By Bryan Rich
December 9, 2016, 9:00pm EST
We’ve talked a lot about the set ups for big moves in Japanese and German stocks, as these major stock markets have lagged the recovery in the U.S.
Many have yet to come to the realization that a higher growth, healthier U.S. economy is good for everyone — starting with developed marketeconomies. And it unquestionably applies to emerging market economies, despite the fears of trade constraints.
A trillion dollars of U.S. money to be repatriated, has the dollar on a run that will likely end with USDJPY dramatically higher, and the euro dramatically lower (maybe all-time lows of 0.83 cents, before it’s said and done). This is wildly stimulative for those economies, and inflation producing for two spots in the world that have been staring down the abyss of deflation.
This currency effect, along with the higher U.S. growth effect on German and Japanese stocks will put the stock markets in these countries into aggressive catch up mode. I think the acceleration started this week.
As I said last week, Japanese stocks still haven’t yet taken out the 2015 highs. Nor have German stocks, though both made up significant ground this week. Yen hedged Nikkei was up 4.5% this week. The euro hedged Dax was up 7.6%.
What about U.S. stocks? It’s not too late. As I’ve said, it’s just getting started.
We’ve talked quite a bit about the simple fundamental and technical reasons stocks are climbing and still have a lot of upside ahead, but it’s worth reiterating. The long-term trajectory of stocks still has a large gap to close to restore the lost gains of the past nine-plus years, from the 2007 pre-crisis highs. And from a valuation standpoint, stocks are still quite cheap relative to ultra-low interest rate environments. Add to that, a boost in growth will make the stock market even cheaper. As the “E” in the P/E goes up, the ratio goes down. It all argues for much higher stocks. All we’ve needed is a catalyst. And now we have it. It’s the Trump effect.
But it has little to do with blindly assuming a perfect presidential run. It has everything to do with a policy sea change, in a world that has been starving (desperately needing) radical structural change to promote growth.
Not only is this catch up time for foreign stocks. But it’s catch up time for the average investor. The outlook for a sustainable and higher growth economy, along with investor and business-friendly policies is setting the table for an era of solid wealth creation, in a world that has been stagnant for too long. That stagnation has put both pension funds and individual retirement accounts in mathematically dire situations when projecting out retirement benefits. So while some folks with limited perspective continue to ask if it’s too late to get off of the sidelines and into stocks, the reality is, it’s the perfect time. For help, follow me and look over my shoulder as I follow the world’s best investors into their best stocks. Our portfolio is up more than 27% this year. You can join me here and get positioned for a big 2017.