Global equity investment distortions over the past three years have pushed stock markets almost everywhere to incredible returns. For example I work with Denmark ’s second largest bank. They are global equity experts and one of the global equity portfolios (the Green Environment Global Equity Portfolio) we created together rose 266.3% in one year. Another (The Emerging Market Global Equity Portfolio) rose 114.2% in 2006 and 122.6% in 2007.

Yet in each case these portfolios also encountered gut wretching drops on their way up. That Green Global Equity Portfolio for example in July 2007 dropped 103.22% in one month. The Emerging Market Global Equity Portfolio also moved like a yo-yo (see below).

In fact, over the last three years, despite impressive gains, there have been two periods of global market panic when almost every stock market dropped….like a stone….only to recover like a rocket ship

Now we are seeing a third such global wave of dumping shares.

This begs several questions. “Is this the big one.” “Will markets again recover…and when.”

An even more important question is “how can we as investors answer know what’s coming with at least a semblance of accuracy”.

The answers to these questions are important because if a recovery comes, history suggests it will be sudden and dramatic.

You can see the recovery potential in the performance of the portfolios we created and tracked last year from November 2006 to October 2007. Equity markets collapsed in a month but recovered even faster. The portfolios utterly collapsed from JJuly 20 to August 17. Then they rose between 40% and 128% in just two weeks.

Portfolios 2007	July 20	Aug 17	Aug 31	Oct 31
Swiss Samba	45.84%	15.19%	26.42%	53.32%
Emerging Market	67.67%	30.50%	58.18%	122.62%
Dollar Short	40.31%	9.14%	20.29%	48.19%
Dollar Neutral	38.07%	13.56%	22.33%	38.67%
Green	214.15%	110.93%	155.84%	266.30%

If the recent stock market dive is just another short term correction, some investors will make fortunes.

Here is a simple idea that can help you become a good global investor…a whiz at international investing. The idea is that three simple facts can help you spot distortions in equity markets.

The first fact was confirmed by Alan Greenspan in his excellent book the “Age of Turbulence”

“A major aspect of human nature-the level of human intelligence-has a great deal to do with how successful we are in gaining the sustenance for survival. As I point out at the end of this book, in economies with cutting-edge technologies, people, on average, seem unable to increase their output per hour at better than 3% percent a year over a protracted period. That is apparently the maximum rate at which human innovation can move standards of living forward. We are apparently not smarter to do better.”

That’s a huge fact…Overall we should expect the global economy to grow at about 3%. This gives us a baseline for how much an investment should grow.

If an economy rises faster than 3%, it is distorted. During early stages of excessive growth investors will be attracted. Shares will rise faster.

If the economy remains robust, shares become overbought. Then watch out! A correction will come.

This leads us to two more facts which you can learn as a subscriber to our Multi Currency Course. Details are at www.garyascott.com/catalog/bldh/

Understanding the 3% solution and what markets have done shows a distortion. Blue chips may be oversold more than emerging shares now.

In the long term, emerging shares will rise. Poor people remain and are willing and able to make goods that the rich will buy. This will push their economies higher faster than in major economies. Yet for now the three percent solution shows that major markets and high quality shares are more likely to recover from the current doldrums first.

Global investing has proven itself to be more profitable. Why not. Modern communications and transport coupled with a vast pool of low cost labor almost guarantees this fact. Now knowing three more facts based on the 3% solution can give you an edge when it come to taking advantage of the ups and downs in this global trend.

As mentioned above you can read a more detailed report on this as a subscriber to our Multi Currency course. Details on how to subscribe are at: Multi Currency Course

Gary

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