What goes up must come down! (page 1 of 2)

A commentator characterized the year 2003 as an investors' 'flight to garbage.' Indeed, some assets perceived to be of lower quality, such as Ecuadorian and Brazilian debts, Argentinean and Venezuelan stocks, as well as money-losing high-tech companies, enjoyed huge price gains in 2003.

In fact, 2003 will enter the financial history books as the year in which all asset classes - including equities in developed as well as emerging markets, government as well as any kind of corporate bonds, industrial commodities, precious metals, real estate, and art - increased in value.

That is, of course, with the exception of the US dollar, which slumped not only against gold (mentioned here as a currency, whose supply cannot be increased ad infinitum by some intellectually dishonest central bankers), the euro, and the currencies of the resource-based developed economies of Australia, New Zealand, and Canada, but also against the currencies of more 'controversial' economies such as Brazil and South Africa.

As a result of the slumping US dollar, the performance of US equities in 2003 was nowhere near as 'fantastic' as the media have suggested. It is true that, in US dollar terms, the Dow Jones Industrial and the S&P 500 rose in 2003 by 25% and 26%, respectively; but in Euro terms, these gains were just 4% and 5%.

Admittedly, the Nasdaq, and especially the Philadelphia Semiconductor Index (SOX), did better, rising by 50% and 76%, respectively, in terms of the US dollar and by 25% and 46%, respectively, in Euro terms, but this was hardly a match for the emerging market gains (in US dollars) of 138% in Thailand, 131% in Brazil, 119% in Venezuela, and 104% in Argentina.

Moreover, if we look at the performance of the Nasdaq since the Euro bottomed out in October 2000 at 82.27, the recent rise appears to be more muted in a longer-term context than the bullish camp is trying to convey to the 'dollar weakness unconscious' investment community.

When asked about the performance of President Bush over 2003, the elderly but jovial Jewish taxi driver who took me to John F. Kennedy Airport in New York following the yearly Barron's roundtable exclaimed enthusiastically that Bush was the 'greatest American president ever.'

Taken somewhat aback by this firm and unshakable support for the present US government, and at the same time concerned that I might be offloaded somewhere in an alley on my way to the airport if I said anything wrong, I hesitantly and as diplomatically as possible, asked my driver, who proved to be smart and honest, why he felt so positive about Mr. Bush's administration.

'Bush doesn't take any BS from anyone in the world,' he replied. 'And look at the stock market... it's up!'

Fearing a confrontation, and concerned about missing my flight, I remarked in a conciliatory way that the dollar had declined in value, concurrently with the stock market's rise, thereby largely neutralizing - currency adjusted - any stock market gain. But this stock market gain/dollar weakness issue didn't seem to strike a chord with my driver, whose only concern seemed to be to enjoy additional price gains on his home and his stock portfolio in US dollar terms.

After checking in at the airport, I reflected further on my driver's views, which I initially considered to be rather naïve. But then it struck me that the entire global investment community has been seduced by strong economic indicators (published by governments, we must remember, which have a political agenda) and easy monetary policies into believing that all asset classes will continue to appreciate in 2004.