GMO Forecast July 2020 - Emerging Value is the Only Game in Town

 GMO published their latest 7-year forecast for July 2020, and most asset classes have dismissal expected returns over the next seven years from US large stocks to emerging stocks and large and small international stocks. Let's not even get started with bonds that are just as bad.

While we would consider gold, silver and other so-called real assets to be a potentially good long term investments at this point in time, those are not tracked by GMO, but we've noticed one exception in GMO chart: Emerging value.

9.2% yearly returns over seven would be an excellent investment in those days and age, but as we can see GMO separates emerging and emerging value, so we can't just buy any emerging stocks trackers.

But what's a value stock exactly? Here's Investopedia definition:

A value stock is a security trading at a lower price than what the company’s performance may otherwise indicate. Investors in value stocks attempt to capitalize on inefficiencies in the market, since the price of the underlying equity may not match the company’s performance.

They are often opposed to Growth stocks, often referring to stocks in the Technology and Biotechnology sectors with very high P/E ratios.

 Investopedia main takeaways:

• Common characteristics of value stocks include high dividend yield, low P/B ratio and/or a low P/E ratio.
• A value stock typically has a bargain-price as investors see the company as unfavorable in the marketplace.
• A value stock typically has an equity price lower than stock prices of companies in the same industry.

So value stocks may be dividend stocks with low price-to-book and low price-earning ratio. This includes utilities, banks, consumer staples, and some commodities producers.

So our best bet would be to find value stocks in undervalued emerging markets, which last time we looked included Russia, China, Turkey, Hungary, and South Korea. With Russia, it's easy as most stocks are value stocks, and we could just add a Russia ETF to our portfolio such as MSCI Russia Capped Index (3027.HK) in Hong Kong and VANECK VECTORS/RUSSIA ETF (RSX) in the US.

China is more complex since the stock indexes include highly priced technology company such as Tencent, Allibaba and Baidu. One such option is Value China ETF (3046.HK) whose top holdings include Chinese banks, real-estate companies and insurances.

All companies are listed in the Hong Kong stock market. Alternatively, there's also Value China A-Share ETF (3095 HK) with companies listed in China, and more of a Chinese consumers story with 35% Consumer Goods, 34% Financials.

Note that while Google Finance shows there's no dividend paid out, you'd get ~2% dividend paid out yearly.

I had more of a struggle finding a China value stock in North America, and one of the closest would be Horizons China High Dividend Yield Index ETF (HCN.TO) listed in Canada.

The funds distributed dividends every quarter. The current is 6.77% based on info from Yahoo Finance.

I will not look into Turkey due to geopolitical risks at the moment, nor the smaller Hungary market, and complete this post by checking out South Korea. If you want to invest in South Korea, there's limited choice when it comes to South Korea ETF, and most people will not be able to purchase stocks on the KOSPI exchange.

That means we'd have to accept getting some experience to technology stocks like Samsung Electronics (PE: 17.49, DY: 2.53%), Naver (PE: 64.40, DY: 0.12%),  or  SKHynix (PE:22.3, DY: 1.34%) through South Kora ETF such as iShares MSCI South Korea Index Fund (EWI). 

 

In any case, I'm uncomfortable purchasing stocks in the September-October months due to the high-valuation in the US stock market, and a stock market sell off in the US, may lead to a rise in the US dollars, and a sharp drop in emerging stock markets. If it does happen, it will certainly be an interesting buying opportunity. 

GMO 7-Year Asset Class Forecasts - October 2012

GMO has released its monthly 7-year Asset Class Forecasts and since many markets have been pretty stable all year, the story remains more or less the same:

• US Large caps: 0.3% per year
• US Small caps: -0.2% per year
• US High Quality: 4.8% per year
• International Large caps: 4.8% per year
• International Small caps: 4.2% per year
• Emerging Markets: 6.3% per year

Avoid US stocks, except high quality, and emerging market stocks should offer the best returns. Obviously, all emerging markets are not created equal. The Chinese stock market which is very depressed is likely to return more than the Thai and Indonesian stock market for example, which seem really resilient at the moment with relatively high valuations.Most bonds, excluding Emerging debt, are still a terrible investment for the next few years according to GMO methology.

