Buy-And Hold? - In 8 Years, Developed Market Stocks Have Gained Nothing

Global equity markets, as measured by the MSCI Developed World index, are above the lows hit in early October but remain on a downtrend that began after markets peaked at the end of May this year.

As SocGen's Andrew Lapthorne notes, the current level is now only just above where the index stood at the beginning of 2013 and less than 1% above the 2007 peak. In other words, as he warns, "the equity market has run out of momentum," and the 'bill' for the debt overhang is coming due.

The recovery since 2007 has been very one-sided with only Denmark, Switzerland and the US indices exceeding their October 2007 US dollar price levels.

The UK is down 34% in US dollar terms and the MSCI Eurozone is 40% down. The reasons for this weak performance is fairly clear, unlike Japan neither the UK or Eurozone have experienced an earnings recovery in either US dollar terms or in local currency terms. Profits in both regions are still 45-55% down from the 2007 high according to MSCI reported profits.

The Eurozone of course has many problems, but at least Eurozone companies have not been boosting leverage as a consequence of disappointing profits, as is the case in the US and apparently the UK as well! As we have remarked upon on numerous occasions, the US equity market has been boosting leverage with record levels of debt-financed share buybacks, resulting in a significant increase in leverage among US corporates.

However with all the focus on the US, many investors may have missed the major corporate debt problem now emerging in the UK stock market. Devoid of the headline-grabbing buybacks, many may not have noticed that both nominal net debt and net debt to EBITDA have never been higher in the UK.

The bulk of that increase has come from a huge rise in Mining sector debt at a time when profits have collapsed, but leverage ratios in other sectors are also elevated. The US is not the only market now facing a corporate debt overhang.

Source: SocGen

Comments

[boattrash]

Buy and Hold, guns and ammo...

[stinkhammer]

are you a muslim?

[boattrash]

Nope. Decades of historical trends have shown me that a good gun, at a good price, will average a 10% increase per year. (a lot more than that during panic sales)

[Hitlery_4_Dictator]

What about 7 years ago? Anyone can pick dates. Just saying.

[Sudden Debt]

Every retailer is overstocked. Warehouses are stocked through the roof.

debt or not, if sales drops to near zero, any stock will crash. Maybe the best will only drop 50%.

Sandcastles have high maintenance costs.

[kelley805]

J.P. Morgan analysts wrote that the three best leading indicators for recession have been credit spreads, the shape of the yield curve and profit margins.

Here are some signs of a coming recession.

1. Investors in high-yield bonds are expecting to see their first negative return since the start of the credit crisis in 2008.

http://www.marketwatch.com/story/deteriorating-junk-bonds-flash-warning-signs-for-stocks-2015-12-07?dist=afterbell

2. Factory orders continue to drop

http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row

3. Default risk spikes

http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high

4.  M&A set record

http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/  

5. Iron ore prices tumble

http://www.marketwatch.com/story/iron-ore-prices-keep-crashing-adding-to-global-growth-fears-2015-11-30

6. Baltic dry shipping index tumbles

http://www.marketwatch.com/story/shipping-index-falls-to-all-time-low-stoking-fears-about-global-growth-2015-11-19

Here is how to prepare.

http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

Here is how to get your mind off this stuff.

http://michaelekelley.com/category/humor/

Good luck!

[White Mountains]

Meanwhile BitCoin goes $0 to $400 and gaining traction every day.  Just saying.

I also bought silver mostly at about $25 per ounce, but that's part of my safety net and I haven't lost until I sell it, which I won't except emergency.

PLENTY of ammo - cannot go wrong with ammo as it only appreciates in value.  Better than money to be sure.

If you can, salt away up to 52-weeks worth of cash.  Real cash, under the mattress.  When the banks go on holiday you will be glad you did.

Guns too, though ammo is what could be in short supply should something big happen.  Guns are not much use without ammo.  If you've got plenty of ammo you will be in demand.

Food is #1.  If you don't have a year's supply of food on hand you are a fool. Even the lowly squirrel and ant knows enough to stock up for lean times.  But of course you are more intelligent than rodents and insects so you think you don't need a larder to carry over through lean times.

Stock up on everyday items like clothing, shoes etc.  Get yourself a supply that would last several years, right down to socks and underwear.  Could come in handy.

This is REAL wealth.

[ThroxxOfVron]

Just imagine the invester returns that were squandered on propping stock share 'prices' by the corporate managers bent on cashing their options...

Vast sums vaporized by a few thousand rich douches chasing yet more for their personal stashes instead of investing in the concerns they 'manage' or paying it to share holders who would have injected much of it into the economy by spending it...