businesstrade.jpg

Are International Stocks Safer than U.S. Equities?

$
Daily Business Report
M A R K E T S
Mercantile
Article Archives
US Economic Forecast for 2012 and the Election Year Cycle
Shop the Local Merchant Economy
Right to Work vs Union State Economies
Rational Tariffs Lower Irrational Trade Deficits
International Business - Davos Style
Banking, Housing and Mortgages
David Stockman's Viewpoint on the Obama Budget Disaster
Regulations Harm Small Business and Protects Corporations
Gas Prices as an Indicator of Energy Costs
Governments Acting as Venture Capitalists
College Education Economics
Industrial Wind and the Production Tax Credit
Medicare and the Ryan Budget
U.S. Corporate Tax Rate Consequences
Corporate Spying and Intellectual Theft
The Foolish Exporting Natural Gas Policy
A Matter of Time for a VAT Tax
Big vs Small Bank Loans
Bankruptcy Trends in the Post Meltdown Era
Money Center Banks and Stricter Financial Oversight
Electric Power Generation under NYS Article X
Growth in the National Debt
Advantages of Chinese Trade Policy
Unemployment as a Lifestyle
Immigration Hurts American Employment
Bank for International Settlements on Big Banks
Small Business Assault from Obamacare
Compound Interest and the Debt Bubble
The Federal Centralization Economy
Parking Offshore Profits Hurt the Domestic Economy
The Record of Olympic Economics
Financial Algorithmic Trading
Goldman Sachs Above the Law
The MF Global Magical Mystery Tour
Destroying Internet Freedom by Taxation
The Permanent Unemployment Economy
Jackals of Jekyll Island - Federal Reserve Audit
QE3 Blowing Up the Debt Bubble
Riots Over Rotten Apple Mania
Gap Between College Costs and Inflation
Counterproductive Minimum Wage Mandates
Derivative Meltdown and Dollar Collapse
Central Banks Game Plan: One World Currency
European Commission Single Supervisory Mechanism
Lunacy of FEMA Hurricane Insurance Subsidy
Taxmageddon Holding Hands while Jumping Off the Cliff
The Direction of Equities in the Obama Economy
Is it FAIR to Tax the Rich out of Business?
California Dreaming: Bankruptcy, Pensions and Taxes
Pay Differential - Private Sector and Federal Government
Long History of HSBC Money Laundering
Swan Dive of 2013 Economy
Federal Reserve May Pause Quantitative Easing
The Economics of Sequestration
The state-owned Bank of North Dakota
Chinese Takeover with Free Trade Zones
Low Interest Rates Impoverish Savers
Bond Bubble Expectations
Currency Wars - Race to the Bottom
Government Subsidizes and Bankrupt Companies
Economics of Gun Control
Refuse to Buy or Sell with the Federal Government
The Cyprus Great Bank Robbery
Keystone Pipeline Blockage
Move Over IMF for the BRICS Development Bank
Obama Budget Proposes Cuts to Social Security and Medicare
The Risk and Reward of Bitcoins
Farm Supports and Social Welfare
Internet and Sale Taxes Dialectic
The Warren Buffett House of Cards
IRS as a Political Hit Squad
Revenue Budget Projections
Google and the NSA Connection
The Roubini - Faber Debate
Hydrofracking Boom or Bust
Goldman Sachs - first learn, then earn and serve
The Federal Reserve after Ben Bernanke
Implications of a Pyrrhic Real Estate Rebound
The New Normal: Part-Time Employmentyment
U.S. & Europe Trade Deal Honeymoon
Detroit City Bankruptcy Blues
J P Morgan and Commodity Manipulation
Strange Business Success Ventures
Business of Evangelism Religion
NFL Marketing Machine
Privacy Gone on Offshore Assets
Chinese Banks Quasi Government Institutions
Forecasts of a Doomed Economy
Financial Meltdown Five Years After
Corporate Profits and Worker Unemployment
Renminbi Soon to Be a Reserve Currency
Rehypothecation of Collateral
IMF Proposal to Tax Bank Deposits
Transfers excluded, JP Morgan Chase is Wired
Insurance Companies Profit from Obamacare
Climate Change by Executive Order
Economics of Non-governmental Organizations
Why Business Franchising is a Bad Deal
The Business of the Christmas Season
China Becomes Largest Trading Nation
Obamacare as a Jobs Killer
Does a 100 Trillion Debt Total Matter?
Underground Commerce is the Real Economy
Technology and the Future of Jobs
The Japanese Debt Economy
Individual Wealth in Perspective
Inevitability of Financial Bubbles
Russian Sanctions Backfire
Is the Dollar and Equities Ready to Crash?
Economic Reality of a Wealth Tax
How stable is the Bond Market?
Are International Stocks Safer than U.S. Equities?
David A. Stockman - The Great Deformation
Chinese and Japanese Deflationary Economies
Euro Crisis Deepens
Russia's SWIFT Settlement Alternative
The Swiss will not have more EU QE
Business of Global Warming Fraud
Economics of NYS Southern Tier Secession
Fear of IRS Tax Audits Diminish
Where is Global Economic Growth?
Government's share of minimum wage increase
Economic Growth Is Impossible
Replace the Business Cycle with Permanent Poverty
Who benefits from the lifting of Iranian sanctions?
Who Wins in a Currency Devaluation War?
Labor Day when there is no work
Municipal Bankruptcies and more on the way
Undeniable Social Security Demographics
Grinch that stole Christmass
Business Mergers Soar in 2015
The Chinese Market Crash
Driverless Vehicles Powered by Artificial Intelligence
U.S. Banks Ready for Negative Interest Rates?
International Trade Sinks with the Baltic Dry Index
SunEdison Green Power Bankruptcy Inevitability
Another Record Collection from Federal Taxes
BREAKING ALL THE RULES
BREAKING ALL THE RULES Forum
BATR Index
hub
Corporatocracy
Forbidden History
Reign of Terror
Stuck on Stupid
Totalitarian Collectivism
Global Gulag
Inherent Autonomy
Radical Reactionary
Strappado Wrack
View from the Mount
Solitary Purdah
Dueling Twins
Varying Verity
911 War of Terror
HOPE

