“The cult of equity is dead.” – Bill Gross, CIO of PIMCO & manager of the world’s largest bond fund

Perhaps the most famous spectacularly incorrect forecast was the August 13, 1979 BusinessWeek article titled “The Death of Equities”. It signaled the start of one of the greatest bull markets in history with the S&P500 rising 2,635% from 1980-99.1

That is why I was surprised to see a financial heavyweight like Bill Gross making the same forecast now. Will this forecast signal the start of the next great bull market?

Forecasts like this are worth understanding because they reveal deeper truths.

First, let me tell you what was said and then I’ll explain why I think he is wrong and what this should tell us.

What was this high profile debate?

The quote: “The cult of equity is dead” in Bill Gross’ annual report led to an entertaining, high profile debate during interviews on Bloomberg2 with another financial heavyweight, Prof. Jeremy Siegel, Wharton finance professor and author of “Stocks for the Long Run”. In his monthly investment outlook July 31, Gross said that the so-called “Siegel Constant” (see Chart 1), which shows a long term history of equity real returns of 6.6 percent above inflation since 1912, may be a “historical freak” unlikely to be seen again.2 His reason is: “It’s hard to see how corporations and stocks can continue to earn 3 percent more than GDP going forward and that’s only common sense.”

Prof. Siegel’s response was that his research goes back to 1800 and the long term return of the stock market in the 1800s was similar to the 1900s 3. In addition, research by Dimson, Marsh & Staunton in the investment classic “Triumph of the Optimists” found that all 16 major industrialized countries in the world had similar stock market returns above inflation since 1900 3.

History clearly supports the Siegel Constant.


How do we know Bill Gross is wrong?

The media billed it as a debate of heavyweights, but when you look at their reasons, it is clearly a different story. Jeremy Siegel’s evidence was 200 years of history in the US and 100 years of history in the 15 other major industrialized countries. Bill Gross’ evidence is a conclusion drawn from looking at one economic statistic (GDP). There is no comparison between the strength of their evidence.

Readers of my previous articles will know that I am a skeptic of people using the economy to try to forecast the stock market5. This is another clear example.

As an accountant, it is easy for me to see the flaw in Bill Gross’ argument. He compares the stock market to the gross domestic product (GDP) 4 and calls them both “wealth”. This is wrong. He is comparing an asset to an income. They are apples and oranges.

GDP is not “wealth”. It is wealth created during one year.

Comparing the stock market (an asset) to GDP (a measure of income) is like comparing your investments to your salary. Is it possible for your investments to increase faster than your salary? Of course. They are apples and oranges.

Why are such prominent forecasts consistently wrong?

The media is far more useful as a measure of popular sentiment than as source of accurate forecasts. Naturally, popular sentiment is most negative close to market lows or after extended periods of difficult markets. It is times like these that this type of forecast tends to be made.

The sentiment today is extremely negative, similar to 1979. The BusinessWeek story back in 1979 noted that: “At least seven million shareholders have defected from the stock market since 1970”. Recently, both the Financial Times (May 25) and The New York Times (May 28) have run stories on the flight of individual investors from stocks. The New York Times story of May 28, 2012 quotes a Gallup poll showing that the number of Americans invested in the stock market dropped to 53% in April 2012 from 65% in 2007. The 53% reading is the lowest since Gallup started asking the question in 1998.

The key point here is that negative popular sentiment and forecasts like the “Death of Equities” tend to happen closer to a market low than a market high.

At the other end of the scale, market highs tend to attract overly optimistic predictions. After the huge bull market of the 1990s, Harry Dent famously forecasted in his book “The Roaring 2000s” (October 14, 1999) that the DOW would reach 35,000 by 2008. At the time, the DOW was just over 11,000, so this forecast was that the market would more than triple in 9 years.

This type of bold, overly optimistic forecast tends to happen near market highs.

What should this tell us?

Should we take this forecast as an indication of the start of a new bull market?

Short term forecasts are always difficult, but long term stock market forecasts can be easy. This tells us that popular sentiment is far too negative today. This is good, because extreme negative sentiment tends to happen closer to market lows.

