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Europe and the Lost Decade

149K views 1K replies 84 participants last post by  Nemo2 
#1 · (Edited)
With very little time left in the year, the S&P/TSX Composite Index has a YTD loss of 11.36% and trending lower. The S&P 500 Index is also now in negative territory with a YTD % change down 3.3%.

In all of my reading and watching, the two statements that I often notice repeating themselves are that the European mess will take at least a decade to solve and possibly much longer and that the period beginning in 2008 will be a lost decade for investors.

All of that may not matter so much to you if you are young with a long time horizon and, in fact, it may afford you many buying opportunities. However, if you are nearing retirement, or already retired, a lost decade or more has a more profound effect.

In the past, I have been accused, many times, of being too negative in my comments but, quite honestly, do any of you see much cause for optimism in the current globalized economy given the debt problems in Europe and America?

Minus those problems, I quite imagine that this would have been a positive year for the markets. However, the current debt problems are going to be with us for several years to come.

What does that mean for you as far as expectations for the markets in the years to come? Do you see any cause for optimism? Despite it taking many years for the world to dig out of the current debt problems, can the markets still rebound any time soon or, are we indeed facing a problem that will take many years to solve and a potentially lost decade for capital appreciation in the equity markets?

In other words, if the markets can't overcome their fear of the debt crisis now, and the debt crisis is going to be with us for many years to come, is there anything to make you believe that the markets will be able to overlook the debt problems in the coming years and provide much in the way of growth opportunities for investors?
 
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#5 · (Edited)
Market moves for this week:

TSX: DOWN 3.13%
DOW: DOWN 2.94%
S&P 500: DOWN 3.81%
NASDAQ: DOWN 3.97%

Is the downward slide accelerating?

Minimal growth, at best, predicted for the economy going forward.

Advice for investors who believe that the collapse of the Euro is imminent:

"Dig a hole in the ground and hide!!"

http://thinkprogress.org/yglesias/2011/11/18/372479/deutsche-bank-dig-a-hole-in-the-ground-and-hide/

Also, Morningstar's rating for the mutual fund companies. Note that some of the lowest fee firms received some of the highest ratings:

http://cawidgets.morningstar.ca/ArticleTemplate/ArticleGL.aspx?culture=en-CA&id=447153
 
#7 ·
This is why its important to invest in dividend paying companies, which despite all the hype about being the "latest and greatest craze", still offer fantastic yields in many industries. Invest your money at an average of 5% yield over several industries, and if the markets haven't moved in 10 years, you've at least earned 50% and have probably beat inflation.
 
#16 ·
one up on wall street

This is why its important to invest in dividend paying companies, which despite all the hype about being the "latest and greatest craze", still offer fantastic yields in many industries. ...
Good post :)

I've been reading Peter Lynch's “One Up On Wall Street” where he makes the case that the individual investor should be able to handily beat any broad index; and he also explains why it is deucedly difficult for large mutual funds to do the same.

I found it quite revealing that P Lynch chose individual stocks for both his mother's portfolio and also his mother-in-law; and apparently they did not invest in the fund which he was managing.

So far, I've read four chapters, and I don't have any bone to pick with the author. Unfortunately, the book was written 20 years ago, so his enthusiastic endorsement of owning a home before investing in the stock market rings a bit hollow during this dark hour in USA real estate.
Before you buy a share of anything; there are three personal issues that ought to be addressed: (1) Do I own a house? (2) Do I need the money? and (3) Do I have the personal qualities that will bring me success in stocks? ~One Up On Wall Street
I wonder if the author has had a change of opinion, concerning point number one, considering the events of the past decade.

I highly recommend that everyone, regardless of investing experience, get this book from the library. It's possible that I wouldn't have paid much attention to what P Lynch has to say, had I read the book before venturing into the markets; but now that I've made pretty well every mistake that he writes about, I find that I'm hanging onto every word.

 
#9 ·
People keep mentioning Europe as a big problem but the US isn't much better. Wasn't very long ago and we were only talking about how horrible the situation in the US was and the US dollar was going to zero and so on. Solve the problems in Europe and then the US will be the target again.

Putting it all together with liquidation as ddkay mentions and an unfavorable demographic situation going forward we can say the stock market does not look like a good place to be. If the Fed and European banks however are able to print enough money to turn the tide then all hard assets and stocks will need to be owned. At this time however Germany has no stomach to go down the Weimar road.
 
