Multi Currency Developed Market Value Review Spring 2014


Here is the spring 2014 multi currency developed equity market update.  These valuations form the basis of the investing portion of the seven session “Value in Contrasts & Trends” webinar now available to readers.

The US economic cycle is at a stage that favors investing in cash.  The high prices and dropping earnings for many US listed shares lend to this theory that cash is better than equities… in the short term.

The downside is that cash investments currently offer very low returns.   This means that seeking good longer term value in equity markets makes more sense.

There are many markets that statistically offer much better value than the US at this time.  Most multi currency investors know that the US stock market is a poor value (sell) market at this time.

See the ten good value multi currency equity markets below.

Once a quarter we review all developed multi currency equity markets through the Keppler Asset Management’s Global Market Value analysis.

If you are a new reader learn about Keppler Asset management here.

After losing ground in January, global equity prices moved up again in both February and March. In the first quarter 2014, the MSCI World Total Return Index (with net dividends reinvested, December 1969 = 100) advanced 1.0 % in local currencies, 1.3 % in US dollars and 1.2 % in Euros. The MSCI World Index now stands at LC 3,119, $ 4,386 and € 1,688, respectively. This marks new all-time highs for the MSCI World Index in local currencies, in US dollars and in Euros. While the MSCI World Index reached new all-time highs in local currencies and in US dollars in October 2007, its previous all-time high in Euros dates back to August 2000. It took thirteen years and seven months to surpass the old high with net dividends reinvested.

The Euro now stands at 1.3783 USD/EUR — almost unchanged from its year-end 2013 level of 1.3780.

Sixteen markets advanced and seven markets declined last quarter.

Israel (+19.1 %), Denmark (+16.1 %) and Ireland (+14.0 %) were the best performing developed markets last quarter. Japan (-7.5 %), Hong Kong (-3.3 %) and Austria (-2.8 %) performed worst.

Over the last fifteen months, all twenty-three markets included in the MSCI Developed Markets universe were up.

The best performing markets were Ireland (+53.9 %), Japan (+43.0 %) and Finland (+39.7 %). Singapore (+3.7 %), Austria (+5.5 %) and Hong Kong (+7.4 %) performed worst last year. Performance is in local currencies, unless mentioned otherwise.

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 at LC 36,790 (+0.3 %), $ 32,948 (+1.1 %) and € 12,684 (+1.1 %), marginally underperforming the benchmark.

Over the last fifteen months, the Top Value Model Portfolio gained 20.3 % in local currencies, 18.1 % in US dollars and 13.0 % in Euros, underperforming the benchmark by between 9.7 and 10.2 percentage points.

There was one change in our performance ratings last quarter. The Netherlands was downgraded to “Sell” from “Neutral”. Independent from this change, the Top Value Model Portfolio holds ten “Buy”-rated markets — Australia, Austria, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore and the United Kingdom — at equal weights. According to our analyses, an equally-weighted combination of these markets offers the highest expectation of long-term risk-adjusted performance.

keppler chart

Click on image to enlarge

The table above shows how the Developed Markets Top Value Model Portfolio compares to the MSCI World Index, the Equally Weighted World Index, the MSCI Europe Index and the MSCI US Index at the end of the first quarter 2014, based on selected variables (current numbers for book value; 12-month trailing numbers for the other 2 variables – no forecasts). In addition, for our younger readers who may not have been around at that time, we show the MSCI World Index at its All-Time High Valuation at the end of the last Millennium and its All-Time Low Valuation at the end of 1974.

The chart below shows the entire real-time forecasting history of Keppler Asset Management Inc. for the Equally Weighted World Index, started at the end of 1993. Our numbers are based on relationships between price and value over the previous 15 years. The chart includes two remarkable episodes: the five-year period (1997-2001) during which the Equally Weighted World Index stayed above the upper valuation band, and the period starting in October 2008, when the Equally Weighted World Index last fell below the lower valuation band, where it has stayed ever since, even though at its current level of LC 8,773 it is only 0.2 % shy of the value of the lower valuation band (LC 8,790) estimated four years ago.