The evidence of history in the “Siegel Constant” is that the stock market consistently rises long term. Today, we also have the opportunity provided by extreme negative sentiment and positive signals like a forecast of the “Death of Equities”. This should tell us that it is a very good time to be invested.

1 Standard & Poor’s
2 Bloomberg http://www.bloomberg.com/news/2012-08-02/siegel-says-gross-is-wrong-in-attack-on-stock-investing.html
3 Watch the interview with Jeremy Siegel here: http://www.bloomberg.com/video/siegel-on-ecb-decision-stocks-bonds-YhgQ9_jURkOmGiNUaqFgkw.html
4 Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period.
5 Why the economy is not relevant to investing.

About the Author: Ed Rempel is a Certified Financial Planner (CFP) and Certified Management Accountant (CMA) who built his practice by providing his clients solid, comprehensive financial plans and personal coaching.  If you would like to contact Ed, you can leave a comment in this post, or visit his website EdRempel.com.  You can read his other articles here.


  1. TC on August 13, 2012 at 10:44 am

    Thanks for this perspective, Ed. It’s easy to get caught up in the emotion of headline quotes like The Death of Equities when you’re watching your portfolio struggle. I was searching for a measured view of Gross’s thesis and you provided it.

  2. Donnie Lawson on August 13, 2012 at 4:45 pm

    Gross runs a bond fund so no surprise here. To me this is just noise and anyone who thinks they can predict the market is either delusional or a liar (billionaire fund manager or do-it-yourself-er).

    Thanks for the article Ed.

  3. My Own Advisor on August 13, 2012 at 7:44 pm

    Hi Ed,

    Your article, while very good, is forgetting one important element:

    Bill Gross manages the world’s largest bond fund. It’s in his best interest to say equities are dead :)


  4. Earth and Money on August 13, 2012 at 9:42 pm

    Interesting article, and reassuring to say the least for those of us invested in equities.

  5. LifeInsuranceCanada.Com Inc. on August 13, 2012 at 10:59 pm

    Why is this portrayed as being so complicated? Equities are just investments in a whole bunch of publicly traded companies. When the economy sucks and companies are struggling, equities are going to go down. When the economy returns and companies start to boom, equities will rebound. It’s not any more difficult than that, unless you’re trying to time the idiosyncracies of the market.

    Saying equities are dead is suggesting that the industrialized world and all the businesses out there are never going to rebound. Clearly that’s absurd. They’ll come back, maybe tomorrow, maybe in 10 years. But the economy won’t suck forever.

  6. SST on August 14, 2012 at 11:51 am

    Mr. Gross may have been correct in 1979 if the American government did not deregulated the banking system/financial industry starting in 1980.

    Without all that free-and-easy money (aka inflation) fueling the “Greatest Bull Market” — emphasis on the ‘bull’ — in history, who knows where equity prices would have gone.

  7. Ed Rempel on August 15, 2012 at 12:29 pm

    Hi LifeInsurance,

    I agree completely. The big picture is simple. You said it well. Clearly it is absurd that the industrialized world and all the businesses out there are never going to grow their profits.

    Despite how simple this is, we have met a lot of people that all seem think they have a unique idea that the stock market is never going to grow again.

    I have written several articles recently on this theme, since so many people have lost confidence in the stock market today. It seems that expecting normal long term stock market growth is the contrarian view today.


  8. Ed Rempel on August 15, 2012 at 12:40 pm

    Hi LifeInsurance,

    It is even simpler than you think. It is not even dependent on the economy.

    Believe it or not, the stock market is not correlated to the economy – short term or long term.

    The correlation year by year is very low (about 10%) and long term (100 years) it is negative (-30%). Long term, slower growing economies have faster growing economies.

    If you doubt this, read these articles: https://milliondollarjourney.com/why-the-long-term-growth-of-the-economy-is-not-relevant-to-investing.htm and https://milliondollarjourney.com/why-the-economy-is-not-relevant-to-investing.htm .

    The stock market to some extent predicts the economy a year or more from now (about 30%), but there are many other factors.