#13 ·
People keep mentioning Europe as a big problem but the US isn't much better. Wasn't very long ago and we were only talking about how horrible the situation in the US was and the US dollar was going to zero and so on. Solve the problems in Europe and then the US will be the target again.
This is what I was thinking everytime someone mentions Europe, or Italy etc. It's like the media and everyone else have a 1 track mind. Is Italy is the worst, it's not like the rest of us are that much better. Canadians have more consumer debt than Americans, and if any country causes this economic slowdown and loss of more Canadian jobs and the death of companies like RIM, that debt doesn't just vanish
 
#11 ·
Why do the politicians of such countries such as Italy and Spain and Greece resort to such state welfare tactics? It's to satisfy their populations and try to keep them from once again turning to fascism as they have so many times in the past.

The begs the question that, if these countries have to now start to cut back on social programs, will it result in the growth of fascism again as their populations start to look for other alternatives?

In other words, everything old could be new again!!??:eek:
 
#12 ·
Doctrine , I believe , has the right take on how to approach the market. It is always a mistake ,in my view, to ignore the way the market behaves over time. For example if you bought a diversified portfolio in 1906 and cashed it in in 1942 your yield was 0%. From 1942 to 1965 the compounded market return was 11% and from that point with the Dow at 1000 it never went over that for 18 years. Then in 17 years it went to 11000 ! So the market gets hugely overpriced and then flattens out or collapses. Individual investors need to keep in mind that 80% of money in the market is invested by fund managers , insurance companies, pensions , etc. so an individual trying to read the market and make a buck by timing is a mugg's game , I think . As Doctrine advises ,better to depend on good corporate stocks . I'm not sure about ETFs but with mutual funds only about 4% ever beat the S&P index and then only by a small amount. Cheers.
 
#14 ·
Mode ....: I don't know about the figures for 'consumer' debt but our per capita debt evidently is much less than the US, ie about $48k to our $28k . I can't find exact figures for per capita 'consumer' debt which I assume is for items like credit cards, car loans, etc. Do you have this data ? Cheers.
 
#19 ·
I can't find consumer debt stats either, but our per capita debt is certainly higher (half of which is consumer debt). While holding ourselves high and mighty, we have complacently surpassed Americans in just about every kind of debt, and yet we somehow think we are immune to the debt crisis? I would't be surprised if our average consumer debt surpasses Americans very soon as well:

Canadian Debt (USA in brackets)
Average household debt per family $177k (USA $148k)
Government debt Canada 65% GDP (USA 59% GDP) Canada is +80% according the IMF!
Credit card debt per consumer $3500 (USA $4000)
Student debt per student (hard to compare as I can't find data of personal student loans)
LOC per Cdn consumer $35k!! (not sure about USA)
Car loans per consumer $16k
28 personal bankruptcies per 10,000 people (48 in the USA) thanks to our RE market no doubt

Median cost of a home $372k ($202k in the USA) and UK $371k CAD

Have Canadian Consumers Reached Their Limits?

Sure we're slightly "better off" but in this global market we rely heavily on everyone else. It's not like we don't have a debt problem, ours just isn't "as bad" Our debt is still growing faster than our income
 
#21 · (Edited)
I have read the book, but don't necessarily agree with having to own real estate. It would make sense for someone buying a house right now in the USA, should definitely pay it off, since they may be getting it at a 50-75% discount from just 4 years ago. And the tax deduction also makes it very advantageous. Someone in Canada, on the other hand, probably should hold off. The average house price in the US is something like half or less that in Canada, despite Americans still being more productive and having higher incomes.

[edit] That being said, I like Peter Lynch's style, especially his points about buying companies that have boring names, are in boring industries, and that do not have significant institutional ownership (mid/small cap). Although it is hard to find small/mid caps with solid dividend paying histories.
 
#22 ·
You make a good point about the media mode3sour and once everybody else gets it together then Canadian debt will stick out.

On house prices in Canada they do seem to high now but it does make good sense to pay off a house first if possible. Then you can set your sights on building up a stock portfolio.
 
#23 ·
Lynch's older book gives almost the identical advice offered by Phil Town in his book "Payback Time" . Maybe Lynch was his inspiration . I'm impressed by the common sense of the posters on this thread unlike the thread I started a month or so ago on Suncor . It was taken over by 'investor opinions' right out of "One Flew Over The Cuckoo's Nest". Cheers.
 
#24 ·
I watched a discussion of the economic situation in California the other night. California has a budget deficit not that much different than Greece. They have a bloated public sector which the taxpayers can not longer afford. They also can no longer afford to pay for the public sector pensions. Already, they have the most generous welfare benefits and highest taxes in the U.S. Most people have not been paying close enough attention to the situation and have no idea how bad it is. Nobody seems to be coming up with any solutions but, like elsewhere, just keep kicking the can down the road.

