It's time to get retro: Bank of America Merrill Lynch's equity strategy team have put together a fairly hefty reportfilled with information and charts detailing market activities for, at the extreme end, just about five-hundred years. It also comes with a quick video summary. The treasure trove of riches include US equity prices from 1871, Dutch bond yields since 1517, the oil price since 1861, risk premia from 1900 to-date and German dividend yields since 1869, among many other charts.
Knowledge of how today’s Dutch bonds trade in relation to their 16th century equivalents will, of course, be highly beneficial for a number of investors...Nevertheless, BAML strategists have come up with a number of recommendations based on the data that they’ve collected and charted:
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“The study shows the historical significance of today’s asset markets with 2012 seeing multi-century lows in government bond yields in Developed Markets, the cheapest European equities since the 1920s and the conclusion of the greatest US real estate bear market since the early 1990s. Secular trends in bonds, equities and other asset classes allow us to advise what the long-term contrarian investor should do. We believe a secular contrarian should be buying Equities, European assets, Japan and Financial & Telecom stocks and selling Gold, Bonds, Emerging Markets and Resources & Consumer Staples stocks. We nonetheless remain of the view that the catalyst for a decisive change in secular market leadership (or “Great Rotation”) awaits a “good” bear market in bonds caused by real estate, labor and banking markets ending the current Era of Deleveraging.”
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BAML is confident that, looking at the historical data, we're due a bull market for equities. BAML's data reveals that the four equity breakouts from a long-run trading range since 1900 have coincided with a secular inflection point in bonds:
BAML is predicting:
| "A new secular bull market in equities incoming years therefore requires a secular bear market in bonds and a “good” rise in interest rates." |
Chew over some of these interesting stats. For example: $1 invested in US large company stocks in 1824 would be worth around $3,642,000 today, provided that dividends were reinvested. This may provide useful investment advice should any of Euromoney's readership prove to be particularly long-lived.
The chart below is illustrative in regard to emerging markets: while they may be below their peak in 2007, they are still up 63 times on what they were at the start of the bull market following the unravelling of the old Bretton Woods system:
And if you think that the yields being paid by the Portuguese or Spanish sovereigns at the moment are onerous, have a look at what the Dutch sovereign was paying back when BAML's records begin:
Dutch bonds are yielding the lowest amount in 500 years, causing BAML to warn that the low expected returns from the bonds in coming years makes them unattractive to a long-run contrarian investor.
Now, of course, all the standard caveats with historical data apply here but there is much worthwhile fodder in this report.