foreignstocks.gif

Are International Stocks Safer than U.S. Equities?

Those fall season concerns in market volatility are once again upon us. After so many years of a zero interest rate environment, nervous tension is breaking out. Review the record. For a comparison of International Stock Indexes, Market Data Center statistics from the WSJ is useful. Now evaluate Doug Ramsey’s, chief investment officer at the Leuthold Group, argument in Comparing Valuations: U.S. vs. International Stocks.

“Using MSCI indexes, U.S. stocks trade for nearly 24 times those earnings. By contrast, the rest of the world trades at less than 19 times earnings, European stocks at about 17 times earnings, and emerging-markets stocks at barely 14 times earnings.
 
“We see the same pattern in price-to-book value ratios,” Ramsey says. “While U.S. stocks recently were valued at 2.8 times book value, that ratio was 1.8, 1.7, and 1.6 for Europe, worldwide foreign stocks, and emerging markets, respectively.”
 
There are reasons that U.S. stocks command relatively high valuations, but the gaps are so large that they are difficult to justify, Ramsey says.”
 
On face value, the devoted investor may conclude it is time to rotate out of U.S. equities and into international stocks. If only company performances were linear and returns reflected a correlation in stock prices. Fundamentals are about as useful as the commissions charged to manage a hedge fund.
 
For a more concise and relevant analysis, Wolf Richter writes in a Naked Capitalism article, What the Heck Just Happened in Global Stock Markets? 

“Now unnamed sources in the ruling coalition leaked that the German government would cut its growth forecast for this year and next year on Tuesday, when it announces its twice-a-year projections. It would amount to a “sharp cut” from the already tepid 1.8% growth projections made in April.
 
