International Financial Market Thinking


Here is some international financial thinking that shows strength in the idea of emerging market investing from the Chief Economist and Chief Editor at Bank Credit Analyst, Mr. Martin Barnes.

Join Merri and me in Copenhagen. We’ll learn more about emerging markets but also love strolling along Copenhagen’s famous pedestrian shopping street called Stroget. Stroget is not a name of a specific street, but a connection between the west and east part of Copenhagen. The shops are amazing… but the street entertainment even better!  Every summer that we are there we search through the fruit and flower markets on the streets for THE perfect fig…buy one each, find a great seat, sit down and slowly eat it while watching the crowds walk by!

Jyske Global Asset Management sent me this international financial thought from Martin Barnes a well known and highly respected economist frequently quoted in international financial news medias. Many of the JGAM investing managers have been reading Mr. Barnes’ writings for many years.

Bank Credit Analyst Research (BCA) was founded in Montreal in 1949 by A. Hamilton Bolton, who pioneered the concept that national economies and their capital markets are led by shifts in financial liquidity, money supply and credit.

BCA though expensive (their annual fees can run $60,000) has a wide following among financial institutions, corporations, individual investors and academics.  BCA along with Morgan Stanley and Jyske Bank are important sources of data for JGAM.

BCA has dramatically expanded the firm’s research capabilities and global coverage by building a large team of experienced economists and researchers and its operations are worldwide with offices in many major cities around the globe.

Here is an excerpt from JGAM’s summary of Mr. Barnes’ views on economics and financial markets: The economic recovery is developing slowly as normal after a recession caused by a financial crisis. Fiscal policy is being tightened but not to an extent that will endanger recovery. There is a strong case for investment spending as return on capital is high, whereas consumer spending will continue to be moderate because of high unemployment, squeezed house prices and a general need for saving (i.e. deleveraging).

The recent fall in equity prices is a correction and not a new bear market, provided that a new (and unlikely) recession is not underway.

Bond yields are historically low and could stay low for a long period as there is no private credit demand, no inflation, short rates are close to zero and not rising and risk aversion keep investors away from risky assets (e.g. stocks).

Emerging markets are in a better structural position compared to developed debt burdened and aging countries, therefore, expect the new economies to outperform the old world in the long run. Growth in emerging markets will cause a demand pull on commodity prices, especially the demand-supply balance on oil seems vulnerable. Commodities could become the next asset bubble but it will take time to evolve. At JGAM we agree to many of these findings.

During the week the leading world economies have been warming up and positioning themselves to the G20 meeting this weekend.

China is off the hook after it has abandoned the US dollar peg and instead re-introduced a crawling peg. This was foreseen and a clever move by the Chinese as the focus is now back on the US and Europe who disagree on how early and how much to tighten fiscal policy.

Because of the crisis in the eurozone caused by debt problems (not only in Greece), especially Germany has been keen on promoting and restoring fiscal discipline. This has caused concern, especially in the US, that economic recovery could be in danger.  A fall in US housing sales has only aggravated the concern. An inevitable consequence of the fiscal thrift is that central banks will be reluctant to raise interest rates for a foreseeable time.

This quote from the German minister of finance, Wolfgang Schäuble, illustrates the clash on fiscal policy across the Atlantic: “While US policymakers like to focus on short-term corrective measures, we take the longer view and are, therefore, more preoccupied with the implications of excessive deficits and the dangers of high inflation.” (Financial Times, 24 June 2010).

See an important point on emerging markets that I especially agree with Martin about below.

emerging-markets

Merri and I hike the harbor every day when we are in Copenhagen.  We love…

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the sights, the…

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cafes and…

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open air and…

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waterfront dining.  Summer is the best time to visit Copenhagen.

Peter Berezin, Managing Editor of Bank Credit Analyst Researech (BCA) will be one of the speakers at the August Jyske Bnak’s Global Wealth Management Seminar, August 25 to 29, 2010 in Copenhagen.

I love attending these Jyske seminars not just as a speaker but because I get to hear all the other speakers, whom I consider world class.

This year speakers include will be Bjorn Lomborg known as the “Skeptical Environmentalist.”  See more on Lomborg here.

