“Using MSCI indexes, U.S. stocks trade for nearly 24 times those earnings. By contrast, the rest of the world trades at less than 19 times earnings, European stocks at about 17 times earnings, and emerging-markets stocks at barely 14 times earnings.“We see the same pattern in price-to-book value ratios,” Ramsey says. “While U.S. stocks recently were valued at 2.8 times book value, that ratio was 1.8, 1.7, and 1.6 for Europe, worldwide foreign stocks, and emerging markets, respectively.”There are reasons that U.S. stocks command relatively high valuations, but the gaps are so large that they are difficult to justify, Ramsey says.”
“Now unnamed sources in the ruling coalition leaked that the German government would cut its growth forecast for this year and next year on Tuesday, when it announces its twice-a-year projections. It would amount to a “sharp cut” from the already tepid 1.8% growth projections made in April.This despite the all-out ZIRP and QE central banks have inflicted on conservative investors and aging baby boomers in order to force them into stocks and junk-bond funds and asset-backed securities and other chimera of Wall Street. The purpose was to drive up asset prices. And it worked. Now that these folks have stashed their money in stocks at peak valuations, the whole thing is unraveling.”
“Hisham Khairy, the Dubai-based head of institutional trade at Mena Corp. Financial Services, told Bloomberg that, “Global markets are all selling off and it’s that weakness we’re tracking. There’s still more blood to come.”
Spreading to the Orient, the political unrest takes it effect as Chinese Stocks in Hong Kong Fall to Extend Loss. “Chinese shares fell in Hong Kong; with the benchmark index dropping 10 percent from this year’s high, as protests in the city added to concern about weakening global economic growth.”
“Modern portfolio theory has defined investment strategies for both institutions and individuals since it was first presented. Constructing a portfolio of non-U.S.-based assets, particularly in developed stock markets, has both increased total returns and decreased volatility. There has, however, been a trend of increased correlation between the U.S. and non-U.S. markets. This increase in correlation has called the concept of diversification into question. Research focusing on short time periods and bull and bear markets has caused a chink in the armor. It can be argued that short time periods only exist for now and the historical trends will prevail. It is important to take note of the increase in correlations, which may be due to globalization and integration as a long-term trend. If it continues, history may have to be rewritten.”
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