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Martin here with a quick follow-up to last Monday’s “The Great Dichotomy! Again!”
While U.S. markets have gained a bit more in the last few days, the key foreign markets I told you about have literally catapulted higher.
So now they’re outperforming the Dow by an even wider margin. Indeed, since the beginning of last year, while the Dow is up 20.9 percent …
- China’s blue chips, up 39.1 percent, have beat the Dow by nearly two to one …
- South Korea’s leading stocks, up 77.8 percent, have beat the Dow by nearly four to one, and …
- Brazil’s have surged 104.2 percent — over FIVE times better performance than the Dow.
What could you have made from all this? Starting on the first trading day of January of last year, if you had invested, say, $10,000 in an ETF tracking the Dow, you’d have a gain of $2,095 today. In contrast …
- If you had invested in FXI, the most widely traded ETF tracking China’s stock market, you would have a $3,909 gain …
- If you had invested in EWY, the ETF tied to Korea’s blue chips, you’d have a $7,784 gain, and …
- Your $10,000 invested in my long-time personal favorite — the Brazil ETF (EWZ) — would give you a gain of $10,422.
That’s more than double your money in just 15 months — not with an individual stock that you happened to pick just right, but with a broad index representing a diverse portfolio of stocks in one of the largest, most stable countries in the world today — Brazil.
What’s driving this massive outperformance?
In addition to the great dichotomy in their future potential I stressed here two years ago, the U.S. and foreign markets are parting company due to a series of other powerful forces:
First, the U.S. financial mess. While the U.S. Treasury and other governmental institutions are borrowing money at an annual pace of $1.04 trillion … small and large U.S. businesses are being shoved out of the credit markets at the annual rate of $1.1 trillion. (See “The Great Credit Squeeze.”) That’s a huge, ongoing drag for the U.S. economy and stock market.
Second, the Fed’s money madness. To help finance the mind-blowing deficits, Fed Chairman Bernanke is going stark, raving berserk with money printing, ballooning up the nation’s monetary base by 2.5 times just in the last 18 months. (Read “Bernanke Running Amuck.”) Needless to say, this is a major threat to the value of U.S. dollar.
Third, stubbornly high unemployment, despite minor improvements announced Friday. According to John Williams of Shadow Government Statistics, while the official unemployment rate was unchanged at 9.7 percent, if you exclude temporary hires for the 2010 census, it actually rose to 9.8 percent. Plus …
- A more comprehensive unemployment rate published by the government — including workers who are forced to accept part-time jobs or who’ve given up looking entirely — rose to 16.9 percent, and …
- The most comprehensive measure of unemployment rose to a whopping record 21.7 percent, according to Williams’ estimates.
This doesn’t mean further U.S. economic recovery is barred. But it does underscore our view that the recovery will continue to be labored, scattered, and shaky.
Fifth, adding momentum to the rise in emerging markets last week, many of the natural resource prices they produce also surged:
- Oil climbed to an 18-month high, propelled by fears of what America’s budget mess will do to the dollar … and by reports of stronger oil demand from China, India, and the Middle East.
- Gold jumped as gold share indexes went through the roof. The Market Vectors Gold Miners ETF (GDX) surged 4.5 percent on Friday alone, driven, in part, by a 30 percent jump in the value of one of its prime holdings — Lihir Gold Limited.
- The dollar began to sink again, raising the specter that America’s financial sins are once again about to trash the currency, driving gold and oil still higher.
Bottom line: Contrary to popular belief, the U.S. stock market is cleary not the only show in town — and certainly not the best one to be in!
Indeed, virtually everything you see today — U.S. stocks lagging … foreign stocks outperforming by a huge margin … surging oil and gold prices … a dollar decline — is part and parcel of one, single overarching phenomenon:
The growing dichotomy between weakness in the West and strength in the East (or South).
Stick with safety for most of your money. But for the funds you can afford to risk, take advantage of these powerful new market surges.
Good luck and God bless!
Martin
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Marci Campbell, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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