You can receive GMO's forecasts (monthly) and the quarterly newsletter for free by registering at http://www.gmo.com

GMO 7-Year Asset Class Forecasts - July 2012

GMO has released its monthly 7-year Asset Class Forecasts and the expected annualized returns are basically the same as last month for equities:

• US Large caps: 0.2% per year
• US Small caps: -0.4% per year
• US High Quality: 4.5% per year
• International Large caps: 5.0% per year
• International Small caps: 5.2% per year
• Emerging Markets: 6.2% per year

The US market still sucks ( except High quality stocks), and the rest of the world should do OK.

Bonds expected returns are getting worse and worse by the months, as the bond bubble still inflates.

You can receive GMO's forecasts (monthly) and the quarterly newsletter for free by registering at http://www.gmo.com

Marc Faber - Coming Next: Global Crash and U.S. Treasury Bubble Popping

Marc Faber is interviewed on Capital Account (Russia Today) by Lauren Lyster, where the talks about his views on US treasuries and capital markets, the Chinese economy and the consequences of a Chinese slowdown.


First, he explains that since 1981 were the yield was above 15%, US treasury have been in a bull market and is in bubble territory. But as with the Nasdaq in 1999, a bubble can continue inflation, and some friends of Marc Faber think 10 years trasuries will eventually yield less than 1%, and 30 years less than 2%. But his own view is that if yields increase again in markets such as the US and Japan, money will flow into equities, so he's not really worried if stock markets go down, even though he does not rule out a crash.

When asked about China, he basically says that Chinese government numbers are bogus, and when you look at Taiwan and South Korea, you'll find their exports to China are flat, and electricity consumption in China also show a weak picture of the Chinese economy.

Finally, he gives his outlook on what is happening now, and explains there is clearly a recession in Europe, the US is slowing down, but a China slowdown would be more important to the global economy, because it would have a strong impact on emerging economies. Currently Asia is certainly not in recession, but there is basically no growth.

Marc Faber appears in the first 10 minutes below, and the second part is about Libor with a zero hedge contributor.

GMO 7-Year Asset Class Forecasts - June 2012

GMO has released its monthly 7-year Asset Class Forecasts and the expected annualized returns have not changed much since last month:

• US Large caps: 0.4% per year
• US Small caps: -0.6% per year
• US High Quality: 4.5% per year
• International Large caps: 5.3% per year
• International Small caps: 5.6% per year
• Emerging Markets: 6.4% per year

And bonds are still a terrible investment for the next very years according to GMO methology,  even worse than US stocks.

You can receive GMO's forecasts (monthly) and the quarterly newsletter for free by registering at http://www.gmo.com

GMO 7-Year Asset Class Forecasts - April 2012

GMO has just released its monthly 7-year Asset Class Forecasts and the expected annualized returns  have not changed much since last month:

• US Large caps: -0.2% per year
• US Small caps: -1.7% per year
• US High Quality: 3.9% per year
• International Large caps: 4.6% per year
• International Small caps: 3.4% per year
• Emerging Markets: 5.2% per year

US stocks should still be avoided as investments, and bonds anywhere in the world will be a disaster. If the stock markets continue their slump this month, the expected 7-year return should go up in GMO May forecast.

The ways to invested based on these expected returns with ETF are the same as last month.

You can receive GMO's monthly forecasts and the quarterly newsletter by registering at http://www.gmo.com (that's free).

Marc Faber on Money Printing, Asset Allocation, Crude Oil and More

Here's a 2 part interview of Marc Faber by Future Money Trends uploaded on the 29th of April 2012.

In the first video, MArc Faber explains that money printing won't help the general population, but it will increase asset prices, so people who own assets will benefit. The other issue is that central banks can't control where the money go and as a consequence the unemployment rate has not improved much ion the US and in Europe, but people living in emerging economies have benefited.

When asked about equities, he said that also equities are not a good bargain right now, and we may have the high for the end on the S&P 500 at 1422, there is a big risk in not owning equities because of (you guessed it) money printing. He recommends to own some equities especially in Asia (dividends are good ~ 5 to 7%) possibly via ETFs, some precious metals, and for US residents, some real estate in the South of the US.

