The portfolio is priced in US dollars. Where applicable, shares traded on foreign exchanges are converted to US dollars, based upon currency valuations established on 31/12/09. Personal observations and forecasts are solely that of the author, and will almost always materially differ from commonly held views of analysts and the majority of the investing public.
| Ticker | Share | Shares | Share | Dividends | Gain/Loss |
| Symbol | Price | Held | Price | Paid in | Quarter |
| | 01/10/0 | 9 | 31/12/09 | quarter | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| KEY.bh | $9.05 | 3073 | 9 | 0.15 | 1.1 |
| APFC | 6.37 | 3817 | 7.41 | | 16.3 |
| MFW | 20.24 | 1989 | 39.5 | | 95.2 |
| PAC | 28.19 | 1335 | 31.26 | 0.43 | 12.4 |
| KALU | 36.36 | 1364 | 41.62 | 0.24 | 15.1 |
| NTB.bh | 5 | 3900 | 3.9 | 0.04 | -21.2 |
| BJCHF | 0.62 | 61454 | 0.66 | | 6.5 |
| AKZO.de | 61.68 | 741 | 66.25 | 0.45 | 8.1 |
| KEG | 8.7 | 6967 | 8.79 | 0 | 1 |
| ADP.pa | 89.59 | 453 | 80.69 | 0 | -10 |
| BHL.bh | 16 | 1707 | 15.05 | 0.2125 | -4.6 |
| PVD | 34.4 | 1400 | 45.16 | 1.58 | 35.9 |
| KAZ.l | 17.16 | 7000 | 21.46 | 0 | 25 |
| GSH | 20.05 | 1598 | 20.29 | | 1.2 |
| ASR | 42.66 | 822 | 51.81 | | 21.5 |
| TRI | 33.57 | 1058 | 32.25 | 0.28 | -3.1 |
| NVO | 62.95 | 598 | 63.85 | | 1.4 |
| HHFA.de | 44.87 | 935 | 38.66 | | -13.8 |
| CAJ | 39.99 | 978 | 42.32 | 0.54 | 7.2 |
| DEG | 69.4 | 488 | 76.72 | | 9.5 |
| BAY.de | 70.12 | 528 | 68.34 | | -2.5 |
| SAP.to | 23.49 | 1698 | 29.37 | 0.137 | 25.6 |
| DSM.de | 41.8 | 1197 | 49.36 | | 18.1 |
| CTNR | 27.05 | 1193 | 26 | 0.2 | -3.1 |
| WSON.sa | 13.75 | 6540 | 12.34 | | -10.3 |
| MA | 202.15 | 215 | 255.98 | 0.15 | 26.7 |
| TSO | 14.98 | 2333 | 13.55 | 0.1 | -8.9 |
| 0357.hk | 0.72 | 80680 | 1.22 | | 69.4 |
| CHL | 49.11 | 604 | 46.43 | 0.868 | -3.7 |
| CVI | 12.44 | 6232 | 6.86 | 0 | -44.9 |
| SNY | 36.95 | 1150 | 39.27 | | 6.2 |
| KMG.L | 23.05 | 2536 | 25 | | 8.5 |
| ORA.to | 2.61 | 14000 | 4.34 | | 66.3 |
| KSU | 26.49 | 2100 | 33.29 | | 25.6 |
| CBD | 56.3 | 700 | 75.12 | 0.077 | 33.6 |
| BYD | 10.15 | 6000 | 8.37 | | -17.5 |
| cash | | | | 5.9 | |
| | | | | |
| Valued on 01/10/09 | $1609267 | | | |
| Value on 31/12/09 | $1791806 | | | |
| | | | | |
| | | | | |
| Gain/loss in quarter | $182,539 | | | 11.30% |
Total gain for 2009 $777,812 76.7%
Global and North American Indexes posted respectable results in 2009
The NASDAQ index posted a return of 43.9% in 2009.
The S&P TSX Composite index posted a return of 30.7% in 2009.
The Morgan Stanley MSCI Euro Index posted a total return of 27.8% for 2009.
