Major Market Value Update April 2012


See Keppler’s Latest Major Market updates below.

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This chart from finance.yahoo.com shows a worrying head and shoulders pattern.

The head and shoulders pattern is a reversal pattern most often seen in uptrends.  This is most reliable when found in an uptrend and shows that the market has begun to slow down as the forces of supply and demand are becoming unbalanced.   This fits with one of the foundations in our investing philosophy that “periods of high performance are followed by periods of low performance and vice versa”.

Already as you’ll see below some big money was just lost in the markets.

There are three steps that can help protect you from such volatility so you can retire from the rat race at any age in this world of rapid change.

#1: Learn how to be healthier, smarter and more intuitive.

#2: Use the added advantages from Step #1 to learn how to earn by filling a purpose you truly enjoy.

#3: Learn how to invest your extra earnings from Step #2 into good value multicurrency investments.

The best way to enhance profits and protect against loss is by always seeking value.

Understanding good value is the tricky part.

This is why once a quarter we look at a major and emerging equity market valuation analysis by Michael Keppler.  Michael’s firms are the best when it comes to value analysis of stock markets.

Here is an update on the values of major stock markets by Keppler Asset Management.

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Michael Keppler

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Recent Developments & Outlook

Global Equities continued their recent uptrend in the first quarter 2012. The Morgan Stanley Capital International (MSCI) World Total Return Index (with net dividends reinvested, December 1969 = 100) finished the quarter up 11.2 %, up +11.6% in US dollar and up +8.8 % in Euro, respectively.

After having lost 3.2 % versus the US dollar in 2011, the Euro gained 2.6 % in the first quarter 2012. It now stands at 1.3317 (USD/EUR) compared to 1.2982 at year-end 2011.

Twenty-two markets advanced in the first quarter, two markets declined.

Japan had the highest return (+19 %), followed by Germany (+17.9 %) and Belgium (+16 %).

Spain (-5.7 %), Portugal (-0.9 %) and Canada (+4.4 %) performed worst last quarter. Performance is shown in local currencies, unless mentioned otherwise.

Fundamentals have improved further over the last 12 months: Book values, cash flows and dividends of the Equally Weighted World Index grew by 7.4, 6.3 and 17.2 percent, respectively.

Earnings, however declined by 0.6 percent compared to March 2011.

The Top Value Model Portfolio, based on the Top Value Strategy (December 1969 = 100) using national MSCI country indices as hypothetical investment vehicles, finished the first quarter  up +12.7 %), in US dollars up +14.2 %) and in Euro up +11.3 %.

There were no changes in our performance ratings last quarter.

The Top Value Model Portfolio holds the six “Buy”-rated markets Austria, France, Germany, Italy, Japan and Norway at equal weights. According to our analyses, a combination of these markets offers the highest expectation of long-term risk-adjusted performance.

The table below shows how the Major Markets Top Value Model Portfolio compares to the MSCI World Index, the MSCI Europe Index and the MSCI US Index as of March 31, 2012 based on selected variables (current numbers for book value; 12-month trailing numbers for the other variables – no forecasts).

To demonstrate the current attractiveness of global equities in general, I also show the key variables of the MSCI World Index as of December 31, 1999, when the MSCI World Index reached its all-time-high.

Which portfolio would you rather have? Don’t get fooled by the 15.1 % to pay a premium of 131 % over the current book value to receive this return, return on equity of US stocks. You have if you enter the market at current prices.

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Wouldn’t you rather have a return on equity of 8.4 % at a Price/Book Value of 1.09, which translates into an earnings yield of 7.8 % as compared to 6.5 % for US equities?

You have to decide whether higher expected earnings growth in the US may justify this type of a premium.

While nobody in a sane mental condition would opt for the MSCI World Index at the valuation levels experienced at the end of the last millennium, global equity investors should ask themselves what makes more sense today:

- Invest in US equities at a valuation premium of 55% compared to the MSCI Europe Index,

- Invest in the MSCI World Index at a valuation premium of 28% compared to the MSCI Europe Index,

- Invest in the Top Value Markets at a valuation discount of 39% compared to the MSCI World Index.

In my more than 30 years’ experience, I have never seen such a bad sentiment towards continental Europe. After a strong start in 2012, chances are good for a continuation of rising stock prices in general for the coming years.

If history is any guide, chances are better still for the Major Markets Top Value Model Portfolio.

This view is supported by our implicit three-to-five-year projection for the compound annual total return of the Equally-Weighted World Index, which now stands at 15.3 %, down from 17.6 % last quarter.

The upper-band estimate of 13,835 by March 31, 2016 implies a compound annual total return of 20.7 %; the lower-band value of 9,223 corresponds to a compound total return of 9.0 % p.a. Even our worst case makes equities look attractive — please see chart below, which shows the entire real-time forecasting history of Keppler Asset Management Inc. for the Equally Weighted World Index.

These numbers are based on relationships between price and value over the previous fifteen years. Given the current low levels of interest rates – real rates are negative in most places – I would like to point out that we do not have to be right with regard to the magnitude of our projections, but only directionally for investors to make money.

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Michael Keppler New York, April 16, 2012

We can see from Keppler’s analysis some really great value in the major markets

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