Money Made and Lost in 2017
    Category: Column By : Rainer Michael Preis Read : 693 Date : Thursday, December 07, 2017 - 08:32:33

    The legendary stock investor Sir John Templeton once opined that: “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” The 2017 Global Equities (Bloomberg Primary Equity Indices) surged 40% this year as the U.S. equity market reached new all-time record highs in what could be considered a “euphoria.” The Dow Jones is up 18% this year, followed by the S&P 500 at 15%. European equities outperformed U.S. stocks, with the Eurostoxx 50 up 21%. 

    Emerging market equites outperformed developed markets as the MSCI Emerging Markets Index rose 33% year-to-date. Venezuela still struggles with debt defaults but is the world’s best performing stock market, rising 1,968%. Local cash is useless in Venezuela due to hyperinflation, so local investors are turning to local stocks and bitcoin.

    Mongolia, Ukraine and Kazakhstan with 74%, 63% and 53% return are the second, third and fourth best performing equity markets in the world.  Serial defaulter Argentina, with 46% return, is the best performing Latin American stock market. Poland with 45% and Austria with 43% are the best performing European stock markets. Indonesian equities with a mere 13% underperformed broader emerging markets.

    The only markets with meaningful losses this year are in the Middle East. Lebanon, due to increasing risk of war with Saudi Arabia, is the fourth worst performing market, with a 7% decline. Oman dropped 13% and Pakistan 14%, to become the world’s worst performing stock markets, only beaten by Qatar, down 29%, due to political woes and the Saudi boycott.

    Many economists now believe we do not have consumer price inflation but asset price inflation—an “everything bubble.” Even though many investors think that stocks are too expensive, they are still pushing money into equities. The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. Many a smart person has looked like an idiot before the peak, at least temporarily or for longer periods than one might think.

    Bitcoin’s one year return is 841%, Ripple with 2,472% and Ethereum with 5,518% return are a slew of proverbial asset bubbles according to “traditional” bankers. Cryptocurrency believers and adopters, on the other hand, point out that one definition of a bubble is a bull market in which you do not have a position. Despite Blockchain assets being the best performing asset class, by far, only very few serious investors have any meaningful allocation as most “traditional” banks either ban or discourage investment in these assets. As we reflect on the investment returns of 2017, it pays to look back and remember that financial markets have an incredible capacity for reacting to news, economic and technological developments in a way that confounds market professionals and private investors alike—the only difference being the latter will admit to being confused, while the former will quickly come up with a few dusty rationalizations. The past is fixed and easy to analyze. The future is fluid and uncertain. You have to base your investment decisions on probabilities in an atmosphere of uncertainty whether you agree or disagree with Sir Templeton.