The S&P 500 posted a return of 23.5% in 2009.
The Dow Jones Industrial Average posted a return of 18.8% in 2009
http://www.mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html
The story in 2009 was clearly the dominance of emerging markets and developed Asian markets.
The MSCI Emerging Markets Latin America Index posted a 98.14% return for 2009. This index has now posted double digit returns for investors during the past 3, 5 and 10 years.
http://www.mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html
The MSCI Pacific (ex Japan) index posted a 65.9% return for 2009.
This is a developed market index. The Pacific index has essentially recaptured the gains since the start of 2007.
http://www.mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html
The MSCI BRIC index posted an 88.03% return for 2010. This index has now posted positive 3 year, 5 year and 10 year returns for investors.
http://www.mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html
The blog model portfolio was No. #1 among 15 funds in the selected peer group for the quarter.
A return of 11.3% was generated in the quarter ending December 31st, 2009. The total return for the model portfolio in 2009 was 76.7%.
The model portfolio emphasizes ownership of large and mid cap international investments, with 69.5% of the account invested in developed markets. 69.5% of the portfolio is also invested in mid or large cap securities based upon positon. 72% of the portfolio is mid or large cap based upon market value.
Overall, the blog model portfolio ended 2009 in the #1 position among mid and large cap themed peers.
Returns in emerging markets were the best in close to a decade. Results from small companies in emerging markets surpassed those of large companies. Consequently, on an absolute basis, the model portfolio was bested by two purely emerging markets funds in the peer sample. Two management teams deserve accolades for persistence in the face of an adversarial media, throughout the latter part of 2008 and much of 2009.
The small cap internationally themed Oppenheimer International Small Company fund (OSMAX, $19.60) posted an eye-popping 121.3% return for 2009.
OSMAX is a higher turnover fund specializing in ownership of small companies, exclusively in emerging markets.
http://quote.morningstar.com/fund/f.aspx?t=OSMAX
The T. Rowe Price Emerging Markets Stock (PRMSX, $30.09) posted a stellar 84.9% return in 2009.
PRMSX specializes in large companies, but invests almost exclusively in emerging markets.
http://quote.morningstar.com/fund/f.aspx?t=PRMSX
The returns for the 14 peers in the sample were as follows:
TWWDX ($15.50) was up 3.9% in the quarter and generated a total return of 33.5% for 2009.
ABIYX ($13.91) was flat for the quarter and generated a total return of 34.6% for 2009.
DODGX ($96.14) was up by 4.3% in the quarter and generated a total return of 31.2% for 2009.
ANCFX ($32.73) was up by 5.7% in the quarter and generated a total return of 33.3% for 2009.
FCNTX ($58.28) was up by 7% in the quarter, and generated a total return of 29.2% for 2009.
BLUEX ($21.59) was up by 4.5% in the quarter and generated a total return of 9.3% for 2009.
UMBWX ($29.14) was up by 3.6% in the quarter and generated a total return of 35.5% for 2009.
TGVAX ($24.81) was up by 3.9% in the quarter and generated a total return of 31.4% for 2009.
HAINX ($54.87) was up by 4.2% in the quarter and generated a total return of 38.5% for 2009.
CGMFX ($29.76) was up by 6.5% in the quarter and generated a total return of 10.28% for 2009.
OSMAX ($19.60) was up by 4.2% in the quarter and generated a total return of 121.3% for 2009.
PRMXS ($30.09) was up by 7.6% in the quarter and generated a total return of 84.9% for 2009.
NTKLX ($32.41) was up by 1.4% in the quarter and generated a total return of 45.3% for 2009.
SAHMX ($10.25) fell by 2.4% in the quarter and generated a total return of 39.5% for 2009.
What lessons can be gleaned from the market experience of 2009?
1. The broadly based investment media is NOT your ally.
Investment outlets are “US centric”, and accordingly, extrapolate the experiences of the US to all nations. Those who completely sold out their portfolios at the market lows of March 2009, when US doom and gloomers were harping about a synchronized global depression, are now wringing their hands in despair. Interviewers have subtlely changed tack and are now allowing proponents of a bull market to espouse positive points.
