Tuesday 29 June 2010

Reversing Britain, a Nation in Decline

David Cameron: 'The world doesn't owe us a living'

Britain has no automatic right to prosperity, David Cameron has said, declaring: “The world doesn’t owe us a living.”

David Cameron
Mr Cameron told business leaders in London that Britain has no automatic right to prosperity
The Prime Minister said many people are under the “delusion” that just because the UK has historically been one of the richest countries on earth, it will always remain so.
Only if we “reboot and rebuild” the UK economy can the country’s future prosperity be assured, he said.
Mr Cameron used a speech to business leaders in London to argue that the spending cuts and other changes his Government is planning are not discretionary political choices but essential economic moves to stop the country falling behind its competitors.
He said: “I think too many people in this country are living under the delusion that a prosperous past guarantees a prosperous future. But it isn’t written anywhere that this country deserves a place at the top table.
He added: “It was once said that freedom once won is not won for ever; it’s like an insurance premium – each generation must renew it. Economic prosperity is the same. Just because we’ve had it before doesn’t mean we’ll automatically get it again.”
The Prime Minister said Britain will only remain a major economy if it can tackle the huge Government deficit, reform the welfare system and attract new investment from overseas.
“These three steps can help Britain to earn its living in the decades to come,” he said.
Despite warnings about the state of the public finances and their impact on the wider economy, Mr Cameron insisted he was optimistic about Britain’s long-term future.
“Ever since it was said that Britain had lost an empire but not yet found a role there has been a lot of anxiety about our future; about our declining place on the world stage and our diminishing fortunes with it,” he said. “But I passionately believe that decline is not inevitable.”
Britain is “blessed with huge advantages” such as the English language, its universities, established industries and the “ingenuity, openness and talent” of its people, he said.
He added: “These are the old advantages, and I believe there is a new one, too – a growing attitude across the country that we are going to deal with these debts and fight not just for our survival, but for our success."
  • The Conservatives have gained popularity as support for their Liberal Democrat coalition partners has slumped, a new poll showed last night.
The ComRes poll put the Conservatives on 40 per cent, up from 36 per cent earlier this month. The Lib Dems fell five points to 18 per cent. Labour was on 31 per cent, up one point.

A Lost Decade for U.S. Stocks

Dec 23, 2009


I came across two charts that show the dismal performance of U.S. equities in this decade. The first chart below is from the Numbers column in the latest issue of Bloomberg Businessweek. It shows the return of the S&P 500 Index from Dec 31, 1999 through Dec. 14, 2009. The S&P 500 lost 23% in this period. During the same period market indices in developed countries like France, Finland, etc. showed relatively better performance. The main stock market indices in the Netherlands, Japan and Greece performed worse than the S&P 500.
It is interesting to note that while the S&P lost 23%, the Brazilian Bovespa Index gained an astonishing 318% during the same time frame. This is one reason why US investors should look beyond the US for better returns.
click to enlarge
Stock-Markets-Soared-Sank
Source: Bloomberg BusinessWeek
The second chart is from a Wall Street Journal December 20th article titled “Investors Hope the ’10s Beat the ‘00“. From the article:
“The U.S. stock market is wrapping up what is likely to be its worst decade ever.
In nearly 200 years of recorded stock-market history, no calendar decade has seen such a dismal performance as the 2000s.
Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade.
The period has provided a lesson for ordinary Americans who used stocks as their primary way of saving for retirement.
Many investors were lured to the stock market by the bull market that began in the early 1980s and gained force through the 1990s. But coming out of the 1990s—when a 17.6% average annual gain made it the second-best decade in history behind the 1950s—stocks simply had gotten too expensive. Companies also pared dividends, cutting into investor returns. And in a time of financial panic like 2008, stocks were a terrible place to invest.
With two weeks to go in 2009, the declines since the end of 1999 make the last 10 years the worst calendar decade for stocks going back to the 1820s, when reliable stock market records begin, according to data compiled by Yale University finance professor William Goetzmann. He estimates it would take a 3.6% rise between now and year end for the decade to come in better than the 0.2% decline suffered by stocks during the Depression years of the 1930s.
The past decade also well underperformed other decades with major financial panics, such as in 1907 and 1893.
The last 10 years have been a nightmare, really poor,” for U.S. stocks, said Michele Gambera, chief economist at Ibbotson Associates.”
Chart - U.S. Stocks’ Cumulative Returns by Decade
“This decade is on pace to be the worst period ever for owning stocks. On the right are the annual returns, by year and decade, for a broad measure of stock-ownership. Stock returns were even better during the Civil War and World War I than from 2000 to 2009.”
Worst-Decade-Stocks

Why should you invest in Foreign Stocks?

Why should you invest in Foreign Stocks?


The answer to the title question is: For better returns and diversification purposes.
Simply put, in this age of globalisation it is almost a requirement to invest in foreign countries if ones to make above average returns. It does not mean putting 5 to 10% as most Americans do. it means allocating 30-40% of ones portfolio to foreign equities. An average investor in the US has less than 10% of his portfolio invested in foreign stocks.
Of course there are many risks to investing in foreign stocks.For a brief summary go to the SEC page on International Investing.
Today foreign companies are competing and growing rapidly when compared with US companies. For example, the market capitalization of all the stocks listed in the New York Stock Exchange (NYSE) is about $27.1 Trillion as of December 31,2007. Out of this, 421 foreign companies’ capitalization is $11.4 Trillion. This shows that foreign companies are increasingly becoming more powerful and important in the global market place. On a worldwide basis the US markets constitutes only 45%of the total market capitalization of all companies. In addition to the NYSE there are many more foreign stocks listed in the Amex,Nasdaq and the OTC markets.
In addition to the above reasons, investing in foreign stocks may provide higher returns than investing in US stocks.
The following table and chart compares the Total Return of MCSI EAFE against US Indices for a period of 25 years. The MCSI EAFE Index is the all Non-US major stock markets of the world including Australasia, Europe and the Far East.
Total Return - MCSI EAFE Vs. US Index
YearAll Major Stock Markets outside USUS
198325%22%
19848%6%
198557%33%
198670%18%
198725%4%
198829%16%
198911%31%
1990-23%-2%
199112%31%
1992-12%7%
199333%10%
19948%2%
199512%38%
19966%24%
19972%34%
199820%31%
199927%22%
2000-14%-13%
2001-21%-12%
2002-16%-23%
200339%29%
200421%11%
200514%6%
200627%15%
200712%6%
Chart: Total Return - MCSI EAFE Vs. US Index
US-NonUS-Returns
As we see in the above table and chart, in the past 25 calendar years foreign stocks have outperformed US stocks in 15 years.
From the above data, we can also infer the following:
1. In the past 5 years (2003 to 2007), foreign stocks have returned far higher returns than US stocks for each year. The year by year return difference is as follows:
Years 2003 and 2004 - Foreign stocks returned 10% higher than US stocks
Year 2005 - Foreign equities’ return was 8% higher than US stocks
Year 2006 - International stocks returned 12% higher then US stocks
Year 2007 - Foreign stocks returned 6% higher then US stocks
While some portion of this higher returns is due to the dollar depreciation, the majority is due to foreign companies making higher profits than our domestic ones.
2. From 1995 to 1999 during the high tech craze, the US markets outpaced international markets.
So overall foreign stocks performed better in most of the past 25 years. As US economy struggles to recover it may be the right time for US investors to take a fresh look at foreign markets and invest according to their risk appetite.
Question:
What is you portfolio allocation for foreign stocks?. Do you think you need to re-allocate your portfolio now?. Which country/region is your favorite? Post your story on portfolio allocation in the comments section.