officially entered a bull phase, after nearly tipping into bear market territory last year, with the MSCI All-Country World Index having risen 20 percent from its October low (“Defensive Stocks Lose for First Time Since 1999 Amid Bull Market,” by Matt Walcoff, Feb. 9, 2012, Bloomberg).
Sudhir Nanda of T. Rowe Price Group told Bloomberg: “Last year, investors tended to hide in things which are stable, paying reasonable dividends … This year, people looked at the U.S. and said, ‘Things are not really that bad.’ If the economy is humming, people tend to buy more of the sectors which will profit from growth, industrials, materials and things like that.”
Laurence D. Fink, CEO of BlackRock, sees a bright enough future in stocks to advise going all in (“BlackRock’s Fink Says Investors Should Be 100% in Equities,” by Bei Hu and Susan Li, Feb. 8, 2012, Bloomberg).
“I don’t have a view that the world is going to fall apart, so you need to take on more risk,” he told Bloomberg. “You need to overcome all this noise. When you look at dividend returns on equities versus bond yields, to me it’s a pretty easy decision to be heavily in equities.”
Warren Buffett, CEO of Berkshire Hathaway, seems to have a similar view taken from the bond-market perspective (“Warren Buffett: Why stocks beat gold and bonds,” by Warren Buffett, Feb. 9, 2012, Fortune). In an adaptation from his upcoming annual letter to shareholders, he writes:
“The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability – the reasoned probability – of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a nonfluctuating asset can be laden with risk.”
Buffett adds: “High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments – and indeed, rates in the early 1980s did that job nicely. Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label.”
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