This despite the all-out ZIRP and QE central banks have inflicted on conservative investors and aging baby boomers in order to force them into stocks and junk-bond funds and asset-backed securities and other chimera of Wall Street. The purpose was to drive up asset prices. And it worked. Now that these folks have stashed their money in stocks at peak valuations, the whole thing is unraveling.”
 
While the initial observation may explain the recent drop in day to day pricing, the later is far more significant in warning about the inevitable adjustment. Maybe this is the true measure of fundamental reality.
 
So where is the long awaited correction and October surprise that seems to be absent? Gauging from U.S. investors not buying European equity pitch, it appears that running after bargains bears more concern than usual. 

Add to this uncertainty the Dubai Stocks Crash, illustrates a viewpoint from an asset rich region.  

“Hisham Khairy, the Dubai-based head of institutional trade at Mena Corp. Financial Services, told Bloomberg that, "Global markets are all selling off and it’s that weakness we’re tracking. There’s still more blood to come."

Spreading to the Orient, the political unrest takes it effect as Chinese Stocks in Hong Kong Fall to Extend Loss. “Chinese shares fell in Hong Kong; with the benchmark index dropping 10 percent from this year’s high, as protests in the city added to concern about weakening global economic growth.”

The projections that have floated for decades that a collapse is coming have been delayed for years. During that time, “Wealth Is Flowing From West to East” interjects the political and foreign policy factors that influence economic results. However, most investors ignore the long term trends in realignments and concentrate on the immediate developments that spook markets and drive price gyrations. 

Unpredictability is great for dramatic movement in markets, but the trick is to have firm confidence in knowing the direction it will take. Such prospects beg the theory that money is invested. The certainty is that exchanges are gambling dens, and to the most jaded and cynical players, equities are mere chips in a fixed game of pump and dump.  
 
So the question for the reformed speculator is whether foreign exchanges are less of a manipulated bet, or should one wager their funds on a domestic fling better known?
 
Positioning a portfolio for balance and a mixture of risk is addressed in the Michael Schmidt article; Does International Investing Really Offer Diversification?

Modern portfolio theory has defined investment strategies for both institutions and individuals since it was first presented. Constructing a portfolio of non-U.S.-based assets, particularly in developed stock markets, has both increased total returns and decreased volatility. There has, however, been a trend of increased correlation between the U.S. and non-U.S. markets. This increase in correlation has called the concept of diversification into question. Research focusing on short time periods and bull and bear markets has caused a chink in the armor. It can be argued that short time periods only exist for now and the historical trends will prevail. It is important to take note of the increase in correlations, which may be due to globalization and integration as a long-term trend. If it continues, history may have to be rewritten.”

Well, let’s define what constitutes a safe investment in stocks. A reasonable and prudent investor should have as their basic axiom not to lose money. That is easier said than done. Yet, a large segment of capital is considered hot money flowing after quick spikes for fast profit. While that approach may enrich sophisticated traders, it certainly does not qualify for a safe strategy. 
 
Selecting a company that actually produces a useful product or service that has the prospects for ongoing profit is a good starting point. Sticking with these criteria provides refuge in most market cycles, whether the equity is a foreign company or a domestic entity. 
 
Essentially, the one factor that is mostly missed is the relative value of national currencies to the actual total performance return for any stock. In a worldwide collapse, stocks will drop like a rock. Even so, the determination of real capital lost will rest upon the purchasing power left in the currency used for transactions. In this regard, the global economy shares much of the same risk. Stocks in some non dominated Dollar or Euro currencies may well be worth the gamble.
 
James Hall – October 15, 2014

Subscribe to the BATR Realpolitik Newsletter

Discuss or comment about this essay on the BATR Forum

a free speech forum open to the public
BATRforum.gif

This site  The Web 

marketslogo.gif

tumblr page counter