Mr. Greenspan keep scratching your head!
Mr. Alan Greenspan wonders as to why long term rates are dropping. A huge global savings glut combined with a lack of global savings intermediation is the simple reason!
Yes, there is a global savings glut, but it has much to do with the lack of globalization of investing. In the US you can buy a foreign car or say dishes or ceramic tiles made in Thailand, but dare you if you want to purchase any foreign security. It remains as difficult and expensive -and as convoluted, as ever.
Global bond interest rates have been dropping (once again) over the past year even while short term interest rates have surged ahead. Mr. Greenspan himself has confessed to be confused about this phenomena. But I am not. Global savers/investors in developed markets are operating in an inefficient and often closed market, where investing in foreign financial assets remains difficult, confusing and is subtly so discouraged by the "experts".
One reason why US real estate prices have done so well in recent years is because US savers are disenchanted around US stocks (the Dow Jones has dropped some 12% over the past 5 years, and so have index funds!) and some 98% of all US savers, as one country example, have no access or information to more reasonably priced -besides far better performing- equities in other faster growing emerging economies.
Indeed, global housing prices, mostly luxury real estate, have had an unprecedented boom in recent years, almost across the board. As was recently reported -after the fact- in the Asian Wall Street Journal. Large individual investors have for the most part missed the recovery in Asia (the Thai SET index as one example has doubled in US$ value, during the same time the US Dow Jones has lost 12% during the past 5 years), as most still wrongly perceive it is riskier to go overseas, then staying with long overpriced US shares.
Dropping bond yields across the board combined with rising prices of luxury homes is the evidence of a lack of dis-intermediation of global savings. Why does Mr. Greenspan not get the message? The reason is, that its not in the US or any other developed country interest to advocate nor promote better performing equity markets, outside their own home markets.
This has resulted in overpriced securities in many developed countries and under-priced stock prices in many developing nations, like they are in Thailand currently We are seeing the full evidence of this today as bloated developed country stock markets have been stagnant for years, with large savers complaining on the lack of any real returns, often dividend yields of a meager 1-3%. Indeed, negative returns after taxes and inflation. "Guaranteed", yes a guaranteed loss.
In Thailand for example there remains hoards of under-researched value-shares which trade at half the stock valuation as compared to developed countries; all the while yielding close to double digit dividend returns. Yes, growth stocks with simple straight forward accounting and business models, yielding near double digit in current income, while trading at undemanding p/e ratio’s of 5-8.
But don"t count on the global press (nor most brokers) to show you these solid long term, high yielding and earnings growing equity investments. As with Mr. Greenspan, it is too often not in their interest to do so. Keep scratching your head Mr. Alan Greenspan as to why long term rates are dropping: a global savings glut combined with a lack of global savings intermediation is the simple reason!
Best Regards,
Paul A. Renaud.
www.thaistocks.com
