You could use a similar argument to not invest in fixed income - "Geez, equities always do better over the long haul." But, it's there for a reason (or lots of them...).
The biggest mistake empires and dynasties make is thinking they will be dynasties in perpetuity. Greek, Roman, Persian, Ming - they were all the bomb - until they weren't.
We came awful close to losing ours a few years ago, and it seems we're always teetering on the brink lately. Diversifying in the fine companies in other countries to me is like buying growth companies. You never know which company will be the Apple of tomorrow, or which country will be the United States.
This sound like religion. When someone believe in something he can always find supporting arguments and ignore un supporting arguments.
Issue one – Bill was just highlighting your logic; he did not try to compare fixed income to stock allocation.
Issue two – Are you saying that democracy is guaranteed to stay stable? We do not have a long history to prove it. Germany in the 1930 was a democracy.
Issue three - You are saying: “democracy was never in danger”. I disagree. Tens of millions of US citizens still strongly believe that the election was stolen, that the January 6th events are justified and the people that tried changing the election results are heroes.
Issue four – I do not understand this argument. Most people agree that currently the US economy is doing good.
Looks like I am guilty of aiding and abetting sending this thread off the rails ???? . I also apologize for bring politics into the discussion, no place for that here ????. This Forum is for its users to discuss the ins and outs of using the PRC program and to discuss financial and retirement planning. Hopefully I and everyone else can keep our eyes on the retirement ball, if that's OK with everybody ????. I think this forum can also be used for those who wish to express their thoughts on the how and why they use PRC and how and why they invest the way they do by also providing facts and figures and links to those facts and figures, even if it seems they are only presenting one side of the discussion. That's where everyone else comes into play to provide alternate theories, nothing wrong with that.
So, continuing with the title of this thread, and further supporting my position ????, here's an interesting article about the dominance of the US green back: https://finance.yahoo.com/news/welcome-dollar-war-mdash-global-095400200.html
Here is another article working off the previous article:
Investors may want to reduce international exposure right now and stick with the home court.
According to Main Management CEO Kim Arthur, global markets will meaningfully struggle due to the softening greenback.
“One of the highest predicting factors for [the] future performance of international stocks versus U.S stocks is what the U.S dollar does,” Arthur told CNBC’s “ETF Edge” this week. “From 2011 to 2022, the dollar was in a straight bull market, so you were gonna lose in international equities no matter what you did.”
On Friday, the U.S. dollar index
hit a 15-month low. It comes about 10 months after it hit a 10-year high.
“The dollar topped last September, okay? So you really have to have an opinion on where the dollar is going. We personally think the dollar is heading down,” said Arthur.
Arthur, who was head of Bank of America’s institutional sales and trading department, believes the dollar will eventually return to a period of strengthening.
“We are way ahead of the rest of the world in terms of fighting inflation. Our inflation numbers are lower than the rest of the world. Our interest rates are higher than the rest of the world,” said Arthur. “So what does that mean? That’s a perfect setup where we’re going to be cutting rates before the rest of the world. And that differential leads to a stronger dollar.”
In the category of having an open mind, here is a short overview of the overvaluation of the US stock market:
As global markets struggle in the environment of sticky inflation, high interest rates, and the lingering battle between Russia and Ukraine, one thing has not changed: U.S. stocks are more expensive than global stocks on numerous valuation metrics.
Hey no harm no foul, the discourse here is important and we are all passionate and respectful 🙂 Ok, time to go check the pork belly quotes...
Digging into the Capital Market Assumption (CMA) models predicting future (e.g. 10 year) real returns, and why global allocations has been recently stressed in various predictions.
It seems that an important ingredient used is the Cyclically Adjusted Price to Earnings (CAPE) Ratio in such models. The Ratio stems from the early work of Graham and Dodd in the valuation of equities where the earnings are averaged over years.
Recall that the 10-year Shiller CAPE is often cited in relation to the US economy: http://www.econ.yale.edu/~shiller/data.htm
For the US, it is said that the average CAPE=18 over the last 100 years or so. Currently, the US CAPE is around 28 and can be therefore thought to be significantly "overvalued". Note PRC offers an option to include a CAPE analysis in regard to (safe) withdrawal rates. (See the manual for associated references and values to use. For example: https://earlyretirementnow.com/2017/08/30/the-ultimate-guide-to-safe-withdrawal-rates-part-18-flexibility-CAPE-Based-Rules/ )
Research has apparently shown that this metric appears to correlate well with future returns, and therefore it is used in such CMA models for predicted returns (see the attached paper, for example, which also focuses on the market issues in Greece).
One expert on the topic of asset allocation is Meb Faber who wrote papers and books on the topic. (Faber is a co-founder and the Chief Investment Officer of Cambria Investment Management.)
See: https://mebfaber.com/about/
White paper: https://mebfaber.com/wp-content/uploads/2016/05/SSRN-id962461.pdf
Book "Global Value": https://mebfaber.com/books/download/
https://mebfaber.com/2014/08/22/everything-you-need-to-know-about-the-cape-ratio/
The "bottom line" appears to be that a "high" CAPE value results in a lower yield (which can be defined as 1/CAPE), and is a predictor for lower real returns in the future. Conversely, a lower CAPE is a predictor for higher real returns.
