Wednesday, October 08, 2008

US Relatively Richer, YTD

The US stock market is down about 32% year to date, but most other developed countries are down around 40%. The emerging market stock markets are generally down 40 to 60% year to date. Yields on US government bonds are down about 50 basis points on the long end, about about 3% (to near zero) on the short end. The trade-weighted dollar is up about 6% year to date, which increases the relative value of US equities even more.

The genesis of this crisis is the fall in US housing prices, which caused a lot of mortgages, and their various securities, to fall in price. I would think, therefore, the US would be the worst off, because no matter how much China and UBS bought, most of those mortgages are owned by the US. The fact that relatively, the US has become richer, in this mess, is therefore rather puzzling.

8 comments:

Anonymous said...

Even better, include the dollar result in your analysis for a European investor like me..

J said...

A paradox. If I am not wrong, the US getting richer is a recent, two - three months old phenomenon. The change came with the global financial panic, which found the US stronger and stabler than the rest of the world.

Anonymous said...

weal: i see no puzzle here. After all, in aggregate, these houses were paid by foreign savings. We keep the stuff, they get to have the used lottery tickets. Whose better off now ?

AHWest said...

I've been thinking the same thing over the last few weeks in particular. It's just like the old adage "when the US sneezes, the rest of the world catches a cold"

I suspect it has something to do with risk budgets and leveraged dollar investors selling what they view as their riskiest assets. I think also some investors in foreign markets were borrowing dollars to buy local markets. When the dollar was depreciating, that borrowing had negative net cost, and now that the dollar reversed, the forced deleveraging and forced selling has begun.

Anonymous said...

Yes, we are relatively richer. Like when a storm comes and knocks your neighbor's home off its foundation. But only destroys your roof.

J said...

Cheaper oil.

Anonymous said...

Baloney, the income gap is as big as it's ever been and incomes in the US have stagnated for years. This blog might as well be written by FoxNews or the Bush administration.

Anonymous said...

the average american does not have significant investments in the stock market so they are even worse off than your figures suggest. to invest you must save and we spendaholics in the US have a negative savings rate. without a home, without a job, nothing in the bank, a high debt load. add that to both public and private sector failures. we've barely scratched the surface of what's to come. the rich on the other hand DO have equity stakes and are doing relatively better. but they've done quite well since we taxpayers were asked (forced?) to bail them out.