THE MARKETS
"We don't think the world has ended."
With so much doom and gloom being published these days, it's
refreshing to hear a respected leader of a global, blue-chip
company make a positive statement. Doug Oberhelman, the chief
executive officer of Caterpillar, met with analysts last week and
painted a rather bright picture of the world economy, including the
quote above.
Oberhelman went on to say that Caterpillar does not expect a
double-dip recession because the world's central bankers are
staying on top of the situation and the global economy is improving
-- especially in the developing world. As the world's largest maker
of construction and mining equipment, Caterpillar is considered a
good indicator of worldwide economic health, according to
Associated Press.
One question that many analysts and economists are struggling
with is, "Can the world recover without the United States?" As the
world's largest economy, there's an old saying that when our
economy sneezes, the world catches a cold. Well, we've certainly
done more than sneeze in the past three years. Optimists say that
yes, the U.S. is still important in the world economy, but other
countries, most notably China, India, and Brazil, can still prosper
even if the U.S. is down for a few counts. They call this
"decoupling."
Underscoring this idea of decoupling is the fact that China just
passed Japan as the world's second largest economy, according to
The New York Times. Forecasters are predicting that China
will surpass the U.S. as the largest economy by as early as
2030.
Caterpillar, for one, thinks the world will continue recovering
even if the U.S. is a bit weak. And the stunning growth of China
makes that idea plausible.
|
Data as of 8/20/10
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
-0.7%
|
-3.9%
|
4.4%
|
-9.5%
|
-2.6%
|
-3.3%
|
|
DJ Global ex US
(Foreign Stocks)
|
-0.5
|
-5.5
|
5.0
|
-8.5
|
1.2
|
0.9
|
|
10-year Treasury Note
(Yield Only)
|
2.6
|
N/A
|
3.4
|
4.6
|
4.2
|
5.8
|
|
Gold
(per ounce)
|
0.8
|
10.8
|
30.1
|
22.9
|
22.7
|
16.1
|
|
DJ-UBS Commodity Index
|
-1.0
|
-5.6
|
4.3
|
-6.7
|
-4.4
|
2.2
|
|
DJ Equity All REIT TR Index
|
-0.5
|
11.9
|
35.2
|
-6.0
|
1.3
|
10.1
|
| Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS
Commodity Index returns exclude reinvested dividends (gold does not
pay a dividend) and the three-, five-, and 10-year returns are
annualized; the DJ Equity All REIT TR Index does include reinvested
dividends and the three-, five-, and 10-year returns are
annualized; and the 10-year Treasury Note is simply the yield at
the close of the day on each of the historical time
periods.Sources: Yahoo! Finance, Barron's, djindexes.com, London
Bullion Market Association.Past performance is no guarantee of
future results. Indices are unmanaged and cannot be invested into
directly. N/A means not applicable or not available. |
YOU MAY NOT HAVE HEARD OF STANLEY
DRUCKENMILLER, but he will be remembered
as one of the most successful investors (speculators?) of all time.
Since 1986, Druckenmiller has generated average annual returns of
30%, according to an August 18 article by Bloomberg.
Incredibly, in 30 years of managing money, he's never had a losing
year, according to Bloomberg.
Perhaps his most famous moment came in 1992 when he was working
for famed investor George Soros. Together, they made a
multi-billion dollar bet that the Bank of England would be forced
to devalue the pound. Sure enough, that occurred and the duo made a
$1 billion profit for their investors -- in a single day
-- according to Forbes. Over the years, Druckenmiller did
well personally, too, as Forbes magazine estimated his net
worth at $3.5 billion in 2009.
When it comes to making money, Druckenmiller said, "It is not
whether you are right or wrong that's important, but how much money
you make when you're right and how much you lose when you're
wrong."
Last week, Druckenmiller announced that he was retiring from
managing client money.
The fact that he was retiring was not unusual, rather, as it was
the reasons he gave for the retirement. According to The New
York Times, Druckenmiller said, "I have had to recognize that
competing in the markets over such a long timeframe imposes heavy
personal costs." He went on to say, "While the joy of winning for
clients is immense, for me the disappointment of each interim
drawdown over the years has taken a cumulative toll that I cannot
continue to sustain."
Two days after Druckenmiller announced his retirement, another
famous investor, Paolo Pellegrini, said he was getting out of the
business of managing other people's money. Pellegrini is famous for
betting against risky mortgages and helping his former boss, John
Paulson, score a $15 billion profit a few years back, according to
The Wall Street Journal. This coup was chronicled in the
bestselling book, The Greatest Trade Ever, by Gregory
Zuckerman.
Why should you care that these two famous investors are exiting
the business of managing other people's money? It's important
because of the possible signal that it sends.
Back in August 1979, BusinessWeek magazine ran a cover
story titled, "The Death of Equities." It concluded by saying, "The
old attitude of buying solid stocks as a cornerstone for one's life
savings and retirement has simply disappeared…The stock market is
just not where the action's at." Exactly three years later -- in
August 1982 -- the stock market took off on an 18-year bull run
that was one of the greatest in history. That story, in hindsight,
served as an early inverse indicator of the future
direction of the market.
Could the disappearance of Druckenmiller and Pellegrini be a
signal similar to the infamous BusinessWeek story?
A stretch, perhaps, and there's no way of knowing what the
market will do until after it happens. But it's interesting to
consider what non-traditional clues like this might mean.
Food for thought.
For your convenience the sources
have been listed below:
http://news.yahoo.com/s/ap/20100819/ap_on_bi_ge/us_caterp...
http://www.nytimes.com/2010/08/16/business/global/16yuan.html
http://www.bloomberg.com/news/2010-08-18/druckenmiller-c...
http://www.forbes.com/lists/2009/54/rich-list-09_Stanley-Druc...
http://dealbook.blogs.nytimes.com/2010/08/18/druckenmiller-...
http://www.prudentwealth.com/quotes.htm
http://online.wsj.com/article/SB1000142405274870448840...
http://www.businessweek.com/investor/content/mar2009/pi2...
http://www.afterquotes.com/great/quotes/investing.htm
