However, the quizzically minded might ponder why equity withdrawal was much higher in 2007 (the peak year for European equity withdrawal), considering rates then were considerably higher than they are now. The correlation does not seem to run purely aligned to lower rates. On one hand it has been driven by the sleight of hand in manipulative buybacks and, of course, when directorial pockets are being lined, the yield cost of bonds might not be as instrumental in the calculation as it should be. But the principal reason might also be the simple desire, by all investors, to buy risk free assets. The demand for bond investments and the ability to receive back the capital you invested, at a future date, was obviously the driver for swathes of ultra-safe investment post 2000 and 2007. At those times, bond demand totally outstripped supply,  FED, who were also buying every government bond that displayed any degree of liquidity. The safety aspect gradually gave way to greed, as it always does, and we saw the introduction of corporate bond  world of investors who suddenly understood bonds.


There are many problems with ETF structures but the implicit ‘marketing’ of them as intrinsically safer products than the underlying components within them, has led to a bloated and lazy ownership base, which has been misled through a disingenuous blurring between the concepts of ‘easy to use’ and ‘safe to own’.


The cult of equity that drove equity markets on a stellar run between 1980 and 2000, was already being challenged post the tech crash in 2000. UK pension funds at that stage were running portfolios of 80 % long equities. The demographic of their users was younger baby boomers, who are now more appreciative of the golf course than the work place. As they aged, their portfolios had to mature too. Pension  liabilities with the guaranteed return government  equities and into bonds. We had pension funds buying bonds and selling equities, we had the central banks buying bonds alongside safety conscious savers, who  provider of bonds were ever more indebted sovereigns and the salivating greedy buyback corporates.


And here as we stand now, large cycles appear to have run their course. As rates have risen, nearly doubling in the US over 6 months, the buybacks have already waned. The Fed no longer buys bonds and in all but sycophantic words is now a seller. The only bond holder appears to be the retail man in the street.


Were markets not forever thus?


Andy Ash E: andy.ash@admisi.com


THE CULT OF EQUITY THAT DROVE EQUITY MARKETS ON A STELLAR RUN BETWEEN 1980 AND 2000, WAS ALREADY BEING CHALLENGED POST THE TECH CRASH IN 2000.


5 | ADMISI - The Ghost In The Machine | March/April 2018


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