He concludes by explaining that eventually there will be a complete reset, a complete collapse because there is simply too much debt with bankrupt banks lending to bankrupt to governments and vice versa, and the Ponzi scheme will come to an end. In the second video, they discuss how the ponzi scheme could end. Marc thinks there could be significant price inflation, government may try to give more handouts to their citizen while increasing taxes on rich people, and eventually they'll go to war to put the blame on some other countries.

Then  they switch to discussing about crude oil. Marc Faber first explains that oil prices are volatile and much of it is due to government policy such as manipulating interest rates. When he looks at several aspect of the oil market (demand in the west flat, demand rising in emerging markets, supply constraint and geopolitical tensions in the middle east), he would rather be long on oil.

Marc then talks about  the declining standard of living of US citizen which has started some 30 to 40 years ago compared to the rest of the world and it will continue to fall.

Finally, he's asked what he would advice to young people in Western economies. It might not always be a good idea to borrow money to get a degree, but if your parents are rich enough to pay it, then go for it. He would then start to work for somebody successful in any industry and acquire knowledge. Obviously, you should choose something that you like. There are different kind of success, not only monetary, but a happy family, helping others may also be successes.

GMO 7-Year Asset Class Forecasts - March 2012

GMO has just released its quarterly 7-year Asset Class Forecasts and here are the expected annualized return (based on valuation and historical earning growth):

• US Large caps: -0.3% per year
• US Small caps: -2% per year
• US High Quality: 3.7% per year
• International Large caps: 3.9% per year
• International Small caps: 3.4% per year
• Emerging Markets: 5.4% per year

This last month expected returns have gone down for US stocks and International large caps and up slightly for international small caps and emerging markets, but the returns are still nothing to be excited about.

Different kinds of bonds are expected to return between -2.2% and 1.0% per year.
Managed Timber (stable as ever) is expected to return 6.5% per year. Those are real returns adjusted for inflation of 2.5% per year.

You can receive GMO's forecasts (monthly) and the quarterly newsletter for free by registering at http://www.gmo.com

GMO 7-Year Asset Class Forecasts - February 2012

GMO has just released its quarterly 7-year Asset Class Forecasts and here are the expected annualized return (based on valuation and historical earning growth):

• US Large caps: 0.4% per year
• US Small caps: -1.8% per year
• US High Quality: 4.4% per year
• International Large caps: 4.0% per year
• International Small caps: 3.3% per year
• Emerging Markets: 5.0% per year

Different kinds of bonds are expected to return between -2.5% and 0.8% per year.
Managed Timber is expected to return 6.5% per year. Those are real returns adjusted for inflation of 2.5% per year.

Those returns look lackluster, and the chart above is as of 29th of February 2012. The different market have generally rallied since then, so the expect returns over 7-year should even be lower today.

Over the next 7 years, the best performing assets are expected to be emerging markets and US high quality stocks and the worst performing assets should be US and international bonds. The US market (except High Quality Stocks) should also be avoided with returns between -1.8% and 0.4% per year.

The ways to act on this forecast is to buy iShares MSCI BRIC Index (BKF) on the long side (I'm not sure how you could get exposure to high quality stocks as defined by GMO), and buy short ETF for bonds such as ProShares Short 20+ Year Treasuries (TBF). If you can short, you could do so with SPDR Barclays Capital International Treasury Bonds (BWX). However, the expected returns on the short side, may not warrant taking this risk just yet, especially with the decay inherent to short and leveraged ETFs.

You can receive GMO's forecasts (monthly) and the quarterly newsletter for free by registering at http://www.gmo.com

Jeremy Grantham Q4 2011 Australasia Update Summary

Jeremy Grantham, GMO, has just released a long 54-page update.

First there are several tables showing the 2011 performance of GMO's Trusts that seem to cover virtually all markets around the world.

He reviews the Australian market for Q4 2011 (lower interest rates, market slightly up...) and gave GMO's outlook  that is the potential for the Australian market to rally further thanks to low valuations (PE: 10) and despite global growth worries and earning downgrades.