If California ends up going under, it will take the entire U.S. down with it!!:eek:

As goes the Golden State, so goes the nation.

Stay tuned.
 
#25 · (Edited)
It's like watching a multi-car pileup in slow motion.

Screech.... Greece......... boom.......Italy...... crash.......States....... pow......Spain .......crunch.........France......... Kaboom.........US............

The stock markets are a guy in the middle of the road, ignoring the crashing all around him, calmly eating his ice cream, oblivious to what is likely going to happen to him.
 
#26 ·
Awhile ago, there was a guy on BNN, who had won an award for fund manager of the decade or something.

He went on and on about how the stock market had fallen and prices were cheap.....good enty point.......blah...blah...blah.

Near the end of the show, Michael Hainsworth asked him......"then, why are you piling a lot of cash into Government bonds"?

The guy was a little taken aback by the question and stalled for time........"Oh, do you mean MY fund"? Well, I have to protect MY investors".

The next day, BNN had a roundtable discussion, and the topic was brought up by the anchors that viewers should be aware that guests on the show are basically selling something, and people should take the advice they give accordingly.

I wondered if this guy's comments created a bit of a stir............

The point being.......while a lot of the fund managers are recommending buying stocks and staying in the markets.........some are long gone already.
 
#27 · (Edited)
Sags: Your post is a perfect point to keep in mind every time you hear people like Kevin O'Leary flogging his mutual funds on his daily CBC program with Amanda Lang. He keeps repeating, ".. It's all about money..". Yes it is ,taking yours and keeping it for himself! They can soon just tape his part of the show and rerun it : he says the same thing every day - unions are evil, politicians are bozos , the poor deserve what they get, intellectuals like Chris Hedges are left-wing nut cases , etc. etc. etc. A perfect panelist for those who find Don Cherry too intellectual.
 
#28 · (Edited)
The various news agencies are reporting tonight that the U.S. Congressional Super Committee is on the brink of a super failure to reach any kind of agreement or consensus. This just proves once again that Congress is broken. They are, in effect, just kicking the can down the road again (still!) until automatic budget cuts take place but not until 2013. This is just more ongoing long term uncertainty for the markets which do not react well to uncertainty. After the election next year, Congress could decide to reverse those cuts and the markets will then react more negatively.

Christine Lagarde, the head of the IMF, was on 60 Minutes tonight and stated the obvious which was that there is high unemployment in many countries since 2008 along with no growth and rising social unrest. The world financial markets are in disarray because there is no certainty out there. In fact, there is the exact opposite--huge uncertainty. She stated that "the dark clouds are gathering" and that "not nearly enough is being done" to establish more rules and regulations in the banking system.

Spain threw out the socialists and voted in a Conservative government to try to turn that ship around. At least that is another sign that SOME action is being taken along with the recent changes in Greece and Italy. Maybe there is hope for functioning governments in those countries even if the U.S. is one hopeless cause when it comes to politicians there being able to get anything done.

The markets may drop again this week or much of this may already be priced in but can anyone predict any long term positive trends for the markets in the face of all of this uncertainty?

A decade of uncertainty and a potential downward spiral:

http://www.theglobeandmail.com/repo...-a-lost-decade-of-joblessness/article2242792/
 
#31 ·
Belguy...
I share your concern on the global financial woes - this recession doesn't feel as bad as the one in 1991 because - simply put - I have a job this time! I didn't in 1991 - it was lost when the compant went under.

Have a look at the graph at link below - the graph doesn't suggest that the worse is over - but it does show the depth of the job losses, with the prospect maybe things will get better in 4-5 yrs.


http://www.good.is/post/our-current-recession-in-context/
 
#32 · (Edited)
I do believe that we are three years into the current severe recession that could last a decade or more.

I have no idea what that will mean for the markets but, back in 2008, I was down over 40 per cent in my portfolio despite support from my bond and precious metals funds to partially offset the general equity losses. However, currently there is not the same amount of support from either bonds or precious metals and so the equity losses could ultimately be worse going forward.

Up until now, the consensus seemed to be that the current situation was not nearly as bad as in 2008 that led to the Lehman collapse. However, now I am starting to hear that the current situation is worse than in 2008.

I don't really know how it came to this or what could have been done to avoid it but we are where we are!!

If you haven't already read it, the story of Heidi's bar in Detroit may help you to understand the mess that we are in.

http://www.xerraireart.com/blog/2009/07/26/heidis-bar-in-detroit/
 
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