The 9th Largest World Economy Is On Sale

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What if you could buy the ninth largest economy at a discount of over 35% of book value (Investopedia.com describes book value as: “…the total value of the company’s assets that shareholders would theoretically receive if a company were liquidated.”)? An economy that propelled the average monthly pay from $80 in the year 2000 to $967 in 2013, has unemployment of only 4.9 percent and a GDP per person of $14,818.

The capital of this country has repeatedly been called the “billionaire capital of the world” by Forbes. This country has 144 million people, spans nine time zones and is rich in natural resources.

I’ve recommended to many clients to have a 2-4% allocation to this country and I just purchased some of this countries’ index for my personal investments, too.

What is this country? Make sure you’re sitting down when you read this. If you haven’t already guessed, the country is Russia. I know, I know. Aren’t they doing crazy things like annexing countries? Yes, they are. Don’t they have an uncontrollable, quasi-dictator? Yes, but…

FamousĀ 18th century financier, Baron Rothschild, said “The time to buy is when there’s blood in the streets.” In other words, buy when everyone is afraid and selling. While the Russian economy is no U.S. economy, if you’d have bought the Dow Jones at its recent weakest (March, 2009) it would have almost tripled. The DJIA was then about 6,500 and is now over 17,400, closing as high as 18,024 last December.

This is a risky category and should only be a small part of an investors money but could have significant upside.

The Russian mutual fund I use has 29 investment holdings, access to about 85% of their stock market, a forward P/E ratio of 4.54 (low is good) and a 12-month trailing yield of 6.07 percent. If you’d like more information you can email me at RonPhillipsAdvisor@gmail.com or call me at (719) 545-6442.

The Outlandish Prediction by Bill Gross

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Bill Gross is know as “The Bond King.” And with good reason: he co-founded PIMCO and helped grow it to almost $2 trillion in assets. Two trillion! He’s recently left the company, headed to Janus and he always has strong opinions.

A recent Bloomberg headline read: “Bill Gross Says the Good Times Are Over”. Is this really so?

I’ve written about Mr. Gross in the past. He’s also well-known for creating/popularizing the term “new normal.” Basically, new normal means the U.S. will experience a European-style economy: regular high-unemployment and stagnant/low GDP growth in the area of 1-2 percent yearly. My previous article disagreed with this notion. We were simply experiencing multiple bubbles popping over the last full decade (Tech Bubble, Housing Bubble, Commodities Bubble, Credit Bubble, etc. from 1999-2009).

With unemployment steadily dropping and GDP growing 4 and 5 percent in the most recent quarters, The Bond King is being proven very wrong.

But is he right about the current stock market party being over? Yes and no.

I completely agree that we’ll have a market correction (10-20% drop in stock prices) at any time. The U.S. markets have made record new highs and been up for six years straight. So, yes, the party’s over…in the short term.

But long term I think the party’s just begun. If you look at the past 90 years of the market, we have long up and down cycles. They usually last 15-22 years. It’s very, very clear when you look at a chart of stock index prices for this 9-decade period.

Our latest down cycle started around the year 2000. I think the long term cycle, or secular bear market, ended in 2013 when the DJIA broke through to new records. That’s roughly fourteen years. Right on track with history.

Now, in my opinion, we’re starting a new secular (long term) bull market. The kind that can last 15-22 years. But it could be shorter. Things have sped up: information, investment trading, technology, product cycles, careers, etc. This could compress the current secular bull to a shorter time….

Why might we be in a super-bull market? The fundamentals. Michael Jordan said “You can have all the physical ability in the world, but you still have to know the fundamentals.” The fundamentals of the U.S. economy and stock market have never been better. We’re hitting new records in GDP and corporate earnings as far as estimates go into the future.

For example, GDP will go from $17.4 trillion in 2014 to $22.1 trillion in 2019, according to the IMF. And S&P 500 earnings have hit new records for the past four, or so, years and are estimated to hit new records this year and next.

Those are the big fundamentals. Add to that lowering unemployment, real estate sector growth, growing consumer wealth and saving, and lowering consumer and corporate debt and that equals a very positive future.