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Prieur Perspective: Global Equities May Be Profitable Long-Term


Double-digit returns - but over the next decade.

I've been away from the trading desk, and the market bloodbath, during the past few days, since I'm on a business trip to Geneva. Nevertheless, I can identify with traders' frustration.

Confusion and irrational fear characterized financial markets during a remarkable week, with the CBOE VIX Index (the so-called "fear gauge") spiking above 70 for the first time. According to data from Bespoke, the week's US stock market crash of 18.2% ranks second as the worst Monday-to-Friday movement for the Dow Jones Industrial Average since 1900. Amid the dumping of stocks on all bourses, the US dollar, Japanese yen and precious metals were the only safe havens. (See related posts: Crash of 2008 and Stock Market Decline in Perspective.)

The realization that the economic damage from the credit crisis was intensifying weighed on investor sentiment. Selling of equities therefore persisted despite a litany of initiatives announced by governments and central banks around the globe, aiming to boost liquidity and restore confidence in the banking system.

As far as the outlook for stocks is concerned, the turnaround still seems awfully far away - though Tim Bond, head of global asset allocation at Barclays Capital, was quoted in the Financial Times as saying:

"We believe global equity markets are starting to offer a long-term buying opportunity that is typically only seen once in a generation. We are not calling the bottom in the bear market today, but we do suggest that the low will be seen within the next 2 or 3 weeks."

Bond also suggested that returns from equities purchased during this interval may well be extremely higher over the next year and could -- if history is any guide -- turn out double-digit long-term returns over the next decade.

As a sign of these extraordinary times, Peter Gabriel's "Perspectives" is running through my head:

I need perspective, 'cos I'm facing the wall.
I need perspective, 'cos I'm not that tall.
I need perspective, heard the trumpet call.
Don't trust my eyes, want to know where things fall."

Having said that, I summarized my views as follows:

"Nobody really knows what happens next, although some indicators are starting to signal that a bounce may not be all that far off. But stock markets are unlikely to find a cycle low before measures are implemented to stem the decline in confidence. It may take a while yet before we see the bear's corpse, but look out for a 90% up-day as a signal of the completion of the selling climax."

Economic reports

Here's the week's economy in pictures, courtesy of Jake of EconomPic Data. Click here for this week's economic reports, courtesy of Yahoo Finance.
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