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Bill Hall, editor of The Park Avenue Society and Weiss Family Million-Dollar Portfolio, presents his weekly afternoon edition podcast. Click here to listen. Below is an edited transcript of that podcast. Mike Larson’s afternoon column will return tomorrow.
Hello everyone. This is Bill Hall from Money and Markets. It’s Wednesday, September 10, and I’m pleased to bring you this market insight.
As Wall Street begins its stretch run from Labor Day to the end of the year, the really big news came out of Europe last week. And that was the announcement by the European Central Bank (ECB) that they were going to lower interest rates to practically ZERO. That means almost nothing and they’re going to buy back loads of asset-backed securities. The reason the European Central Bank had to do this is because the European economy is teetering on the verge of recession. The actions by the ECB were appropriate based on the underlying economic conditions in Europe.
The ECB’s actions also follow on Mario Draghi’s comments from about 18 months ago when he said he would do “whatever it takes” to save the economy in the euro zone. And with this announcement, the European Central Bank has stepped up and backed up those comments. This is important to investors because all of this newly created liquidity in Europe is bound to find its way into the global financial markets and continue to support the market’s current lofty levels and probably allow the markets to drift higher.
Now let’s look at our second chart and you’ll see that we still continue to have troubles here in the U.S.
The U.S. is doing much better on a relative basis than the European economy, but you have to remember it’s sort of like being the tallest of Snow White’s seven dwarves. The economy is still growing slowly, but even though we’re doing much better, it’s relative to other things that are not doing as well. And we’re seeing this in this second chart because job growth in the U.S. has been slow. There was a new announcement last Friday that talked about how many new jobs had been created in the month of August. And you can see on this chart that that number was disappointing.
“I would say consider the emerging markets as a place to invest your money.”
And the reason I keep focusing on jobs and I keep focusing on wage growth is because 70 percent of the U.S. economy is based on the consumer. And to get the U.S. economy moving again, we need real wage growth and we need real jobs.
But similar to Europe, an anemic U.S. economy right now is a good thing for investors, even though it’s ironic. But that’s the way it is because the U.S. Federal Reserve also has its own easy money policies just like the ECB and those policies from the Fed are likely to continue as long as U.S. growth in the economy is below trend line.
Let’s turn to investments now and let’s think about the three components of stock market returns again. Our third slide shows the three components of stock market turns that I’ve discussed in previous podcasts.
The first component is dividends, the second component is earnings growth, and the third component is change in the P/E ratio. Those are the three and only three things that drive stock market returns.
Now, moving to our fourth slide, we see how those components have happened so far in 2014. So far, we’ve gotten about 1 percent of stock market returns from dividends, we’ve gotten 4 percent from earnings growth and we’ve gotten 5 percent from the fact that people are just willing to pay more for stocks in the U.S. currently than they were at the beginning of 2014.
So added up, those components equal the 10 percent return that we’ve seen so far in 2014 in the U.S. stock market.
Moving along to our fifth slide, we see a chart of the valuation levels or the P/E ratio levels in the major stock markets across the globe and what we see is that the U.S. stock market, represented by the blue line, has the highest valuation. And what we also see is that the emerging markets, represented by the dark brown line, have the lowest valuation.
Therefore, as a price-conscious value investor, I’m looking at the emerging markets as the place to consider investing some money currently because of its favorable valuation level. And specifically, I’m considering the iShares Emerging Markets ETF, symbol EEM to make that investment. EEM represents a low-cost, efficient way to get your money invested in the emerging markets.
So in conclusion, I would say consider the emerging markets as a place to invest your money, specifically using the ETF EEM to take advantage of favorable valuations and benefit from an upward move in the price/earnings ratio.
This is Bill Hall from Money and Markets and I look forward to speaking with you next week.
|OTHER DEVELOPMENTS OF THE DAY|
More Details Revealed About Tesla’s Huge Tax Incentive Deal in Nevada
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Apple’s Biggest Rivals Are Having A Good Laugh At The iPhone 6 (AAPL)
When you look at the iPhone 6 and iPhone 6 Plus, the first thing you’ll notice is how much larger these phones are than any other iPhone Apple has released. While this is a big shift for Apple, Android device manufacturers have been offering big-screen phones for years. And they’re not shy about telling you that.
Following Apple’s iPhone 6 announcement on Tuesday, Samsung and HTC have taken to Twitter to remind you that they’ve been making big-screened phones for quite some time. Samsung resurrected an old quote from late Apple CEO and co-founder Steve Jobs about his opinion regarding bigger phones in which he said, “No one is going to buy a big phone.”
An Australian Firm Has Designed the Scariest House Ever
For the discerning millionaire who wants a gorgeous coastal vacation getaway (and has no fear of heights), the Australian real estate firm Modscape has created a dream home.
First spotted by Inhabitat, the aptly named Cliff House quite literally hangs off a cliff face the same way a barnacle hangs off a ship’s hull. The design uses engineered steel pins that drive into the rock, thereby keeping the home attached to the cliff.
Feel free to comment on these or any other issues by clicking here.
P.S. Martin has been answering your questions in his new Q&A video series! Click here to view now! You will also be able to catch up on the urgent video briefings that he posted last week.