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Czech markets  |  August 10, 2012 23:08:39

Petr Novotny: 4 reasons why shares (still) not dead

I am a big fan of Bill Gross, head of the largest bond fund PIMCO in the world, but with the way last week callously set about shares in a number of things I can not agree. I give the good reasons why I think it is too early to pronounce a verdict of the equities.

The fact that a lot of things in the financial world has changed after 2008, most investors have experienced. Perhaps the best the whole situation a few years ago was described by Bill Gross, who came up with the term "new normal", which also says that investors must settle for lower yields of almost all types of investments.

For everything is assumed long period of low economic growth in advanced economies and low interest rates no greater threat of inflation. In other words, investment income will not be as high as ever.In that Bill Gross totally agree.

PIMCO chief criticism of their current shares also reminded of an old title BusinessWeek magazine, who in 1979 predicted the end of Shares ("The Death of Equities"). After issue of shares gradually lost 8.5%, although it quickly to strengthen, but within three years, again minus about 5%.

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Whether the Gross's "End of Act 2" copy 33 years old almanac entry in the stock market, one can not predict. And so I want rather to point out the arguments that the shares are still far from a dead investment.

First Shares as a basic building block of long-term portfolio

Shares in my opinion, remain in the "new normal" integral part of every well-diversified portfolio. In particular, the long-term investments for retirement without portfolio would be a lot of stock ingredients truncated. The portfolio of shares should not be missed except cash, gold, real estate and high-quality corporate bonds.

Second Shares as (almost) the only option

Low interest rates on bank deposits in combination with supernízkými yields on government bonds (safe ground) they currently give investors little room for selection of investments other than just stocks. In addition to the most developed stock markets outperform their dividend-yield government bond yields. The shares are of course need to "get on" either on the basis of short-term trend confirmed, or in the regular, preferably monthly investment.

Third Development of the shares is not based (only) in Economics

Stock indexes undoubtedly affects many macroeconomic indicators such as inflation, unemployment and gross domestic product. In the longer term, however, the connection of events with very low economic growth, as shown for example, analysis of investment Crestmont Research .

4th Bill's interests

And yet another reason why perhaps Bill Gross started so strongly in stocks. Gross manages PIMCO investment company primarily bond portfolio and its largest fund Total Return Fund is an astronomical value of 263 billion USD.So Gross I think some lobbies for "their" bonds.

The title of the article I put in quotes on purpose the word "yet". The market is watching a number of things that Bill Gross in his provocative article did not mention, but in my opinion, one of the "death of the shares' real cause.

This is mainly the loss of investor confidence in the investment itself, which was shaken by various "flash crash" and weakening confidence in the regulators who are unable to turn to high-frequency traders (HFT). Lack of investor confidence is then reflected in an ever decreasing volume of trading in stock markets and shifting of attention such as the foreign exchange market Forex.

Petr Novotny, editor Investiční

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