Wide Disparity Among 10-Year Gov't Bond Yields in the U.S., Germany and Japan...

Chart of The Day: World Market Performance, Post-Financial Crisis

Chart Courtesy of Chart of The Day

For some perspective on the post-financial crisis rally, today's chart illustrates how much of the downturn that occurred as a result of the financial crisis has been retraced by several major international stock market indices.

For example, the S&P 500 peaked at 1,565 back in October 9, 2007 and troughed at 677 back on March 9, 2009. A recent close for the S&P 500 was in the 1,848 neighborhood -- a retracement of +132% of its financial crisis bear market decline.

As today's chart illustrates, China (Shanghai Composite), Japan (Nikkei 225), India (S&P BSE Sensex), Germany (DAX), France (CAC 40) and the U.K. (FTSE 100) are all above their financial crisis lows (i.e. above 0% on today's chart) and three of the aforementioned countries (Germany, India and the U.K.) are currently trading above their respective pre-financial crisis peak (i.e. are above +100% on today's chart).

It is interesting to note that the U.S. (epicenter of the financial crisis) has outperformed the other major stock market indices (* keep in mind that the German DAX is unique in that it includes for the reinvestment of dividends) while China has lagged to the point where it only trades +9.3% above its financial crisis lows -- not that impressive of a performance considering that the financial crisis occurred well over four years ago.


Chart Courtesy of Chart of The Day

U.S. Population In A Steady Decline: Birth Dearth Portends Fiscal Bankruptcy...

GDP Per Capita Remains in the Top 5% in the World...

Of 227 countries and territories ranked by the CIA World Factbook, U.S. GDP per capita remains in the top 5%, behind natural resource heavy waits like Qatar and the U.A.E. 

U.S. GDP per capita currently stands at $47,200.

In this chart from the St. Louis Fed, the rate has increased steadily since the 1960s, even after recessions have taken some bite from it. Already in 2010 and 2011, GDP per capita has re-accelerated as the overall economy begins growing.

A Millionaire Boom Is Coming...

Despite the Great Recession, which wiped out $15.5 trillion in household wealth in the United States alone, the number of millionaires in this country and abroad will grow rapidly over the next decade.

In the U.S., the total number of families with a net worth of over $1 million, including real estate, will double by 2020, according to a report by the Deloitte Center for Financial Services.

Overall, the U.S. and Europe have the greatest concentrations of wealth than any other region, although emerging markets are narrowing the gap.

China will lead the way in millionaire growth, the report said, followed by Brazil and Russia. By 2020, China and South Korea will rank in the top 10 of countries with the greatest total number of families worth more than a million dollars.
"There is going to be very fast growth, but it will take a lot longer to reach anything like the wealth in the developed world," said Andrew Freeman, lead author of the report.

With 10.5 million, the U.S. has -- by far -- the greatest number of millionaire households in the world, despite the financial crisis and ensuing recession which knocked more than 3 million millionaire families off the map between 2006 and 2008.

The number of millionaire households is expected to return to pre-crisis levels by 2015 and reach 20.6 million in 2020, maintaining the U.S.'s position in the top spot. By then, 43% of the world's wealth held by millionaire households will be in the U.S., up slightly from 42% this year, the report said.

Japan is expected to rank a distant 2nd, with 8.6 million millionaire households in 2020 and 9% of the world's wealth. China is expected to be No. 7, with 2.5 million millionaire households in 2020 and 4% of the world's wealth.

How U.S. Oil Consumption Compares to China's...

The U.S. consumes +21.7% of the world's daily oil production, more than double the +10.4% consumed by China. 

The USA's population is 311 million.  China's population is 1.319 billion or 1 billion greater than the USA.

Source: British Petroleum

 

Surprise! - The U.S. Now Leads the G-8 in Inflation!

Country P/E Ratios and GDP Growth

Many investors use the PEG Ratio as a valuation tool these days because it puts a company's growth prospects into perspective along with the widely followed price to earnings ratio. The PEG ratio is the P/E Ratio over the Growth Rate, and a PEG of less than one is generally considered good.

In this regard, Bespoke created "PEG" ratios for a number of countries using the P/E ratio of each country's main equity market index along with 2010 estimated GDP growth rates. Just as with stocks, the lower the country PEG, the more attractive.