Our implicit three-to-five-year projection indicates that the Equally Weighted World Index is expected to rise to 12,563 from its current level of 8,773 in three to five years. This corresponds to a compound annual total return estimate of 9.4 % in local currencies — up from 9.1 % last quarter. The upper-band estimate of 15,076 by March 31, 2018 implies a compound annual total return of 14.5 % (up from 14.2 % three months ago), while the lower-band estimate of 10,050 corresponds to a compound annual total return of 3.5 % (up from 3.2 % three months ago).

keppler chart

Click on image to enlarge

Growth rates of key fundamentals have kept up well compared to the end of last year. While annual book value growth now stands at 4.5 % as compared to 5.3 % at the end of 2013 and current annual dividend growth of 8.7 % is slightly below its growth rate of 9.3 % three months ago, both cash flow and earnings growth are up.

Twelve-month trailing earnings, which were down 1.6 % year-over-year at the end of last year, are now growing at a positive 5.1 % clip, and annual cash flow growth for the equally weighted world index stands at 3.7 % — 1.3 percentage points higher than the cash flow growth rate at year-end 2013.

Nevertheless, we have to be aware that we are in a low- growth environment. Going back to the end of 1969, covering the last 44 years and three months, book value of the equally weighted world index grew at 10.4 %, cash flow at 9.9 %, earnings at 10.1 % and dividends at 10.4 % (all numbers in local currencies).

As long as interest rates stay low, equities should be the preferred asset class.

Michael Keppler New York, April 14, 2014

Value Investing Webinar

Old Accord Creates New Profits – Multi Currency Investments.

Earn more with multi currency stock market breakouts.

Improve Safety – Increase Profits

Learn how to improve the safety of your savings and investments by selecting good value and diversified investments in a multi-currency portfolio.

Few decisions are as important to your wealth as the value of the markets and currencies you invest in.  This has been our area of expertise since the 1970s and we have worked with and advised some of the largest currency traders in the world.

Gain Protection First – Against the Dollar’s Purchasing Power Loss.  In 1913 the The Federal Reserve Act created the Federal Reserve Bank to protect the purchasing power of the US dollar, which has since lost about 94% of its purchasing power.  Here is its price compared with gold since 1900.

priced in gold

Dollar chart from pricedingold.com (1)

The Fed has let the dollar lose most of its strength plus has allowed interest rates to fall so low, that safe investments cannot keep pace with the drop in purchasing power.

multi-currency-chart

Chart from Grandfather Economic Report (2)

Many investors have forgotten about the risk of a falling dollar because the greenback has been strong for the past five years.  This temporary dollar strength came after the great recession of 2009 just as there was temporary dollar strength after the great recession of the 1980s.  Then about six years after the recession, an agreement was made by major governments to weaken the dollar.

There was a severe global economic recession affecting much of the developed world in the late 1970s and early 1980s.  The United States and Japan exited the recession relatively early, but high unemployment would continue to affect Europe and the UK through to at least 1985.  As a consequence between 1980 and 1985, the US dollar had appreciated by about 50% against the Japanese yen, Deutsche mark, French franc and British pound, the currencies of the next four biggest economies at the time. Then the governments reached an agreement and exchange rate values of the dollar versus the yen declined by 51% from 1985 to 1987.

Now the world is again in the same place.  The recession is over.  Europe is a bit behind in recovery and the dollar is higher than before the recession.

There is no reason for the greenback to be  strong.

The agreement in 1985 was called the Plaza Accord.   Over just two years the greenback dropped nearly 50% versus other major currencies.  The next accord will generate great profits for those who know what to do while it ruins the purchasing power of dollar back investments.

The strong US dollar and low interest rates have created one of the biggest stock and multi currency breakout opportunities in history.  Learn how to create a plan to profit from multi currency shifts ahead.

