Major Market Value Update Aug. 2009

by | Aug 5, 2009 | Multi Currency Investing

At our international investing seminar last week, we reviewed the Dow’s previous 16 year down cycle which ran from February 1966 through August 1982.

We saw that in the first 12 years of that period, 1966 to 1977, the Dow dropped 1% overall  in 135 months.

Then we compared the similar period in the current Dow downside which is from  1998 until May  2009. The Dow had also dropped 1% in 135 months.

Then we looked at three charts comparing the Dow’s performance over various two year periods  to the period July 2007 to July 2009.

We viewed how the Dow appears to be entering the 12th year of a 15 to 17 year down cycle that began in 1998.  We compared the last two years of this cycle, with the equivalent period in the 1966 to 1982 bear cycle.

We saw an amazing 93% correlation between then and now.

The chart below from Moore Research compares the Dow from 1976 through 1978 with the same time to July 2009.  The Blue line is what happened in the equivalent period in the 1970s to now.


Then we looked at what might happen in the next two years.  Ignore the black line which shows the Dow for the last two years. This should not correlate with the next two years period.

This suggests that in the next two years, we’ll see a lot of sideways motion with some severe drops.

The next chart suggests that between 2011 and 2014 we’ll see even more severe drops. Again ignore the black line.  This represents the Dow over the last two years and  has no bearing on these periods.

The blue line is what history suggests the Dow might act in the years ahead.


Down… down… down… until late in the two year period when the bull finally begins.

Then the bull trend continues over the next two years.


According to our 35 + or –  year wave theory some great new innovation should come along around 2014 and ignite the next 15 to 17 year bull in 2013 or 14.  The steam won’t really pick up till about 2016… or even a bit later.

This will be good news for retiring boomers who manage not to be wiped out from the next half decade of sideways and downwards motion.

This led us in the seminar to see seven places to invest now.

Value Markets for the long term
Multi Currency Spread
Emerging Markets for the long term
Alternate Energy
Real Estate

This message focuses on value markets and reviews Michael Keppler’s just released three month Major Market Value Analysis.

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

Keppler wrote:

In my Spring 2009 edition, I wrote that Benjamin Graham’s margin of safety indicates that much better times may lie ahead for global equity investors. I was not aware, however, that such a powerful turnaround was underway. After seven consecutive negative quarters, global equity markets had in the second quarter 2009 their sixth best return since inception of the MSCI Indices at the end of 1969. The Morgan Stanley Capital International (MSCI) World Total Return Index (with net dividends reinvested, December 1984=100) advanced 16.5 % in local currencies, 20.7 % in US dollars and 14.3 % in euros.

All markets covered here advanced in the second quarter. Singapore (+39 %), Hong Kong (+35.8 %) and Spain (+29.3 %) performed best last quarter.

The United Kingdom (+10.2 %), Australia (+10.3 %) and Switzerland
(+11.2 %) had the lowest returns.

During the first half of the year, sixteen markets advanced and two markets

Hong Kong (+35.1 %), Singapore (+33.4 %) and Sweden (+23.8 %) fared best. Germany (-1.5 %).

The United Kingdom (-1.3 %) and Switzerland (+0.5 %) came in at the bottom of the performance range.

The Top Value Model Portfolio based on the Top Value Strategy using national MSCI country indices as hypothetical investment vehicles, finished the second quarter 2009 at +21.9 % in local currencies,  (+30 %) in dollars and +23.1 % in euros outperforming the benchmark by 5.4, 9.3 and 8.8 percentage points,
depending on the currency.

Year-to-date, the Top Value Model Portfolio is up 13.3 % in local currencies,     17.8 % in US dollars and 16.7 % in euros. These results exceed the benchmark returns by 8.5, 11.4 and 11.3 percentage points in local currencies, US dollars and euros, respectively.

There were two changes in our performance ratings last quarter: Hong Kong and Belgium were downgraded to “Sell” from “Buy”.

The Top Value Model Portfolio currently contains the following six “Buy” rated countries at equal weights: Austria, France, Germany, Italy, Singapore and the United Kingdom.

Our current ratings suggest that these markets offer the highest expectation of long-term risk-adjusted returns.

Last quarter, I showed our implicit 3 to 5 year return projections of 27.8 % p.a. for the equally weighted World Index. The projections stood at their all-time high at the end of March 2009. The equally weighted World Index better
represents the global equity environment than the cap.-weighted MSCI World Index with its 48.5 percent weight in US stocks. After having risen 19.4 % last quarter, the equally weighted World Index now stands at 1,816.9.  During
the last three months our expectation of the index level in 3 to 5 years declined from 4,055 to 3,852, which in combination with the strong price appreciation over the last three months leads to a drop of our current estimates of the annual price appreciation over the next 3 to 5 years to 20.7 percent.


I show these numbers with the usual caveats: Forecasts are dangerous, particularly those about the future.

Keppler’s analysis shows that low value markets are: Canada, Belgium,  Denmark, Hong Kong, Switzerland and USA.

Neutral value markets are Australia, Japan, Netherlands, Norway, Spain and Sweden.

It is interesting to show that Keppler’s projections for value investments shows appreciation into 2014.

What can we do about the information above?

First, be aware that history suggests that equity investments may be subject to a lot of turmoil for the next few years.  Second, understand that the down periods create exceptional value if you can ride though the storm and hold on medium to long term. The volatility will also create some trading opportunities.

I am especially cautious now. See why at International Investments Warning.