    My point is that even if the economy sucks for many years (which I’m sure it won’t), the stock market should still grow. The large businesses will find other ways to grow their profits.


  9. Goldberg on August 15, 2012 at 4:47 pm


    Thanks for those two links (in reply #8). Very interesting.

    I’ll dig deeper into this potential negative correlation…

    As for your post, it’s similar echos what many financial writers were writing in the mid-2000’s (before they all became gold bugs) of the 17 years bull-bear cycles. That would mean the next bull market would start in 2017 (or 2015 to 2020 to create a range). Not that I’ve heard much logic behind such cycle length.

  10. Ed Rempel on August 17, 2012 at 1:57 am

    Hi Goldberg,

    I believe the 17-year cycles is an error. I have read quite a few articles about 17-year flat periods in the stock market followed by 17-year large booms. You see this if you exclude dividends from stock market returns.

    However, if you look at the total return of the stock market, the 17-year flat periods have never happened.

    I’m not sure if the writers are unaware they are excluding dividends or are excluding them knowingly to try to make a point to support buying gold, but whenever you read someone talking about 15-year or 17-year flat periods for the stock market, you know they are not referring to the total return of the stock market.

    Which writers are you referring to? I can’t think of anybody forecasting the death of equities in the mid-2000s – except for some permanent gold bugs.


  11. Goldberg on August 17, 2012 at 3:11 pm

    Ed, to answer your question.

    Sjuggerud, Stansberry, Casey, Mauldin, etc. None of them ever predicted a death of equities. Just to look elsewhere for higher returns until the end of this expected cycle. Sjuggerud in arts and coins while Casey in gold.

    Stansberry focus heavily on dividend investing (and option’s selling). Maybe because of this perceived 17-year cycle which can be saved from being flat by its dividends (as you mentioned above). Options selling is best when the stock doesn’t move… since you profit from pocketing the premium. (I have never done it so I don’t really know what I’m talking about).

    This theory has been right since 2001. Not flat but definately lower returns from 2001 to now than from the 17 years prior – assuming you never sold the S&P in the past 30 years.

    And I agree. My dividends is the main reason for my positive return. That’s not the same as in a general bull market.

    Again, I am not aware of any logic as to why such multi-decade cycle would exist. Just that it seems like it does…

  12. Sri Amudhan on August 19, 2012 at 5:03 pm


    Good article. Makes sense. But I also think we shouldn’t forget something.

    Each investor invests in different asset types presumably to achieve a specific goal, whatever that may be – i.e. retirement, funding kids’ education etc. The closer one gets to the time by which the goal is to be achieved, and the more one is “behind” in terms of achieving that goal, it doesn’t really matter whether the concerned market (stocks etc.) goes up or down in the “long run”.

    What ultimately matters to that particular investor is how to achieve the goal in question – which means one should be flexible and have a plan B or C if plan A (being invested in equities) is not working out relative to the goal in question and the time left.

    Having said that, I do of course hope that we will see a good bull market at least starting 2013, after the US elections and clarity to the markets from the fiscal policies in the US and Europe. With less uncertainty, hopefully patient investors like me will start seeing markets better reflect companies’ fundamentals and less of meaningless noise and volatility.


  13. Ed Rempel on March 17, 2013 at 11:40 pm

    Hi Sri,

    Plan A (investing in equities) has historically always worked out long term. Occasionally, you have to wait 20 or 25 years to get good returns, but equities have always provided strong long term returns.

    Good call on the uncertainty disappearing, by the way, Sri! With the uncertainty over the US election, Europe debt, US debt, etc. all declining (since they were all exaggerated in the news), the markets have taken off – starting just before the election – just as you hoped.


  14. SST on April 11, 2013 at 9:30 pm

    Yes, equities are dead.
    It’s very obvious what is fueling their zombie-like march:


    Good luck.

  15. Ed Rempel on April 14, 2013 at 11:15 pm

    The stock market has rebounded because earnings of companies have risen – as you would expect it to.

    Profits have risen faster than the stock market, so the ratio of price to earnings (P/E ratio) is lower today than immediately before or immediately after the 2008 crisis.

