Since 2010, we had a massive outperformance of the US vis-a-vis emerging economies. The US cyclically adjusted earnings P/E ratios are relatively high, which would indicate low returns for the next 7 to 10 years. In other words, in the opinion of Jeremy Grantham returns of less than 2% are negative in real terms for each of the next 7 years.
Conversely, in emerging economies we had bear markets. In some markets, adjusted for the depreciation for currencies like the Brazilian real, the Indian rupee, and so forth, we had declines of 30% to 50% from the highs. So the question for the investor is, ‘Do I buy the US that is still currently momentum driven but it won’t be driven forever, or do I gradually move into emerging economies?’
I think it’s too early to move into emerging economies, and I think it’s too late to buy US stocks. They (US stocks) may go up another 10%, maybe even 20%, but the risks have increased significantly and I don’t think equity investors in the US, aside from a short-term trading opportunity, will reap very high returns in the future.
Now, compared to equities in emerging economies and equities in the US, what is really incredibly depressed are mining companies. My preference has always been to own physical gold, but I have to say that at this level the mining companies are relatively good values.
Contrarian Investor Dr.Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.
