Discussion in 'Trading' started by ByLoSellHi, Jul 3, 2008.
The Dow Jones Industrial Average - in Euros - is almost 50% off from 2001:
Very interesting but not suprising.
how about in gold
Thanks central bankers, creating the illusion of prosperity.. until they cant.
You got it!!!
The world now has a realtime financial reality show to watch each day....."Matrix, Revealed"!
Until people are bullish on crude oil, and bearish on financials, this market will trend lower. Fade and huge bounces in financials. But, buy GS on very extended selloffs.
Last year Kudlow was showing the 10-year Dow chart that was inflation-adjusted. Even at the Oct double peak it was down 25% from where we were in 2000 in real terms, which was the first time in history the market did not surpass its previous inflation-adjusted high.
Now that we're sitting nearly 20% lower from Oct, that would put us down roughly 45% in real terms - basically similar to the Dow priced in euros. And this is using CPI inflation, which of course we know highly understates the real level of inflation.
Just as eye opening is the dollar return of the German DAX from '03-'07.
S&P 500 - '02 low > '07 high = 105%
DAX - '03 low > '07 high = 271%
DAX priced in dollars = 400% (!)
So a US investor buying the market low in Germany received four times the dollar return of buying and holding the S&P 500. Not bad..
1. I think the entire 70s the SP500 (including dividends?) lost value in inflation adjusted terms. Thus 2000-2008 so far is similar to the 70s. There is nothing historic about the Dow not being able to reach new inflation adjusted highs this decade (see http://www.fullermoney.com/content/2006-04-24/djinf.png).
2. The DAX is a total return index, i.e. it includes dividends. The Dow & SP500 are price indexes that don't include dividends.
3. The DAX crashed 65% (including dividends) in EUR terms between 2000 and 2003, far worse than the SP500 (in USD) without dividends.
4. For the year, the DAX is down 23% including dividends. The Dow Jones Eurostoxx 600 price index (without dividends) is down 30% from its peak of July 2007. Factor in the positive EURUSD performance of +7.5% YTD and +15% since July 2007 and you're still deep in the hole investing in European stocks, which were thought to be largely immune to any type financial crisis back in 2007. Unfortunately the grass is not greener on the other side.
That probably explains why Kudlow only showed a 20-year chart.
With regards to your points related to the DAX, I appreciate your insight. It was just a back of the envelope calculation, and I understand it wasn't an apples to apples comparison. The point was merely to highlight the outperformance of relative foreign market equity returns given the dollar's accelerated decline in recent years.
If you bought the top, yes. And a 30% Eurostoxx loss offset with a currency gain of 15% still edges out the S&P 500's peak to trough 19.8% loss..
Completely agree with the outperformance aspect Europe vs. SP500 in USD terms for 2003-2007. But what about 2008-2012? Not so sure. What does financial science say about longer term relative global equity and currency returns? Aren't they historically mean reverting?
Agreed. However, I believe there are more factors at play today for which there are no apt historical precedents. Some of those factors are excellently highlighted in a report that ByLoSellHi was nice enough to bring to our attention:
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