One reason for the potential gains is that stock markets and currency values are cyclical.  Due to low interest rates created by the 2009 economic downturn, the US and a few other equity markets have risen to some of their highest prices, ever.  These markets offer very poor value now.  The steep valuation creates incredible profit potential but also hides some enormous risks.  Learn how to develop an investing strategy based of earnings, cash flows, dividends and book values to increase potential for profit and reduce the risks.

Next Extra Profit Created by Value Breakouts

Over the history of US equity markets, the  price of overall markets have risen about 9.1 percent, respectively, compounded annually.  Yet over more than a hundred years of stock market activity,  a majority of the profits have come from just a very few dramatic breakouts.

Equity markets are ruled in the short term by emotions that create unpredictable ups and downs.  Numerous fears of defaults, worries of double dip recessions, high unemployment, concerns about fiscal cliffs, hold investors back.  Yet global population growth and advances in production and prosperity are relentless economic fundamentals that increase value.

When fear holds back a a fundamentally rising value, rising profit potential grows.  Values increase as prices stagnate.  Then markets break free and rocket upwards creating wealth, prosperity and growth.

Find out which breakouts are likely to take place next.

Stocks rise from the cycle of war, productivity and demographics. Cycles create recurring profits. Economies and stock markets cycle up and down around every 15 years as shown in this graph.

stock-Charts

The effect of war cycles on the US Stock Market since 1906.

Bull and bear cycles are based on cycles of human interaction, war, technology and productivity.  Economic downturns create war.

Here is the war stock cycle.  Military struggles (like the Civil War, WWI, WWII and the Cold War: WWIII) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine,  production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet.  The military technology shifts to domestic use.  A boom is created that leads to excess.  Excess leads to correction. Correction creates an economic downturn and again to war.

Learn how the Cyber War (WWIV) may change the way we live and act and how this will affect currencies and investments.

Learn:

* How to easily buy global currencies, shares and bonds.

* Trading down and the benefits of investing in real estate in Small Town USA.  We will share why this breakout value is special and why we have been recommending good value real estate in this area since 2009.

* What’s up with gold and silver?  One session looks at my current position on gold and silver and asset protection.  We review the state of the precious metal markets and potential problems ahead for US dollars.  Learn how low interest rates eliminate  opportunity costs of diversification in precious metals and foreign currencies.

* How to improve safety and increase profit with leverage and staying power.  The seminar reveals Warren Buffett’s value investing strategy from research published at Yale University’s website.  This research shows that the stocks Buffet chooses are safe (with low beta and low volatility), cheap (value stocks with low price-to-book ratios), and high quality (stocks of companies that are profitable, stable, growing, and with high payout ratios), but his big, extra profits come from leverage and staying power.  At times Buffet’s portfolio, as all value portfolios, has fallen, but he has been willing and able to wait long periods for the value to reveal itself and prices to recover.

keppler asset management chart

This chart based on a 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of outperformance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.

Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.

Learn how much leverage to use.  Leverage is like medicine, the key is dose.  Buffett leverages his portfolio at a ratio of approximately 1.6 to 1.  This rate of expansion by the way is called the “Golden Ratio”.  It is a mathematical formula that controls the growth of most natural things; trees, the shape of leaves, the spiral of shells, as well as the way economies and societies grow.

We’ll sum the strategy, how to leverage cheap, safe, quality stocks and for what period of time based on your circumstances.

Learn to plan in a way so you never run out of money.  The seminar also has a session on the importance of having and sticking to a plan.  See how success is dependent on conviction, wherewithal, and skill to operate with leverage and significant risk.  Learn a three point strategy based on my 50 (almost) years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.

Enjoy investing more with slow, worry free, good value investing.  Stress, worry and fear are three of an investor’s worst enemies.  These are major foundations of the Behavior Gap, a trait exhibited by most investors, that causes them to underperform any market they choose.  The behavior gap is created by natural human responses to fear.  The losses created by this gap grow when investors trade short term under stress.

Learn how to put meaning into your investing by creating profitable strategies that combine good value investments with unique, personal goals.

