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One of the games that investment people play is to produce "long term" statistics with apparently irrefutable conclusions. We last looked at this a year ago, in Contraryview no. 46. At the peak of a long term bull market, the statistics look great, yet believing they will continue for ever can be a great mistake.
Equities are now at the peak of a two year bear market rally. Eventually, markets must break out, when share prices will fall and Gilt prices rise. A technical piece in today's Financial Times Fund Management supplement points the way: actuaries are changing their minds about the merits of equity investment. This means there will be equity sales from some very big pension funds dominating markets in the next few years.
We believe that the West is following in the footsteps of Japan, with a time delay of about ten years. Nobody believed that bond yields in Japan would fall as low as 1%. Nobody believes the same can happen in Britain or America. But, come to think of it, none of the experts is on record as saying that equities would crash in 2000, nor that bond yields would come tumbling down.
Believe what you are told if you must, but remember the limits of past experience.
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