    All the stimulus and Q/E have helped stimulate the economy, but the effect on the stock market is unknown, and likely not much. The stock market has bounced back as fast or faster on it’s own in all the major market crashes in the last 140 years except one.

    In short, stimulus has created a recovery more slow than nearly all previous recoveries that did not have stimulus.

    This recovery is a somewhat “slow-motion recovery”. If the Q/E and stimulus had never happened, the stock market would have recovered on its own anyway – just like it has from all previous market crashes.

    Whether the stimulus has made this recovery slightly faster or slower than it would have been otherwise can be debated, but it is hard to believe the stock market would be far from it is now with no stimulus at all.


  16. Sri Amudhan on April 14, 2013 at 11:51 pm


    With unprecedented levels of easy money policy not showing any sign of abating in the foreseeable future, I think it is prudent to diversify risk and do some degree of rebalancing, in line with the investor’s risk tolerance levels for any given goal as per his or her financial plan.

    I am sure you would agree that it is important to stay focused on the plan and take out emotions by a disciplined approach to diversify risks and rebalance as mentioned above. For instance, if US equities have had a sharp rise in one’s investment portfolio for a given goal (whether or not the rise was fuelled by the Fed’s monetary policy), one should examine if some element of rebalancing and diversification would make sense.

    This way, one focuses on what one can control and not waste time & energy worrying about uncontrollables, including monetary policy shifts. Agree?


  17. SST on April 19, 2013 at 10:52 pm

    “All the stimulus and Q/E have helped stimulate the [US] economy…”

    In the form of five million less employed, a 5% decrease in participation rate, lower wages, and growth in food stamps?

    “…the effect on the stock market is unknown, and likely not much.”

    Financials constitute 16% of the S&P, the same companies who are first in the QE et al queue.
    Velocity of money rose slightly for one year, 2009, and has continued to decline ever since.

    Using endless free money to buy up cheap assets (eg. stocks) instead of ushering that money into the broad economy is one definite way of pushing market levels to all-time highs.

    Or you can pretend otherwise.

  18. SST on April 20, 2013 at 4:37 pm

    “The stock market has bounced back as fast or faster on it’s own in all the major market crashes in the last 140 years except one. In short, stimulus has created a recovery more slow than nearly all previous recoveries that did not have stimulus.”

    Dead wrong.

    According to Deutsche Bank S&P 500 analysis:

    “Out of the 34 recoveries since 1854, this is the 7th strongest post
    recession increase…”

    -no personal attacks allowed, thanks. FT

  19. Ed Rempel on April 20, 2013 at 8:33 pm

    Hi Sri,

    I might agree with you if one part of your portfolio far outperforms the others and is also overvalued. Or if some other areas are exceedingly cheap, offering opportunities.

    Today, the US stock market has been stronger than Canadian and European markets for the last 5 years, but it is still inexpensive by historical standards.

    Usually, the most effective thing to do is to rebalance to your target allocation, which is a good discipline to sell a bit of your strongest performers to buy a bit more of your weakest performers.


  20. Ed Rempel on April 20, 2013 at 8:44 pm

    Hi SST,

    Do you even try to understand the situation? Obviously, your stat and mine are both accurate. However, mine is relevant to the discussion here.

    Of course, this is one of the strongest post-recession recoveries – because it had much more to recover than previous recessions.

    Of all the large bear markets where the market had a lot to recover, this is one of the slowest recoveries. It took 4 years to get back to it’s pre-crash level.

    Seriously, SST, this is why I almost always ignore your posts. Most are more like rants. I don’t sense a serious attempt to struggle with the topic.

    Plus I ignore personal attacks. I’ll be glad to have a serious discussion with you, if you like, but you can assume I’ll ignore all posts with personal attacks.


  21. Ed Rempel on April 20, 2013 at 9:36 pm

    Hey Sri,

    You mentioned the unprecedented easy money as a possible risk to the stock market. I thought I would address this, because it is all over the news.