Another speaker will be Jeff Rubin. Rubin was the Chief Economist for CIBC, a North American investment bank for 20 years. See more about Rubin here.

Kenneth Rogoff  the Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University and former Chief Economist for the International Monetary Fund is also a speaker. See more at Rogoff.

Another speaker is Daniel Brehon, the foreign exchange strategist, for Deutsche Bank AG.  See more about Daniel Brehon and Deutche Bank here.

The strong US dollar makes this the year to enjoy Europe and Thomas Fischer at Jyske just sent me this note: Gary due to the increasing US dollar, the cost for our August seminar in Copenhagen for Americans has dropped from about $2,050 to $1,700, a 15% discount. (THE COST INCLUDES MOST OF THE FOOD, TRIPS, MAKING THE CONFERENCE A GREAT BARGAIN.)

Some great things about the Copenhagen conference are the seminar of course…then there’s the stunning food and the wonderful visits included…This package includes:  accommodation at the Copenhagen Marriott Hotel for four nights, (25-28 August) including breakfast,  Reception and dinner at the bank’s Copenhagen offices, seminar fee and materials for the seminar sessions on Thursday, Friday and Saturday. full lunches on Thursday, Friday and Saturday, canal & harbour tour on Friday in the late afternoon, four-course gala dinner with entertainment and dancing on Saturday evening, and a Sunday excursion including lunch.

Merri and I always go on the excursion also to Silkebord with a drive out into the country, lovely food, picnic cruise and a chance to see the main office and the trading center.  This is always our most interesting, favorite and delightful conference…and we hope you will join us there!  We love the stroll along the harbor, the fresh air, wonderful meals and interesting people from all over the world.

See details on how to join Merri and me at Jyske’s bi annual Copenhagen seminar here Global Wealth Management Seminar.

emerging-markets

We also really enjoy the restaurants and coffee shops along Nyhavn.

Important point about emerging markets

One of Martin’s comments was: Emerging markets are in a better structural position compared to developed debt burdened and aging countries, therefore, expect the new economies to outperform the old world in the long run.

At our June Quantum Wealth course we looked at seven places to invest now.

#1: Multi Currency Spread Increase Cash
#2: Value Markets
#3: Emerging Markets
#4: Wellness
#5: Water Alternate Energy
#6: Truth & Cohesion
#7: Real Estate

A recent 10 year comparison of major versus emerging markets show some of the reasons that emerging markets are one of the seven places I like to invest in now.

A comparison of the Morgan Stanley Capital index Emerging Market versus Morgan Stanley Capital Index Emerging Market Index.

Annual Return   Emerging Markets 19.81%    Major Markets  10%

Emerging Markets Longest Down period 6 months – Major Markets Longest Down 6 mos.

Emerging markets biggest downward drop 55% – Major markets biggest downward drop  53%.

Emerging Markets PE ratio 12.9   Major Markets  PE Ratio 15.2.

Major markets yield    3.70%.
Emerging markets yield  3.22%.

In other words in a decade… emerging markets have appreciated nearly twice as much as major markets.  There has been little difference in the lengths or size of drops and emerging markets offer much better PE ratios.  The only area where major markets have excelled is yield.

The current best value emerging markets (according to Keppler Asset Mangement) are There are nine top value (“buy”) emerging markets: Brazil, the Czech Republic, Egypt, Hungary, Poland, Russia, Taiwan, Thailand and Turkey.

See Keppler’s current emerging maret analysis here.

When you think globally… consider emerging markets. They have the image of being riskier… but when you look at the facts… they have outperformed major markets for years and are in a position to continue doing so for some time to come.

Gary

If you are a chocoholic as I am, don’t miss the really important reason to visit Copenhagen… the bakeries and cafes…. like Konditori La Glace!

Konditori La Glace is the oldest (and perhaps) the best confectionary in Denmark.  This cafe began 8 October 1870, and  has served sweet teeth like mine for six generations.  It is an experience just to visit the beautiful old rooms located in Skoubogade 3.   You can eat these confections on location take it back to your hotel or in a chocolate emergency they deliver.

Gary

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