Learn how to span the behavior gap.  Behavior gaps are among the biggest reasons why so many investors fail.  Human evolution makes fear the second most powerful motivator.  (Greed is the third.)  Fear creates investment losses due to behavior gaps.  Fear motivates us more strongly than desire.  By nature investors are risk adverse, when they should embrace risk.  Purpose is the most powerful motivator,  stronger than fear and greed.  One powerful way to overcome the behavior gap is to invest with a purpose.

Combine your needs and capabilities with the secrets and the math of our good value model portfolio.

Share ideas about my good value portfolio.  My personal investment portfolio comes from a continual analysis of international stock markets and a comparison of their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.

Markets included in this portfolio are:

• Norway
• Australia
• Hong Kong
• Japan
• Singapore
• United Kingdom
• Taiwan
• South Korea
• China

These markets have been chosen based on four pillars of valuation.

• Absolute Valuation
• Relative Valuation
• Current versus Historic Valuation
• Current Relative versus Relative Historic Valuation

Learn how to use Country ETFs to easily construct a diversified, risk-controlled, equally weighted representative country portfolios in all of these good value countries.

To achieve this goal my portfolio consists of Country Index ETFs that track an index of shares in a specific country.  These country ETFs provide diversification into a basket of equities in the good value countries.  The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

This is an easy, simple and effective approach to zeroing in on value because little management and guesswork is required.  You are investing in a diversified portfolio of good value indices.  A BUY rating for an index does NOT imply that any stock in that country is an attractive investment, so you do not have to pick and choose shares.  You can invest in the index which is like investing in all the shares in the index.  All you have to do is invest in an ETF that in turn invests passively in all the shares of the index.

Learn the results of a $80,000 share purchase cost test that found the least expensive way to invest in good value.  The keys to this portfolio are good value, low cost, minimal fuss and bother.  Plus a great savings of time.  Trading is minimal, usually not more than one or two shares are bought or sold in a year.  I wanted to find the very least expensive way to create and hold this portfolio so I performed a test.

The Test for Low Cost Trading

Research put every part of this portfolio in place, except knowing the best, easiest and least expensive way to buy.  A search for an optimal way to buy and hold boiled down to two methods.  One tactic to test was to use a unique online broker that appeared to offer the lowest cost deal.  The other approach was to use a community bank in Smalltown USA.  The small town bank that I use looks after my 401K trust account and their service is first class.  The benefit of small banks is that they still treat us as a human beings (instead of a number) and when we need, it’s easy to go right to the top to answer a question or get a problem resolved.  There are no call centers and the bank and the person looking after my account is just around the corner.

I created a test to see which offered the least expensive service.

Working with my banker in Smalltown USA,  I created two accounts, one at the online broker and the other at the bank. I placed $40,000 in each.

I set up the order for the country ETFs online, while my trust manager set up orders for the identical amounts of the same shares in his system.  Then we got on the phone, coordinated our timing and on a count of three each pushed the button “BUY”.

The results of this test  show how you can gain on any purchase of country ETFs.

In this special offer, you can get this online seminar FREE when you subscribe to our Personal investing Course.

Save $468.90 If You Act Now

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $102 off the subscription.  Plus you receive FREE the $29.95 report “Three Currency Patterns for 50% Profits or More”, the $39.95 report “Silver Dip 2017” and our latest $297 online seminar for a total savings of $468.90.

ecuador-seminar

Triple Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report, access to all the updates of the past two years, the two reports and the Value Investing Seminar right away. 

#1:  I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the two reports and Value Investing Seminar as my thanks for trying.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential.

Subscribe to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, the “Silver Dip 2017” and “Three Currency Patterns For 50% Profits or More” reports, and value investment seminar, plus begin receiving regular Pifolio updates throughout the year.

Subscribe to a Pi annual subscription for $197 and receive all the above.

Your subscription will be charged $299 a year from now, but you can cancel at any time.

Gary

 

Gary

(1) Dollar chart from pricedingold.com

(2) Grandfather Economic Report