After that, he gave his reviews of the global markets (European market and Emerging market weak due to the EU debt crisis while US markets outperformed as the US is seen less risky by investors) and provided GMO allocation strategy:

• Maintain Quality bias. Quality gave back a bit of its outperformance this quarter, but the game is in the early innings still. High quality stocks still trade at attractive levels, and the general defensive posture of quality still remains appealing given all of the uncertainties surrounding global prospects,
  dysfunctional governments, and horrific bond yields. 
• Bias toward Value in EAFE (Europe, Australia, Far East). We’ve also begun to bias our international portfolios toward Value. One cannot characterize this as a “big bet,” but valuations are such that we are beginning to see attractive spreads between Growth and Value in international equities.
• Reduce exposure slightly to emerging markets. We funded some of the flows into EAFE both
  through cash proxies and from Emerging equities. Continued concern surrounding China’s economic
  bubble and a likely inability to deflate it without contagion effects gave us pause.
• Continued bearishness on bonds. We are literally running out of superlatives to describe how much we hate bonds. Yields are pitiful, dangers of even a slight recovery that could wreak havoc for long-duration portfolios loom, and monetary policies globally certainly have added to the specter of rising yields. 
• Invest in conservative absolute return strategies, where available. Ideally, absolute return strategies are often a pure play on manager skill. Therefore, the return streams should have little correlation to the movements of the markets. Such investment instruments can provide equity-like returns, while helping to diversify other parts of one’s portfolio.

Then he switched to Emerging markets explaining that they underperformed their developed
counterparts in 2011. This was at odds with their relative macroeconomics with emerging economies making a lot more progress than their developed counterparts in regaining their pre-crisis growth trend.

For 2012, with slower growth and lower inflation, emerging market central banks begin the year significantly more open to monetary easing which is one of the reasons they are positive on the asset class this year. The other reason is valuations as after dropping about 20% over the course of the year emerging markets enter 2012 significantly cheaper than their historical averages.

You read the complete report which is available for free on GMO website.

Marc Faber: Relax! Stocks Won't Collpase

Marc Faber is interviewed by CNN on the 20th of January 2012.

First, they discuss he views that US bonds should be rated Junk, with the debt increasing from 1 trillion dollars in 1990 to 5 trillion dollars in 2000 to now over 15 trillion dollars and if we include unfunded liabilities the number would be much higher (something like 100 trillion dollars).

Now, the debt can be serviced because of low interest rates, but if those would be to increase, it would become much more problematic.

Marc Faber also explained that everybody should relax, equities won't collpase because there isa stron (technical) support at 1100 on the S&P 500, and if the S&P 500 drops 200 points, the federal reserve will start QE3.

Finally, he said that Asian banks (in Thailand and Singapore) are a much safer place than western banks for deposit and that contrary to popular beliefs, emerging economies do no rely so much on the west to sustain themselves.

GMO 7-Year Asset Class Forecasts - 4Q 2011

GMO has just released its quarterly 7-year Asset Class Forecasts and here are the expected annualized return (based on valuation and historical earning growth):

• US Large caps: 1.4% per year
• US Small caps: -0.5% per year
• US High Quality: 5.3% per year
• International Large caps: 6.12% per year
• International Small caps: 5.0% per year
• Emerging Markets: 6.8% per year

Different kinds of bonds are expected to return between -2.5% and 1.2% per year.
Managed Timber is expected to return 6% per year as always in GMO forecats.
Those are real returns adjusted for inflation of 2.5% per year.

The expected returns have slightly decreased since last quarter, but the best performing assets remain international large caps (Europe & Japan?) and emerging markets and the worst performing assets should be US and international bonds. The US market (except High Quality Stocks) should also be avoided with returns between -0.5% and 1.4% per year.

The ways to act on this forecast remain the same as last time, e.g.  iShares MSCI Japan Index Fund(EWJ), iShares S&P Europe 350 Index Fund (IEV) and iShares MSCI BRIC Index (BKF) on the long side, and buy short ETF for bonds such as ProShares Short 20+ Year Treasuries (TBF). If you can short, you could do so with SPDR Barclays Capital International Treasury Bonds (BWX). However, the expected returns on the short side, may not warrant taking this risk just yet, especially with the decay inherent to short and leveraged ETFs.

You can receive GMO's forecasts (monthly) and the quarterly newsletter for free by registering at http://www.gmo.com

Jim Rogers: Short Emerging Markets, Long Base Metals

Jim Rogers is interviewed by ETNow (India) on the 13th of January 2012.