#1: If you are a non US investor, you can invest in the Jyske Invest European fund which uses a  value system in their investment decisions.  You can get more data from Reny Mathy at Jyske Bank. His email address is

You can see that the fund’s geographical holdings match Keppler’s good value analysis.  You can see that 60% of the funds diversification is in the top value markets, Austria, France, Germany, Italy, Singapore and the United Kingdom.


Here is the fund’s sector mix.


Here are the fund’s top holdings.

The investment policy of this fund is to invest directly and indirectly in equities issued by companies which are based in Europe or which pursue more than 50% of their activities (by sales or production) in Europe.

The objective of the portfolio management is to generate a return over time which is at least in line with the market development in the European equity markets measured by the MSCI Europe index, net dividend included.

The fund value grew by 17.35% in the second quarter of 2009; the benchmark return was 18.57%. For the year to date, the value of the fund has increased by 7.77%; the benchmark by 6.07%.

Jyske Invest warns about market instability when it said:

The world’s hard-hit equity markets got a much-needed lift in the second quarter. European equities saw the best quarter since the euphoric fourth quarter of 1999 during the IT bubble. While the increase back then was seen in an equity market that had already increased a lot, the increase this time happens after seven quarters of falling prices. Equities have increased as investors have started to see better times ahead for companies and consumers. Once again the quarter was characterized by a lot of bad news, but expectations of the future have improved significantly.

A decisive thing is that some of the uncertainties hovering over the equity market have been cleared up. The fact that governments have supported the markets in the form of various bank packages and the fact that banks’ investment positions have become more visible have caused some of the uncertainty to evaporate.

Therefore, we benefited from British Barclays that gained 107% in Q2. The media company Vivendi, whose share price fell by 8%, pulled in the opposite direction.


Uncertainty remains high. The world economy is in crisis, and growth is on the decline in most countries in the world. Central banks and governments have been busy introducing rescue packages and interest-rate cuts. Thus help has been offered, and most indicators of the future signal that an effect will soon be seen. The increases in the equity markets also indicate widespread expectations that the worst is behind us. Now it is decisive for equities that the brighter expectations result in actual improvement for companies and consumers. We expect that the rest of 2009 will bring wide swings in the equity market. A lasting upturn is unlikely to be just around the corner. We are still expecting a longer period characterized by uncertainty before optimists will gain a foothold.

Jyske Invest’s view of markets fits nicely with the era suggestions above.

Another fund that invests in Keppler’s good value formula is the State Street Global Advantage Major Markets Fund.

US investors cannot invest in the two funds above.

US investors can invest in the Threadneedle European Equity A Mutual Fund. This is listed as AXEAX on NASDAQ.

Threadneedle International Limited is an SEC-registered investment adviser that subadvises certain U.S. mutual funds managed by RiverSource Investments, LLC, is a subsidiary of Threadneedle Asset Management Holdings Limited.

The firm has a British background and Threadneedle International Limited and its U.K. affiliates operate under the brand name Threadneedle.

Threadneedle was founded in 1994 and manages more than $120 billion* of assets for a wide range of clients including pension funds, insurance companies, private investors, corporations, mutual funds and affiliate group companies.

Threadneedle reaches customers in 16 countries across four continents and has more than 600 staff members in 11 locations: United Kingdom, Germany, Austria, France, Switzerland, Netherlands, Sweden, Denmark, Spain, Italy and Hong Kong.

The European Equity A fund started in 2000 and is managed by American Express Financial Corporation. The fund seeks capital appreciation and primarily invests in equity securities of European companies with growth potential. Under normal market conditions, the fund invests at least 80% of its net assets in equity securities of European issuers. Although the fund emphasizes investments in developed countries, the fund  may also invest in companies located in developing or emerging markets.

Europe Fund

This fund also has over 60% of its assets in Keppler’s to value markets.

Jyske Global Asset Managers (JGAM) can buy this fund for their US advisory clients.

US JGAM investors who have a managed account can also have an advisory account if they wish to hold specific shares beyond that which is managed.  The client needs two different client account numbers
and two different setups but can arrange this with one application
form.  The client needs to simply sign both a managed account document and an advisory document.

Details are available from Thomas Fischer at

Remember, however, that the overall market value is just one of many filters we should use when we review value and select shares.

The seven steps we use in our reviews include

1: Are the shares traded in a good value market?
#2: Does the share trade at fair Price to Earnings and Price to Cash Flow ratios?
#3: Does the share pay a good value dividend?
#4: Do the shares have a good value relative to their previous price?
#5: Does the company have rising earnings?
#6: Has the share price been rising?
#7: Is the company’s management good and is their product or service line in a wave of the future?

Michael Keppler also reminds investors not to misinterpret the investment analysis implicit in the Country Selection Strategy.  A country is BUY-rated based on the valuation levels reflected in the MSCI benchmark index of country. A BUY rating therefore does NOT imply that any stock in that country would be considered an attractive investment.

For more details on Keppler’s analysis, contact Roderick Cameron at 1-212-245-4304 or email

To invest according to the Country Selection Strategy it is necessary to
construct diversified, risk-controlled, representative country portfolios in
every BUY rated country, weighting each country approximately equally in the
overall portfolio. It is not appropriate to instruct a stockbroker to simply to select stocks in the BUY rated countries.


Join Merri, me and Thomas Fischer of Jyske Global Asset Management, October 9-11, 2009 in North Carolina for International Investing and Business Made EZ