2. Government policies still trump the most imprudent actions of consumers and business.
At the start of 2009, investors were uniformly pessimistic about the global economy. As it turns out, much of the world proved to be just fine. Countries with strong balance sheets employed variations of Keynesian economic policies to stimulate their domestic economies with great success; in many cases nations were able to avoid recession altogether.
Deficit ridden nations also employed Keynesian spending programs. The long term success of such actions, by nations in perpetual deficit, will be mitigated by interest financing costs. The US government, for one, assumes that interest rates remain at zero in perpetuity, when estimating the economic multipliers of their domestic deficit stimulus actions.
What data might be important to underscore in 2010?
Investors and media carrying a strong confirmation bias towards US (and Canadian by proxy) investments have completely missed out on one of the strongest secular trends on the planet today; that being a transfer of economic wealth, from the US, to other jurisdictions.
http://www.washingtonpost.com/wp-dyn/content/article/2010/01/01/AR2010010101196.html
If one used purchasing power parity (PPP) the US economy accounted for 35.8% of global GDP in 2000. If one preferreds to use nominal US GDP, the US accounted for 31.5% of global GDP in 2000. 2009 will mark the first year that US GDP, as a percentage of global GDP, likely fell below 20%. Such a relative decline in the global pecking order represents a stunning fall from grace.
http://www.nationmaster.com/graph/eco_gdp_ppp_cur_int-economy-gdp-ppp-current-international&id=OECD&date=2000
http://www.allbusiness.com/specialty-businesses/967711-1.html
Clearly there has clearly been a sea change in the global economy within the past decade. Some US centric analysts take issue with data supplied by various nations, while refusing to acknowledge that much of the US data can also be picked apart using external analysis. Others build models that rely on current dollars, vs. purchasing power parity. Nevertheless, at best, such data massaging increases the US percentage of global GDP by only a couple of percentage points.
Even those who have their heads in the sand grudgingly admit that all models show US GDP to have declined sharply in relation to global output. They then argue that this is simply a temporary phenomena.
“Don’t count out the US” plays out nicely to an electorate, early in a new presidential term. Truth be told, such statements are probably more jingoism than anything. As a response to such commentary, I think that the Russian proverb “Pray to God but continue to row to the shore” is a useful rejoinder, when it is determined that one is sitting in a leaky boat.
I believe that relative decline of the US economy, on a global basis, can be explained by two simple interrelated points.
1. US corporate taxes remain among the highest in the world.
20 years ago, the US was a manufacturing giant. This economic superiority did not arise based on world class productivity; rather it was supported by corporate taxation among the lowest in the developed world. As recently at 1989, US corporations enjoyed a tax advantage of roughly 29.4% vs manufacturers in competing developed nations.
Back then, if one wanted to reduce corporate taxes below rates paid by US manufacturers, the only logical alternative was to establish factories in developing nations with little respect for international laws and limited property rights. Investors owning corporations that built factories in such nations incurred greater risks to capital.
However, in the decade that has just ended, the majority of developed nations (with the exception of Japan and the United States) recognized that corporations assess capital projects on the basis of total taxation. All, save Japan and the United States, have responded. A massive tax gap currently exists between the US and the majority of developed nations globally. On average, US corporations now pay an average of 33.5% more in corporate taxes than developed nation peers.
http://www.realclearmarkets.com/articles/2009/08/12/capital_drag_97356.htmlInconceivably, US corporate taxes have gone up steadily, while other nations have reduced corporate taxes sharply. In 20 years, a swing of more than 62.9% in corporate taxation has taken place between the United States and developed nations.
Global manufacturers respond to an unfriendly corporate environment by shifting new production to lightly taxed jurisdictions. Until such time as the US becomes competitive with other developed nations, manufacturing will continue to be a problem for the US economy.
2. The US dollar has fallen sharply against major “quasi reserve” currencies on a global basis.
Most global GDP statistics are reported on a “when converted” basis to US dollars. In the case of Europe for example, the Euro has appreciated by a total of 39.2% vs. the US dollar in the past decade. The US dollar has fallen against other major global currencies by similar amounts in the past ten years.