He explains he sees the markets faring relatively well in 2012 because there are 40 elections in the world this year and politicians will spend money to get reelected. However, we may have a serious crisis coming in 2013 or 2014. In 2012, he seems particularly bullish on base metals. He is still short on emergent markets such as Indian, Brazil and Indonesia because they went up too much, too fast.

When asked about Gold, he says he owns it, do not plan to sell, but do not plan to buy for now as Gold has been in a bull market for 12 years without yearly corrections.

Jim Rogers and Jeremy Gratham: Bonds are a Terrible Investment

Jim Rogers recently told Fox Business Network that he plans to short US bonds in the future and to buy them now would be a “terrible mistake”.

"I am not short bonds yet but I plan to be short bonds," he said. "If the world economy gets better, you are going to make money in commodities because that is where the shortages are. If the economy does not get better, they are going to print money and when it does get better, you better own commodities, such as silver and rice."

Rogers warned it would be dangerous to own US T-bills now but admitted he had been burned a few times recently when he attempted to short the asset class.

Yesterday, GMO (Jeremy Grantham) released their 7-year forecast, and all bonds (except Emerging Debt) are expected to provide negative returns every year (on aggregate) over the next 7 year.

Here are GMO forecasts:

• US Bonds: -1% per year
• International Bonds: -2.1% per year
• Emerging Debt: 1.5% per year
  
• Index Linked Bonds: -1% per year
  
• Cash: -0.7% per year

The best 2 investments over this 7 years would be international large caps (6.4%) and emerging markets (6.5%).

Jim Rogers: The US is Becoming More and More Dictatorial

Very interesting 40 minute interview of Jim Rogers by Alex Jones (prisonplanet.com).

They talk of the current economic situation in Europe and US, why Jim Rogers has move to Singapore (for is daughters), the loss of freedom in the US, Jim Rogers current investment themes (commodities), his views on Silver and Gold and more.

GMO 7 Year Asset Forecast Says Stay Away From Bonds

GMO has just released its monthly 7-year Asset Class Forecasts (November 2011).
Here are the expected annualized return (based on valuation and historical earning growth):

US Large caps: 1.8% per year
US Small caps: -0.4% per year
US High Quality: 5.4% per year
International Large caps: 5.8% per year
International Small caps: 4.6% per year
Emerging Markets: 5.6% per year

Different kinds of bonds are expected to return between -2.3% and 1.3% per year so that is all bonds are expected to return negative interests except emerging market bonds. Managed Timber is expected to return 6% per year.
Those are real returns adjusted for inflation of 2.5% per year.

You can receive GMO's forecasts (monthly) and the quarterly newsletter for free by registering at http://www.gmo.com

Jim Rogers: Short Stocks, Long Commodities

Jim Rogers is interviewed on CNN on the 11th of November 2011.

He first explains Europe and the US are both a disaster and then gives his investment strategy:

1. Short European stocks, US technology stocks and emerging markets.
2. Long precious metals (Gold and Silver) as well as agricultural commodities.
3. Long currencies (but do not specify which ones).
   

When asked if Gold is in a bubble, he replies that very few people own it so it can't be in a bubble.

GMO 7 Year Asset Class Forecast (Q3 2011)

GMO has just released its monthly 7-year Asset Class Forecasts and here are the expected annualized return (based on valuation and historical earning growth):

• US Large caps: 3.1% per year
• US Small caps: 1.5% per year
• US High Quality: 6.6% per year
• International Large caps: 7.2% per year
• International Small caps: 6.0% per year
• Emerging Markets: 7.2% per year

Different kinds of bonds are expected to return between -2.7% and 1.9% per year.
Managed Timber is expected to return 6% per year.
Those are real returns adjusted for inflation of 2.5% per year.

So the best performing assets should be international large caps (Europe & Japan?) and emerging markets and the worst performing assets should be US and international bonds.

One way to act on this forecast via ETF would be to buy iShares MSCI Japan Index Fund(EWJ), iShares S&P Europe 350 Index Fund (IEV) and iShares MSCI BRIC Index (BKF) on the long side, and buy short ETF for bonds such as ProShares Short 20+ Year Treasuries (TBF). If you can short, you could do so with SPDR Barclays Capital International Treasury Bonds (BWX).