    We have both quantitative easing and government deficits stimulating the economy. This is widely touted as the reason the stock market has recovered and as a reason for a future stock market crash. But is it really?

    Isn’t this stimulus and any potential risk already priced into the market? We know the stock market is good at discounting. Everybody knows about the stimulus.

    I like to ask these types of questions, because there are all kinds of things that are widely believed, but false. For example, it is widely believed that government deficits are bad and surpluses are good, but the stock market has historically performed much better when there are deficits.

    Another example is that it is assumed that a strong economy leads to a strong stock market, but historically slower growing economies have had faster growing stock markets.

    There has been all kinds of news coverage about governments “printing money” and how it will inevitably lead to high inflation. But will it? There is no sign of it yet. There are many factors that are holding inflation low, including globalization, technology and demographics. The Bank of Canada and the Fed are solely focused on inflation and will obviously cut back on stimulus if they believe we will actually have inflation.

    There are potential risks here, but these risks have been widely covered. Clearly the current stock market value includes this risk.

    My view is that high inflation is quite unlikely and the fear of it is quite overdone. I could be wrong on this, but I doubt it. Moderate inflation has historically been good for the stock market anyway. Only very high inflation has been bad.

    The stock market recovery in the last few years is clearly linked to corporate profits, which are at an all-time high. There is lots of evidence that shows that stock markets tend to rise when corporate profits rise.

    The surprising thing for me, today, is not that the market has recovered – but that it is not higher than it is. The forward P/E is about 14, which is cheap. With interest rates this low, P/Es are normally about 20. Stocks are also the cheapest vs. bonds that they have been for as far back as I know.

    As I see it, investors are still shell-shocked from the crash in 2008, which is why investors are still focused on bonds, income investments and stocks only if they are dividend stocks. We have strong negative sentiment, which has been holding the stock market down.

    I just saw a poll (sorry I don’t have the reference) that 90% of stock market investors are bearish. As soon as the S&P500 hit all-time highs, investors became bearish. However, we are only back to the 2007 level and have not yet seen the normal rise you would expect over a 6-year period, especially with corporate profits at all-time highs.

    This is how I see it and why I am not overly worried about the effects of stimulus or deficits now. I think the more likely scenario is that the stock market will do what it always does over time – follow corporate profits and provide good growth long term.


  22. Sri Amudhan on April 21, 2013 at 10:29 am

    Hi Ed,

    I would like to draw attention to an article in the National Post this weekend, by David Pett.

    The article echoes some of the points you have made in the recent past – as mentioned below. The article covers mentions a few more things as well.

    Overall, there seem to be sound arguments to support the point that “Equities are not dead yet”. That said, it is also clear that investors / fund managers will need to be increasingly discerning to pick sound companies at a good price and not just buy because something is cheap.

    Select Points from the Article:
    (1) Largely due to memories of the crashes in 2000 and 2008, people are currently getting nervous, now that the market has recently again hit such prior highs.

    (2) While some people believe that the stock market will collapse once the Fed ends its “accommodative stance”, there are many professionals who believe the market will enter a buy and hold era driven by a slow and steady rise in P/E multiples.

    (3) The S&P 500 now trades at approx 15x trailing earnings, which apparently is lower than it has 55% of the time since the Second World War. Further, when inflation was <4%, as it is today, the historic PE multiples have been higher than today’s valuation almost 70% of the time

    (4) Per James Paulsen (chief investment strategist at Wells Capital Management) — "Earnings cannot collapse, but as long as the recovery continues and earnings grow in line or even slightly less than nominal GDP, solid total equity returns can be achieved simply by PE multiples returning to levels seen commonly in similar environments of the post-war era.

    (5) Gerry Connor (founder, chairman and CEO of Cumberland Private Wealth Management) is generally positive and says
    (a) Valuations are generally attractive and also expects them to rise in the long term, which should help push stock prices higher

    (b) Based on research dating back to 1929, he said markets have on average continued to advance for 417 days and 18.4% once a new high is established.


  23. SST on April 21, 2013 at 11:37 am

    Apologies for the “personal” attacks and objective facts.

