July 2023 update ($856,879 +$31,341 or +%3.8)

↑ Emerging Markets Stock Index Fund is up by $6,591 or +5.1%
↑ Eurozone Stock Index Fund is up by $2,978 or +1.9%
↑ US 500 Stock Index Fund is up by $10,474 or +3.2%
↑ Global Small Cap is up by $7,088 or +4.9%
↑ Growth fund is up by $1,052 USD or +1.5%
↑ EUR to USD is up by 0.9% for my portfolio its $2,673
↑ GBP to USD is up by 0.8% for my portfolio its $557
Total gains: $31,341

Observations:
Since the US supreme court ruled that the white house under Joe Biden didn’t have the authority to cancel student loan about 16mn student loan borrowers will have to start paying their dues. This is about $200-400 a month (total outstanding student debt to the Federal government is $1.6tn).  Majority of the restarted payments are due in October.  At $300 a month for 16mn payments is $4.8bn a month taken away from discretionary spending or $60bn a year.

Further the tax filing deadlines due to the natural disasters (including California) was pushed from April to October.  So combined we will see significant setback in October in consumer spending. It might help to cool the inflation but Apple’s orders will be lower unless their will delay their September conference under some pretense or other.

Many people are budgeting their way out by relinquishing luxuries from before the conflict era when the interest rates were low and trade flourished. Profligacy fueled the economy.

Goldman Sachs estimated in their article “Emerging stock markets projected to overtake he US by 2030” (date June 22, 2023) that the emerging market equities will go from current 27% to 35%, 47% in 2050 and 55% in 2075. 

Figure 1. Rapidly shrinking developed markets.

 Assuming that this is correct the developed markets are going to lose 1% a year in global equity share.  What it means that majority of the global investments will be in BRICS (Brazil, Russia, India, China and South Africa). Even in the developed world western europe and Japan will lose out to Canada and Australia.   Of course, the change will not come without a fight (sanctions, restrictions, wars).  Current relationship between West and the rest of the world – plenty of talk but no meaningful conflict resolution.  Both sides are aiming low, more intent on re-establishing connections than rethinking a deeply troubled relationship. For example, Chinese President Xi Jinping said that Washington’s trade and technology sanctions are aimed at “all around containment, encirclement and suppression”.

Even if west will conquer China or India, what are you going to do after with over 1 bn people?

Maybe I should keep my emerging market fund and it will outperform the S&P500 in the coming decade. Stocks tend to do better after periods of below average returns, and worse when returns have been strong. Sounds obvious but until recently economics and finance were dominated by so-called random walk theory.

Current PE ratio (which averages the past decade or earnings in its denominator) is above 30 times for S&P500, compared with a mean of 17 since 1870. That suggests the index has roughly to halve to return to normal. However this has been story for the past 15 years.

Fun Fact:  In China consumer prices are flat in comparison with June last year, while in US inflation 9.1 percent and the UK is over 11% (government reports it as 7.9%). This largely due to US and UK were printing money during pandemic providing direct payments and jobless benefits for two years unhinged.  China tackled the problem differently – infrastructure spending and business in the form of tax reductions, cuts to compulsory social security payments and other measures aimed at preventing job losses.