What Are Bullish Returns on International ETFs Telling Us?

Quick question: Which of the following is correct?

A) We are seeing a stock market bounce in a longer-term bear market

B) We have entered a raging, liquidity-driven bull market

Click to enlarge:

As we can see from the international ETFs above, both are correct, depending on what we're looking at.

We see very bullish 2009 returns in Australia (EWA), Canada (EWC), Hong Kong (EWH), Brazil (EWZ), China (FXI), Russia (RSX), and India (PIN).

Returns have been much more subdued in 2009 for Germany (EWG), Japan (EWJ), U.K. (EWU), and the U.S. (SPY).

One interpretation: The markets have been rewarding economies that are grounded either in natural resources, budget surpluses, or both. The markets have been penalizing economies that are grounded in debt. This dynamic has important implications for commodities (which have been rewarded), interest rates (artificially low in the debtor countries), and currencies (weakening due to debt).

Another interpretation: We have created a new liquidity bubble, which is finding a home, particularly among emerging markets. These bubbles can go much higher than anyone normally anticipates, but they inevitably end badly.

Comments

[crazydave:]

Obama has lots of choices... he isn't locked into anything but a collective groupthink of Keynsian economists. One choice would be to establish confidence in the dollar by way of fiscal responsibility. Cut federal programs, achieve some degree of balance, put in place needed and b alanced reforms and oversight, and public confidence will increase and spending will follow. Quit throwing around "trillions" and 100's of billions of $$. Accept a few years of adjustment, let the market weed out the weak links, and then let it grow itself. Then work in social programs which are fiscally responsible, explained and debated, and have massive public backing. All will be well, but patience and the willingness to trust the markets to self correct, with needed reforms, is all that is needed.

Jun 08 02:54 PM

[Maxe Paul:]

"What Are Bullish Returns on International ETFs Telling Us?"
That the issuers of ETF's are making a lot of money, that's what.

Jun 09 08:02 AM