As shown, India has the best PEG out of the countries we analyzed. It has a P/E ratio of 26.19 and estimated 2010 GDP growth of 8%. While its P/E isn't as low as a lot of countries, its growth rate is very high. China ranks 2nd with a PEG of 3.66.

The U.S. ranks in the middle of the pack with a P/E of 24.53 and estimated GDP growth of 2.6%.

At the bottom of the list sits Switzerland, Italy, and the UK, while Australia, Japan, and Spain have negative PEGs due to either a negative P/E Ratio or negative estimated GDP growth.

Chart and analysis courtesy of Bespoke Investment Group

CARPE DIEM: If European Countries Became U.S. States.....

CARPE DIEM: If European Countries Became U.S. States..... 

If various European countries became part of the United States:

1. Portugal would rank #51 as a U.S. state, below Mississippi in per capita GDP.

2. Italy and Greece as U.S. states would rank between the two poorest U.S. states - West Virginia and Mississippi.

3. If France became a U.S. state it would rank #48 out of 51 by per capita GDP, just barely ahead of America's two poorest states - West Virginia and Mississippi.

4. Belgium, Finland, U.K., Germany and Spain would rank in the bottom 20% of U.S. states by per capita GDP, just barely ahead of Arkansas but below Kentucky.

5. Although Netherlands, Sweden and Denmark are among Europe's wealthiest countries, as U.S. states they would be between 14.5% and 18% below the U.S. average.  

The chart below provides some additional perspective on Europe's "economic success," based on data available here that compares 2007 GDP per person on a purchasing power parity basis for U.S. states and European countries...

Moody's: "Potential Downgrade of U.S. Debt Not Inconceivable"

Moody’s suggested that even the United States and the U.K. are not safe from seeing their coveted triple-A credit ratings tarnished down the road.

In a report titled, “AAA Sovereign Monitor,” which Moody’s will now update quarterly, the rating agency said that the U.S. and U.K must show that they can reduce their ballooning deficits in order to avoid threats to their triple-A credit ratings.

In this quarter’s report, both the United States and the United Kingdom were singled out from the rest of the 17 nations that currently enjoy a triple-A rating on their sovereign debt. The report used the term “resilient” when describing the U.S. and U.K. while the word “resistant” was applied to rest of the triple-A club.

The Wall Street Journal reports that under the most pessimistic scenario Moody's devised, the U.S. could possibly lose its coveted triple-A rating in 2013… IF the following scenario were to unfold:

"Economic growth proves anemic, interest rates rise, and the government fails to reduce the deficit and/or recover most of its assistance to the financial sector."

The chief international economist at Moody’s points out that unlike several years ago, “now the question of a potential downgrade of the U.S. is not inconceivable.”

In the U.S., a "credible fiscal consolidation strategy" is said to be required in order to prevent the debt load and associated interest costs from tipping into the ratings agency's most pessimistic scenario, the report said.

Moody’s says that the most likely path for both the U.S. and the U.K. involves modest economic growth and a program of deficit reduction. The report also makes it clear that neither country is at risk of losing their credit rating in the near term.

The report notes that "the trajectory of the debt metrics, while unfavorable in the near term, does not currently threaten the ratings" of countries like the U.S. and the U.K."

Foreign Equities or U.S. Equities: How to Make the Allocation Decision

Charts courtesy of www.StockCharts.com

The EAFE iShares ETF (EFA) is our proxy for foreign equities. It covers Europe, Australia, the Far East, but not the emerging markets or any U.S. based companies.

The SPY ETF tracks the S&P 500 (S&P 500 SPDR).

• In other words, for every $1.00 in foreign equity funds, hold $2.00 in U.S. equity funds

When the RED line trades ABOVE the BLUE line, we are BULLISH on foreign equity mutual funds (EFA) and recommend a 2-to-1 ratio allocation of foreign funds relative to U.S. (domestic) equity funds. 

• In other words, for every $1.00 in U.S. equity funds, hold $2.00 in foreign equity funds.

When the RED line trades BELOW the BLUE line, we are BULLISH on U.S. equity mutual funds (SPY) and recommend a 2-to-1 ratio allocation of  U.S. (domestic) equity funds relative to foreign  foreign equity funds.

The RED line has traded ABOVE the BLUE line since May 15, 2009. Therefore, we favor EFA over SPY by a 2-to-1 margin until the relationship reverses. Since May 15, EFA is up +31.6% versus a +24.9% gain for SPY, a +6.7% outperformance difference in only six months.