You can receive GMO's forecasts (monthly) and the quarterly newsletter for free by registering at http://www.gmo.com

Marc Faber October 2011 Market Commentary Highlights

As I blogged on the 1st of October, Marc Faber is out with the latest issue of his famous Gloom, Boom, and Doom market commentary entitled "They are Ill Investors that think there is no Treasure Island, When They can See Nothing but a Sea of Problems".

A summary has been released by Nathaniel Crawford on Seeking Alpha:

• Stocks: Yes, stocks are very oversold, but that does not mean they cannot go lower. The dreadful price action in both Copper and the Shanghai Composite points to new lows for the equity markets. After US stocks make a new low below 1100 on the S&P 500, there could be a year-end rally followed by a more meaningful decline into 2012. Investors should use any bounce in stocks as an opportunity to reduce their equity exposure. At this point, Faber advises no more than 25% of your portfolio be in stocks.

• Gold: At $1900 gold was extremely overbought, and a correction was necessary. However, Faber now believes that gold could undergo a significant correction similar to what happened between 1974-1976, when gold fell 40%. Faber notes that a large decline in gold is now a distinct possibility. The first support level for gold is at the 200 day moving average around $1500. Despite the potential for a pullback, Faber still likes gold and believes it will trade significantly higher.

• Dollar: It's true that the dollar has no intrinsic value and is being printed into infinity, but the US dollar will be your best friend for the next few months. As global liquidity contracts on EU debt concerns and a possible hard landing in China, Faber advises investors to be long the dollar. Note this is a short-term call; longer term the dollar is going to zero.

• Treasuries: Despite being bullish on the US dollar, Faber does not recommend treasuries, noting that they are overbought and susceptible to a large correction.

• China and Copper: If you think the market is falling because of incompetent EU bureaucrats you are behind the curve. According to Faber, the price of copper is signaling a very serious slowdown (if not complete collapse) in China. This is what is really behind the move down in all commodities. A hard landing in China would be devastating for the global economy. The Shanghai composite is making new lows along with copper, which is very bearish. Also stay away from the Australian and Canadian currencies. If China crashes, these markets will get massacred.

• Emerging Markets: Stay away from these at all costs. All emerging markets are falling and making new lows. Even though Faber likes these longer term, they could still fall another 20%-30% before they would be good buys. These markets could even fall to their 2009 lows. However, this will represent a good buying opportunity because these markets will be the first to bottom.

• Short Opportunities: There is no doubt about it; shorting in this kind of manipulated market is dangerous, but if you must, here are a few ideas: Apple (APPL), Amazon (AMZN), and Salesforce.com (CRM). Only short these with very tight stops.

Jim Rogers: Invest in Myanmar and North Korea if you can

Jim has been Interviewed on GoldSeek Radio on the 27th of September 2011.

QE3 has already started when Bernanke announced he would keep the interest rate close to zero for 2 years. At that time, M2 measure of the money supply when straight up.

Jim Rogers expects a correction in Gold and Silver. Gold has gone up for 10 years in a row, this is unprecedented even during the 1970s bull market and a correct should be expected. He would buy Silver and Gold on further dips as all commodities will probably end up in a bubble. Of course, if the US dollar becomes confetti, there is no ceiling on the price of Gold.

There has been a recession every 4 to 6 years in the US, so he thinks we'll get another one this year or at least one within 2013. That time will be worse since there are no bullets left. The US had a huge debt problem and they can't triple the debt again, the market won't let them. Same thing for money printing, it would become very difficult now.

Developing countries won't be spared by the next recession occurring in the US and Europe as they are major economies and trade partners of emerging economies. Jim Rogers is actually currently shorting emerging economies.

He'd rather go the Scandinavian way (take the pain now) than the Japanese way (kick the can down the road) in reference to past crises.

Finally, when asked if he saw any investing opportunities right now, he recommended people to try to invest in Myanmar and North Korea if they can, as those 2 countries are starting to opening up like China did 30 years ago. Investing in those countries if illegal for American citizen. (For other individual investors, it's also difficult to get exposure since there are no ETF available yet.)

You can listen to the interview below.