Global Trader: Be Thankful You Aren’t In These Markets

While the year started bearish on Wall Street, U.S. stocks have weathered the storm and its aftershocks in a lot better shape than their overseas peers. I’d much rather be in dollar assets than just about anywhere else, and a lot of global investors evidently agree because they’ve rushed to park their money here.

Here’s the benchmark: the S&P 500 is “only” down about 18% YTD and the market as a whole (counting thousands of smaller stocks) has held up a few percentage points better. That’s the return you’d had to swallow if you bought at the end of last year and held on.

Europe, Japan and emerging Asia have had it a lot worse. Unless you’re pumping a lot of oil for export, you’re reeling under the weight of inflation and the rising interest rates that the world’s central banks are desperately throwing at the problem.

Their economies are slowing and their people are tired. And their markets reflect plenty of pain. German stocks are down a harrowing 35%, double the dive we’ve seen on Wall Street. Ireland, Italy, Sweden, the Netherlands . . . similar losses.

If you’re curious, the German market dropped 55% in the 2007-9 crash and markets like Italy suffered even more staggering declines. We’re still a long way from “as bad as it gets” in those countries.

But it’s bad. And it’s bad in New Zealand, down 5 percentage points more than Wall Street for a total YTD drop in the 22% zone. Bad in Japan, still locked on the wrong side of bear market territory. Israel. Every developed market is in the red this year. It’s only a question of how deep the losses are.

Norway has held up relatively well. So has Australia. These are commodity-heavy economies with a natural hedge against inflation. Their oil wells and mines are still producing wealth . . . it’s just that the resources don’t outweigh the damage being done to their consumers.

Emerging markets have fewer net consumers and more net producers, but the markets are seen as relatively risky, which isn’t attractive to the big pockets of global capital right now. And they’re importing inflation every day, leaving their central banks to pick up the strain.

Russia is ground zero, with their stocks formally down 100% as far as global investors are concerned. The Ukrainian market isn’t in appreciably better shape, and then you have Poland and Hungary down over 50%, Kazakhstan down 40% and so on.

Chinese stocks are down 22-24% YTD depending on how you slice that market. They aren’t happy there. Seoul is down 30% and Taiwan is in only slightly better condition.

These numbers are all in dollar terms, so most reflect declining local currencies. That’s what inflation does.

Officially, the Turkish market is “up” 58% YTD, for example . . . not so much because stocks are soaring on the strength of a great economy, but because despite all the government’s efforts, the lira has crashed.

Inflation there is tracking near 80% now despite double-digit interest rates. With purchasing power evaporating at that speed, it doesn’t take a lot of time to reduce the real value of local companies to zero.

Global investors want more evidence that those companies are growing their way out of the hole. And right now that evidence just isn’t forthcoming . . . the long view looks good, but you need a long view to really appreciate it.

Bottom line: Until foreign money starts flowing back home to replenish these markets, I’m staying on Wall Street.