    I should know by now that this site is extremely equity friendly and thus proponents of such, both amateur and professional, will uphold their positions as they see fit (and government regulations allow).

    Birds-of-a-feather and all that.

    Disclaimer: I own stocks.

  24. Ed Rempel on April 28, 2013 at 11:43 pm

    Hi SST,

    Thanks for the half-hearted apology.

    By the way, to show you why I believe the profits of the S&P companies are the reason the stock market has bounced back from the low in 2009, check out this chart: http://b-i.forbesimg.com/chuckjones/files/2013/03/FactSet-EPS-vs.-SP-500.png .


  25. SST on May 12, 2013 at 11:10 am

    “There has been all kinds of news coverage about governments “printing money” and how it will inevitably lead to high inflation. But will it? There is no sign of it yet.” — Rempel

    “My view is that high inflation is quite unlikely and the fear of it is quite overdone. I could be wrong on this, but I doubt it.” — Rempel

    Ed, I’d like to ask your professional definition of “inflation”.

    I think the general public has a warped and stunted comprehension of the term and its praxis.

  26. SST on September 17, 2013 at 11:07 pm

    re: #14 — “Yes, equities are dead. It’s very obvious what is fueling their zombie-like march: [QE] ” – SST

    “All the stimulus and Q/E…the effect on the stock market is unknown, and likely not much.” — Rempel

    Looks as though the BIS and I agree on the role of public debt:

    Then there is the Black Plague of private debt pushing markets:

    Enjoy the show and remember — stay fully invested.

  27. SST on October 24, 2013 at 10:22 am

    “I believe the profits of the S&P companies are the reason the stock market has bounced back from the low in 2009…” – ER

    And what is fueling those profits?

    Corporate Profits Are Thanks to Government Stimulus
    http://fora.tv/2013/10/08/an_interview_with_stephanie_pomboy/corporate_profits_are_thanks_to_government_stimulus (vid)

    And the effect of QE+ on the stock market is also known:

    100% of the Stock Market Gains Since 2009
    http://www.arborresearch.com/bianco/?p=76827 (script)
    http://www.ritholtz.com/blog/wp-content/uploads/2013/10/SPX-QE.png (chart)

    Just in case you thought what’s happening is real.

  28. SST on November 11, 2013 at 5:11 pm

    Equities are certainly dying among the wealthy set.

    The Tiger 21 asset allocation report shows:

    2008 Q3
    Public Equity: 32%
    Private Equity: 10%

    2013 Q3
    Public Equity: 24% (-8%)
    Private Equity: 19% (+9%)

    (note: all other asset classes have remained stagnant +/-2%.)

    These rich people, worth an average of $10,000,000 each, are far from fully invested in stocks and continue to liquidate their positions in favour of less volatile/high-return options.

    There’s a reason they have that much money and it has nothing to do with Siegel-esque theories.

  29. SST on November 22, 2014 at 1:38 pm

    re: “I believe the profits of the S&P companies are the reason the stock market has bounced back from the low in 2009…”

    And now this:
    S&P 500 Companies Spend 95% of Profits on Buybacks, Payouts

    Highlights include:
    “…stocks with the most repurchases gained more than 300 percent since March 2009.”

    “…cash flow allocated to stock buybacks [has doubled since 2002]…the portion used for capital spending has fallen [more than 10%]…”

    “You can only go so far with financial engineering before you actually have to have a business with real growth,”

    “If management can’t unearth future opportunities for growth, as a shareholder, I lose confidence.”

    In other words, no innovation, no creation, no organic growth, nothing but financial engineering (as the article puts it). Corporate profits gained from destructive growth and furthered by buybacks and raising debt (note that no corporate deleveraging has taken place since 2008).

    Reminds me of Weekend at Bernie’s.

    An interesting note:
    “The S&P 500 Buyback Index [has beat the S&P 500] by an average of 9.5 percentage points every year since 2009.”

    This is a great example of investing in return drivers — if buybacks are what have been driving the stock market, don’t invest in the stock market, invest in the buybacks. Again, putting your money as close to the center of profit as possible.

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