Emerging markets stocks, which have delivered 15% per annum returns over the past five years (versus returns of minus 1.9% per annum for the S&P 500).He then goes on to talk about their being expensive at the moment but the numbers, regardless of whether the stocks are expensive now, should be jarring.
A long running theory here (from the start of this site) has been that US based investors will have to progressively increase foreign equity exposure in the next few years. But in reality this idea has already been in motion for several years now. If over the last five years US equities were simply up a little less than emerging market then the point would not be as strong as I think it is now.
The iShares MSCI Emerging Market ETF (EEM) is way off its high but has still doubled in the last five years while the S&P 500 has dropped 17%. EEM has been heavy in South Korea which has only been up 50% in the last five years so it has been a drag on EEM. So anyone avoiding South Korea (by buying single country funds) probably did better than 100% in the last five years. Even iShares MSCI EAFE (EFA), which I think is a terrible proxy for foreign, is flat in the last five years. Obviously the decline in the dollar in that time has contributed to those results but still the difference is significant.
It is reasonable to assume that brighter prospects for select other countries (not just emerging markets) is what accounts for the performance disparities. Looking forward does the US have brighter prospects than other countries (ex Japan, UK, France, Germany and Spain) or is it the other way around?
This weekend is the Super Regional round in the college baseball tournament which means the College Baseball World Series starts next weekend. About college baseball that I always say is that one of the great things about it is that no lead is safe. Well no more on that one, the 30 run lead Florida State had on Ohio State last weekend turned out to be pretty safe. The picture is from 2007 CWS.
14 comments:
Good read but had to laugh over son-of-decoupling (only makes sense at much higher intra-country/regional consumption rates than currently exist) and reference to bond vigilantes (who lost most of their street cred by failing to march on the Greenspan Fed and Bush deficits w/ pitchforks and torches in hand). Agree with the suggestion that the US dollar will probably not fall much from here although the reasons they cite seem limited; e.g., there are tail probabilities of a currency crisis or crises (plural) on one hand or another big global down-leg on the other w/ the $USD remaining as a relatively stronger haven (emphasis on relatively and accepting the longer tail possibility that the crisis, if it occurs, could be a dollar crisis); there is some (unknown to me) probability that the dollar could not only enjoy a technical 'rebound,' it could strengthen significantly over the next year.
More broadly the notion that we are overbought in a bear rally here can be countered with the notion that we have simply returned to something like normal levels after a panic sell-off and could even be entering a cyclical bull (within a secular bear) all of which boils down to how long we have to party before we return to the fall or March lows. Other than the very modest increases in long exposure I established last Fall and Winter (based strictly on fundamental market valuation levels) this leaves me, still, mainly in tactical mode. YMMV
OT, while visiting the indexuniverse site, I noticed the news article on the bid for iShares by Vanguard Group: This has some pretty interesting implications for the ETF market generally but even more interesting ones for the current state of Barclays; one suspects they continued shopping for a buyer with fewer strings attached, preferably one who could pay cash on the barrel.
Hey Roger, I live in Omaha. Have you ever come out for the College World Series. It is a REALLY good time ESPECIALLY when LSU makes the field like this year. Those Cajuns know how to party!!
DE
what about reversion to the mean? wouldn't this asset class be expected to underperform in the future? or is it different this time?
The US has NO prospects as long as the fascist GOP are in congress and control propoganda such as FOX NEWs.
The other big problem is that wage inflation is not keeping up with asset price inflation so we will keep getting poorer.
Wages will keep getting pushed down as long as we allow offshoring and illegal immigration.
DE, that picture is from when I went in 2007.
I've never been a reversion to the mean guy but EM cratered badly and is way below its high still.
From Wikipedia - attributes of Fascism:
1. Obessive nationalism and patriotism - we vs. them, we Americans are better then them, we are the world's moral authority, ..
GOP? Check!
2. Extreme military culture, massive spending on building military power. Belife in military might as a solution.
GOP? Check!
3. Hatred towards both communism (anti-freedom) and liberals (pro-freedom)and against "educated elite class"
GOP? Check!
4. Use of angry, aggressive rants (think Hitler and Rush Limbaugh) and other media propaganda fear tactics to Indoctrinate depressed population into fasicst group think.
GOP? Check!
5. Corportism - a few huge firms working with government to conrol the economy.
GOP? Check!
Conclusion - looks like a duck, walk likes a duck, ...
anon 12:31, you've made your point. i am going to ask that you no longer post comments about this.
Interesting comment Roger. I thought that using the 200 DMA indicator was an ojective way to exploit the reversion to the mean phenomena. What, then, do you think is going on with the 200 DMA as an indicator?
simply a measure of demand for equities; healthy or unhealthy.
WRT reversion to the mean, that's typically a characteristic of systems where measurement is imprecise so oscillation around some central tendency is normal; e.g., price discovery tends to be pretty noisy so smoothing it out helps see the pattern, one of the reasons basic charting with moving averages and support/resistance lines has some credible foundation in real-world supply/demand or psychological behaviors, a foundation that is frankly rather difficult to discern in the bulk of charting lore.
Can't seem to stay on topic for some reason today but you may get an article or two out of this screed from Phil's Stock World at http://tinyurl.com/lmaewp as the knock against ETF's generally is pretty heavy and the critique kicks up a big notch WRT commodity ETF's. The guy can turn a phrase though and some of his lines were hilarious (his spell checker has a rather dry, British flare too). Here's an excerpt in regards to USO, the long oil ETF:
"...what kind of inflation hedging loses 33% a year PLUS TRANSACTION FEES before a profit can be made? Oh and a funny note - who handles USO's cash and places trades on the ICE and NYMEX for them? Aw, you guessed it - Goldman Sachs!
So here you are giving your money to an ETF that gives its money to the biggest shark in the ocean, who chews off your legs in transaction fees and contango spreades BEFORE they even bother to circle around for the kill by gaming the market. NOT ONLY THAT, but the idiotic rules of the fund lead them to PUBLISH THE DAYS THEY ARE ROLLING IN ADVANCE so every little shark in the sea knows exactly when and where to feast on your bloody, bobbing carcas ..."
RW, I admire your elegant commentary regarding reversion to the mean. It really is the basis behind Ben Graham's tactical allocation in Intelligent Investor. It is also why buy/hold/rebalance works.
I would be interested in knowing a little about your educational and professional background. How is it that you have become such a well informed person who can also write so well? What kinds of books and periodicals are on your reading lists?
Apologies to Roger for hi-jacking your blog. Since RW is such a frequent poster, I hope you don't mind this little inquiry.
GMM (S&P Emergin Market ETF) does not include S. Korea. However, performance is very similar to date.
CA
I've benn wriing sporadically about Harry Browne since my blog first appeared in 2007. I have been a fan of his two portfolio theory since the mid-1970s.
Although I admired this maligned, late great author, his Permanent Portfolio allocations over the long haul, after rebalancing and expenses (often left out of his fuzzy math), theoretically has an annual return of almost 0%, which, I guess, is the perfect hedged portfolio!
My Permanent Portfolio is structured differently than his proposal, and I am a disciple of the Permanent and Speculative Portfolio approach.
T
The "anonymous" GOP hater is a nut job.
He must have escaped the espionage dragnet that rounded up a few Cuban agents a few days ago.
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