Bloomberg Businessweek - USA (2019-06-10)

◼ ECONOMICS Bloomberg Businessweek June 10, 2019

36

THEBOTTOMLINE Stockmarketsaroundtheglobe,excluding

theU.S.,remain25%belowthepeaktheysetonHalloween2007,

whiletheS&P 500 benchmarkhasgainedabout80%sincethen.

● Australia’scentralbankgovernoris battlingtokeep

a 28-yeargrowthstreakgoing

WobblesDownUnder

Investorsaregivinguponthedevelopedworld’s

mostenduringeconomicgrowthstory.Australia

hasn’trecordedtwostraightquartersofeconomic

contractionsincethefirsthalfof1991,meaning

it’sjusta monthawayfromovertakingtheDutch

recordandposting 28 yearsofcontinuousexpan-

sion.Butwithhomepricessinking,households

swimminginrecorddebt,andtheescalatingU.S.-

Chinatradewarerodingconfidence,bondand

foreignexchangetradersarebettingthatstreakis

nowinjeopardy.“Australia’shadthehousingboom

lendandhampersprofitability.Sharesofbanks

intheeurozonenowtradeforfarlessthanthe

bookvalueoftheirequity,a signthatinvestors

doubttheyhavetheirhouseinorder.InJapan,

bankshavetakenadvantageofultralowinterest

ratestorampuplendingtosmallandmidsize

businesses—eventhougha growingproportion

are“zombies”thatareunlikelytoeverpayback

theirloans.

China,nowtheworld’ssecond-biggesteconomy,

reliedonold-fashionedstimulustogetthroughthe

crisis.A hugesplurgeofdebt-fundedinvestment

cushionedtheblowtoitseconomy,thoughthemas-

siveincreaseinleveragehasleftthecountrysuscep-

tible,manysay,toa financialcrisisofitsown.

TheideasofBernankeandhisalliesattheU.S.

TreasuryandtheFederalReserveBankofNew

Yorkweredeeplycontroversialatthetime,andthe

U.S.mayyetpaya priceforthem.Butfromourcur-

rentvantagepoint,it looksasif theiractionswere

keytoa decadeofrenewedgainsinassetprices

forAmericans.

③TheFAANGsAteOurGrowth

Ina globalizedworld,it justsohappensthatthe

companieseatingeveryoneelse’sprofitsallhap-

pentobelistedintheU.S.TheFAANGs—originally

coined for Facebook, Apple, Amazon.com,

Netflix, and Google but nowadays often includ-

ing Microsoft as well—have cleaned up by disrupt-

ing other businesses. No European or Japanese

company is remotely comparable; Alibaba, Baidu,

Tencent, and other Chinese counterparts mostly

concentrate on their home market.

Some of the statistics that provide evidence of

the FAANGs’ dominance are breathtaking. Much

of Amazon’s stratospheric growth has come at the

expense of existing retailers, for example. Over

the past five years, its market value has risen

from $151 billion to $853 billion. (At one point in

September, it exceeded $1 trillion.) All the other

retailers in the developed world tracked by MSCI

saw their combined market value grow from

$1 trillion to $1.2 trillion in that period.

The companies that dominate the internet all

started in the U.S., which certainly tells us some-

thing about the dynamism of the American econ-

omy and the lack of innovation elsewhere. But

there’s far more to the rest of the world’s bear

market than its lack of FAANGs. Over the past

five years, the S&P 500 without Facebook, Apple,

Amazon, Netflix, Google, and Microsoft has gained

34%, while the MSCI EAFE, an index covering the

major developed markets outside North America,

is down 7%.

④ A Bear Market Is Only Natural

History does not necessarily repeat itself, but it

does rhyme, as the saying goes. And markets follow

a clear historical pattern after a major speculative

bust, such as the one we witnessed after Halloween

in 2007. The three biggest examples over the past

century were the Wall Street Crash of 1929, the

crash of the Japanese market after its peak on New

Year’s Eve 1989, and the dot-com bubble of 2000.

In all of those cases, a painful slide was followed

by years of a sideways bear market. Stocks would

gain for a while, buoying hopes, and then fall again.

A decade on from their respective crashes, the Dow

Jones industrial average, the Nikkei 225, and the

Nasdaq Composite all looked strikingly similar.

They remained far below their peaks, which they

hadn’t regained even once.

That’s the usual process of finding a level after

stock prices have been totally driven away from any

value that makes sense. And it’s what many mar-

ket watchers (including this one) predicted would

happen after the 2008 meltdown: There would be

money to be made along the way, but it would take

more than a decade before benchmark indexes

climbed back to their peaks. That’s exactly what’s

happened—everywhere except the U.S.

This in turn raises an uncomfortable question:

Did the U.S. really avert the usual fate that befalls

countries after a major crisis, or has it merely post-

poned it? � John Authers

● Amazon’s market value

over the past five years

increased by more than

$700b