US citizens often consider a depreciating currency to be a somewhat painless event. Nothing could be further from the truth. Foreign businesses will defer capital projects in nations with declining currency. Foreign investors will also defer potential stock purchases in nations with gradually declining currencies (all else being equal); rather they will opt to make equity investments in nations with appreciating currencies.
Importantly, US consumers in the last decade faced a precipitous decline in purchasing power, based upon the drop in the dollar. To put this cost into perspective; the depreciation of the US dollar over the past decade has effectively raised the price of an imported flat screen TV by 40%. Imagine how their household balance sheet would look, if every imported item could have been had at just 60% of its reported purchase price. It goes without saying that far fewer US homes would have fallen into foreclosure, had the dollar remained stable during the past decade.
The decline of the US dollar against benchmark currencies is a very real issue, and one that cannot be easily addressed. US deficits need to be reduced. This would be of tremendous benefit to consumers in the long run. Policy advisors regretfully have a short term problem; in order to reduce deficits, consumer taxes will have to rise. The obvious solution is a national value added tax, or VAT. At the same time, the size of the US government will have to shrink rather sharply. This means spending cuts. Finally; so as to stimulate private industry capital modernization, corporate taxes will have to fall sharply. Any US government that prescribes such medicine is destined to be a one term government, at best. Foreign and domestic investment capital is not at all encouraged by the slogan: "Yes we Can". The carefully worded phrase merely describes ability, not intent. A more pragmatic slogan should have been "Yes we WILL."
The US is still the largest individual economy on the planet, and cannot be completely ignored. However, stressors are not just external in nature.
The US suffers from an unhealthy reliance upon financial services, leasing, management of companies and real estate to generate economic output.
In the 3rd quarter of 2009, the BEA reported that these sectors accounted for 22.1% of US GDP. Both on a relative and on an absolute basis, such overwhelming dominance in any economy makes effective regulation impossible. All of the excesses, wrought by these industries in the decade past, are likely to be repeated in the coming decade; just as they were in the decade of the 1990's.
The manufacturing sector continues to shrink.
At the start of 2001, manufacturing accounted for 13.2% of US GDP. By the third quarter of 2009, the Bureau of Economic Analysis (BEA) reported that US manufacturing had fallen to less than 10% of economic output. This was the lowest level since the Bureau began record keeping in 1947. In short, the manufacturing industry, as a percentage of the aggregate US economy, has declined by almost 35% on a relative basis, within just one decade. US personal incomes earned from private goods manufacturing fell to just 8.8% of total US income in Q3, 2009. This is down by half since 2000.
There is a school of thought, embraced by policy advisors in the United States: "lost low wage manufacturing jobs will lead to a redeployment and more productive use of domestic labour. The end result will be a nation of high wage, highly skilled employees." Regretfully, it would appear that domestic policy advisors have greatly underestimated the negative economic multipliers associated with the of elimination of low wage and low/semi -skilled manufacturing jobs.
Negative impacts associated with the elimination of manufacturing are felt on a wide scale. Industries that supply equipment to domestic manufacturers have also suffered. Services that are tied to such sectors are impacted. Common sense dictates that for every 10-20 low skilled jobs that disappear, a higher paid supervisory position also becomes redundant. In turn, for every 10 supervisors that lose their jobs, a management position disappears. Simply put, if you chop off the bottom layers of an economic pyramid, the pyramid becomes smaller in absolute size.
Ominously, if both the relative and absolute size of government grows while private industry employment is shrinking, the potential exists for economic stagnation. The United States has now suffered a "lost decade" due to a lack of economic planning. After one removes the growth in government payrolls from employment statistics, it becomes evident that private sector employment fell during the past decade. Global economies are far too competitive to give breathing room for the US government to right this obvious wrong.
http://www.nationmaster.com/graph/eco_gdp_ppp_cur_int-economy-gdp-ppp-current-international&id=OECD&date=2000
Where will the US jobs come from in the next decade?
