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Tuesday, November 1, 2011

Global One Sentence Summary

The U.S. stock market is not cheap, but only just about average in terms of long term valuations.  Stocks are cheap relative to U.S. treasuries however, because the Fed is purposefully keeping interest rates soooo low punishing savers, rewarding borrowers.  Which cannot be good long term simply because that’s the Greenspan playbook which put us in this situation in the first place.  So, this means that stocks valuations only look cheap relative to bonds simply due to the artificial low bond rates, which means stocks aren’t cheap.

Unless the U.S, EU and the developed world lowers their long term debts and runs “handilable” (is that a word?) yearly fiscal deficits we’re all screwed.  Long term growth will be paltry, unemployment will remain high and GPD growth(s) will be less than 2%.   If the developed world does fix their debt/deficit problems, it’ll still won’t happen quickly and stubborn unemployment and low growth will stick around for 3 more years anyway….

China has some debt problems too due to over-leveraging of land/real estate by local govts’ and their banks having more bad non-performing loans than they’ll admit to.  They also pay cheap interest rates to savers allowing their banks to borrow-short, lend-long more favorably then they ought.  But, they have the equivalent of 2/3rd’s (~66%) of their annual GDP in surplus.  Imagine if the U.S. had $10 trillion in surplus what it’d be like?  …and their surplus is still growing just like the U.S. debt…growing oppositely… China’s 9% growth rate will slow to 6% but will remain > 3 x ours..  Then, Malaysia, Phillipines, Vietnam, Singapore, Thailand, Hong Kong…. All still going great guns with little debt, balanced fiscal situations, cheap labor, growing middle class.

Then, all 12 Australian’s and 6  Canadians are becoming rich due to BOOMING resource development and growing exporters… Their currencies are safe havens.

In a one sentence summary though, the future is still Asia….