It may come as a bit of a surprise but in the end developed market stocks did quite well last year. For one thing, they outperformed the much-touted BRICs (Brazil, Russia, India and China). Here is the graphic to show it.
Can nature’s cycles enrich our finance and market theories?
Market predictions based on the alignment of the sun, moon and the earth and other cycles could help investors stay disciplined and profit in economic storms, says Daniel Shaffer, CEO of Shaffer Asset Management.
Shaffer writes that sunspot activities show that the sun has an approximate 11-year cycle and as of March 31, 2009, sunspot activity has reached a 100-year low (this, interestingly, coincides with a cycle low in equity markets, reached sometime mid-March in 2009).
But a low in solar activity seems to be followed by a high. Scientists are predicting a solar maximum of activity in sunspots in 2012 that could e the strongest in modern times, according to Shaffer.
“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell,” wrote late billionaire investor and philanthropist John Templeton in 1994.
Investors might have done exactly that. After hitting a trough in March 2009, world stocks have gained 83 percent, with many analysts and investors saying that the rally may have further to run.
But with valuations becoming less attractive compared with the absolute trough last year, what should investors buy now?
No question that investors are in the throes of passion over emerging markets. The latest Reuters asset allocation polls show investors pouring money into Asian and Latin American stocks in October to the detriment of U.S. and euro zone equities. Exposure to equities in emerging Europe, Asia ex-Japan, Latin America and Africa/Middle East rose to 15.6 percent of a typical stock portfolio from 14.3 percent a month earlier.
In Mongolia's South Gobi desert lies Oyu Tolgoi, touted as having the world's largest untapped copper and gold deposits. Little wonder then that this "El Dorado" has become a boardroom battleground between the relatively unknown Ivanhoe Mines and its biggest shareholder, the giant Australian mining company, Rio Tinto.
Our attempts to get near this mine or elicit any comment from Ivanhoe were about as fruitless as the Spanish conquistadors attempts to find the legendary "El Dorado", or "Lost City of Gold" in the 16th century. Twice Ivanhoe stopped our reporters from visiting the mine with delegations from the investment community, saying reporters were not allowed to mingle with bankers on visits to the mine. We don't know why that would be. We mingle with them pretty often in other contexts and usually find each other's company amusing and mutually informative.
Perhaps that's the point of Ivanhoe's policy. The company and its executive chairman, Robert Friedland, do not seem to trust the media much. They maintain a robust website, http://www.ivanhoemines.com/s/The_Facts.asp., that pretty much takes issue with every story written about them. Friedland is legendary in the business for spinning a story and trying to control the narrative.
If the life settlements market seems ghoulish, here’s a British scandal which isn’t doing the image of the business any favours. It’s one of the worst the country’s seen.
Around 30,000 mainly elderly investors in the UK put their money into a company called Keydata, hoping to make a little extra cash to fund their own retirement with the promise of a healthy return.
What they were buying sounded kosher, even if it did depend on how fast their wealthy American counterparts were dying. Of course, the investors may not have known that.
Do capital controls work? After years of telling us that they do not, the IMF and World Bank reluctantly conceded last year they may not be all that bad and indeed in some cases they may actually help keep away some of the speculators who have in recent years been pouring into emerging markets.
Developing countries for the most part like foreign capital, indeed they rely on it for development. What they don’t like is hot money — short-term speculative flows which are widely blamed for causing past emerging market crises. So starting from October last year several of them slapped controls on some of this cash. There are signs these may be working.
Take the experience of two large emerging markets, Brazil and Indonesia. Brazil shocked foreign investors last October with a 2 percent tax on all flows to stocks and bonds. Nine months on, investors are still putting their cash there and Brazil has raked in millions of dollars thanks to the tax. But many fund managers, like HSBC’s Jose Cuervo, who runs a $6 billion portfolio of Brazilian stocks, are buying American Depositary Receipts (ADRS) of Brazilian firms rather than stocks listed in Sao Paulo. Because ADRs are in dollars and listed in New York, investors are getting exposure to Brazil but sidestepping the tax. Brazilian firms continue to receive investment but Brazil’s currency is not appreciating like it was last year. A win-win all around.
The U.S. economy is experiencing an ongoing but slow recovery, says Barry Ritholtz, director of equity research at Fusion IQ. But that's not stopping him from enjoying discounted prices in a low-inflation environment, at least when it comes to his personal spending habits. The world is on sale if you've got the money to spend, he told the Reuters Investment Outlook summit in New York when asked, for example, if he might spend less while on a vacation or forego a purchase or two.
"I am an enormous counter-cyclical spender. At the top of the bull market I don't want to buy anything. I am a seller into a bull market. We have been buying a ton of stuff over the past year. We got two new cars long before the May.... so we picked up two new cars. We're doing work on the house. We're adding a kitchen. I got my wife a very lovely birthday gift. She got me a very lovely birthday gift. We've been buying artwork. We've buying jewelry. I love to buy stuff when it is on sale. I hate to buy top dollar for it.
"So, we just were in the Cayman Islands on vacation some time ago. We were in Aruba back in December. I'm heading to Vancouver in July and probably take a week or two in the Hamptons. I'm thrilled to spend money in this environment.
The latest State Street investor confidence index bears some scrutiny. The overall index dropped in February which would seem to be in line with other sentiment indicators such as The Conference Board’s consumer confidence index and the German Ifo on business thinking.
But the State Street fall was entirely due to bearish Asian sentiment. There were gains in the North American and European regional calculations. Also the overall, North American and European indices all came in above 100 — which means that sentiment remains on the bullish side.
It begs the question of whether Asia is a) lagging b) leading or c) just out there on its own.