The much vaunted US transition to an “information age service economy” appears to be a myth.
For all the discussion about the US shifting to a high tech service oriented economy, the fact remains that an insufficient number of private sector jobs are being created, to replace what seems to be an inexorable decline in manufacturing jobs.
Information-communications technology producing industries, as a percentage of US GDP, has FALLEN for almost consecutive 6 years. What pundits ignored in the equation is that fewer employees are required to do more work as technology improves productivity. This sector now accounts for less than 3.8% GDP. The industry, to the chagrin of all those presently in various stages of IT training, is clearly NOT a growth market, insofar as an expanding source of jobs is concerned. Outsourcing of the low paid work has largely been completed in the IT and information industries. High paid job outsourcing now represents the greater risk in the decade to come.
US bulls have an opinion that they invest in a nation of free enterprise, large industry and small government. It will will surprise many to learn that the government bureaucracy and payroll has expanded far faster than US GDP.
In relation to the economy as a whole, the US government has grown by almost 23% in the past decade. For the year 2000, direct government contributions to US GDP averaged 10.5%. Direct government contribution to GDP will likely have surpassed 12.9% of the total in 2009, up from 12.6% in 2005. US government payrolls surpassed 10% of total payrolls in 2009.
http://www.bea.gov/scb/pdf/2009/05%20May/0509_indyaccts.pdf
The only real bright spot in the US private economy comes about from professional, scientific and technical services.
This sector accounted for 7.7% of US GDP in 2009, up from 6.9% in 2005.
Many US bulls consider the domestic economy to be merely one in transition. The question begs: “Transition to what?”
The answer may not be come in our generation. US governments simply cannot continue to employ all of the terminated manufacturing employees on a permanent basis.
http://finance.yahoo.com/news/Why-Job-Growth-Will-Be-Weak-cnbc-1078560024.html?x=0&sec=topStories&pos=6&asset=&ccode=
Too, current trends in private industry do not appear to be encouraging. The only major sources of job growth in the US economy are at the highly educated, highly specialized margins. Lightly educated manufacturing employees simply cannot be retrained as scientists.
In the last economic period of expansion, it was estimated that as much as 40% of the new jobs came about from industries who benefited from the artificial US real estate bubble.
http://finance.yahoo.com/news/The-Real-Jobless-Rate-175-Of-cnbc-1855719550.html?x=0&sec=topStories&pos=5&asset=&ccode=
During an economic recovery, some of the unemployed will return to the same sectors that laid them off after the bubble burst. However, any nation heavily overweighted with bankers, investment bankers and real estate speculators is one that should be approached with great caution and trepidation. Job growth in such sectors should be considered as cyclical, not permanent.
Never, in my lifetime, has the US economy been of lesser importance to a global investor.
My view might be of great comfort to international equity investors but will probably enrage US secular bulls. In the short term however, it is unwise to completely ignore the prospects for positive returns in the US. Domestic issues aside, the US probably deserves a 15-20% portfolio weighting in a globally themed account.
Government policies, in the short term, can always mask a variety of structural problems. US interest rates are back to historic lows experienced in 2001. Relatively low energy prices have been in force for about a year. A weakened national consumer balance sheet is now less impaired. Six months ago, I opined that consumers would quickly tire of the new “era of frugality”. In the 3rd quarter, the BEA reported that consumer savings rates had declined sharply, which adds some degree of credibility to my hypothesis.
I predict that a reduction in household savings rates will persist into 2010. "Fearfully employed" householders will likely breath easier this year. A growing number may simultaneously come to the realization that if they have not yet been laid off, the likelihood of their jobs disappearing in 2010 appears remote.
To my way of thinking, this may shape up to be a potential US economic cycle market, similar to that experienced in the 2003-2006 period. If correct, the cyclical returns could be similar. Make no mistake, bull markets come with their own array of problems. However, I much prefer investing in the face of a “wall of worry”, rather than a “wave of euphoria”.
http://finance.yahoo.com/news/Few-called-market-turn-fewer-apf-2058839167.html?x=0&sec=topStories&pos=9&asset=&ccode=