This leads to considering the various CAPE values for global markets, and thus their possible future returns. Faber and others publish these global CAPE values quarterly: https://theideafarm.com/research-library/tag/cape/
Based on such information, the median CAPE for all (developed and emerging) countries is about 16. Thus the US is significantly higher, and the theory would then predict lower returns for the US relative to global markets going forward. If one breaks down the CAPE among Developed and Emerging markets, the median values I get from the recent quarterly data are CAPE(Developed, ex-US)=18 and CAPE(Emerging)=13. Accordingly, the future real returns for non-US equity markets (developed and emerging) is predicted to be better, and may explain (in part) why the various institutional CMA predictions recently favor exposure to non-US markets in asset allocations.
Just food for thought...
@wallace471 Facts, Figures and Links - I love it ????
In the just for thought category...
Critics of the CAPE ratio contend that it is not very useful since it is inherently backward-looking, rather than forward-looking. Another issue is that the ratio relies on GAAP (generally accepted accounting principles) earnings, which have undergone marked changes in recent years.
In June 2016, Jeremy Siegel of the Wharton School published a paper in which he said that forecasts of future equity returns using the CAPE ratio might be overly pessimistic because of changes in the way GAAP earnings are calculated. Siegel said that using consistent earnings data such as operating earnings or NIPA (national income and product account) after-tax corporate profits, rather than GAAP earnings, improves the forecasting ability of the CAPE model and forecasts higher U.S. equity returns. https://www.investopedia.com/terms/c/cape-ratio.asp
Here is another good discussion of CAPE's predictive powers: https://www.advisorperspectives.com/articles/2020/07/20/the-remarkable-accuracy-of-cape-as-a-predictor-of-returns-1
International Monetary Fund (IMF) economist Pierre-Olivier Gourinchas gave his assessment as the organization projected that global economic growth will slow to an estimated 3% in 2023 and 2024, down from 3.5% in 2022. https://apnews.com/article/imf-economics-outlook-debt-inflation-interest-rates-9ef38f1d860ac6260c3d81ba4a54d29e
S&P 500 is up 16% for the year (2023) and 21% since Oct 2022 low. That's a lot better than 3% ????.
GDP: US economy grows at a faster pace than expected in Q2
Thursday's prints add to other positive reads on the economy. In recent weeks, June's Consumer Price Index showed that inflation fell to its lowest level in more than two years while retail sales for the month that consumers are still spending more than they did a month ago.
In totality, the data is painting a picture of a US economy that is stronger than many expected. Consumers are responding to it with more upbeat economic confidence readings. And Wall Street is responding by lowering recession forecasts and projections for growth in the coming quarters.
In a press conference Wednesday after pushing interest rates to their highest levels since 2001, Federal Reserve Chair Jerome Powell noted the economy has withstood the rising rate environment. The staff at the Federal Reserve no longer see a recession in 2023, he said.
"The overall resilience of the economy, the fact that we’ve been able to achieve disinflation so far without any meaningful negative impact on the labor market, the strength of the economy, overall that’s a good thing," Powell said. "It’s good to see that, of course. It’s also—you see consumer confidence coming up and things like that. That will support activity going forward."
Euro zone doing a little better: https://www.cnbc.com/2023/07/31/euro-zone-inflation-july-and-second-quarter-gdp-economic-growth-data.html
The inflation figures come against a backdrop of previously moribund growth, with GDP (gross domestic product) stagnating in the first quarter of this year. But a separate data release on Monday showed that growth accelerated in the second quarter, expanding by 0.3% — higher than the 0.2% expected by analysts polled by Reuters.
However, Capital Economics’ Kenningham attributed the second-quarter GDP number to one-off increases in France and Ireland, which he said “give a misleading impression of the underlying strength of the economy.”
″[It] does not change our view that the economy is heading for recession,” he wrote in a note after the release of the data.
Meanwhile China not doing so well, for them:
From China comes a discouraging new language. Leaders described their faltering economy as showing a “wavy pattern” with “bumps during progress.” Put politely, the message is that the country won't provide the lift for the global economy that was widely anticipated six months ago. It may even be a drag, a role to which Beijing and the world are unaccustomed. We should get used to it.
Who will the world rely on? The much-maligned US has often been derided over the past decade as being in its sunset years relative to its economic challenges. A retreat in inflation is likely to mean that an anticipated interest-rate hike by the Federal Reserve on Wednesday will be the last for a while. When it comes to China, the debate is about how much growth will slow, whether the country will suffer from deflation, and how much action is needed to turn things around — or, at least, prevent further deterioration.
The odds of an American recession in the next 12 months are fading, according to a survey by the National Association for Business Economics. A resilient labor market and buoyant consumer confidence underpin that view. Beyond US shores, the situation is more nuanced: Surveys of purchasing managers in Europe painted a bleak picture. Conditions are improving in some key Asian economies, albeit from a low base. Singapore unexpectedly dodged a recession in the second quarter. Revisions may yet show the city-state’s gross domestic product slipped after a first-quarter contraction. Growth in South Korea is improving modestly after GDP shrank late last year.
US is the best! (Until it’s not)
Several posters questioned how long can the US lead the world. William Bernstein reviews a book by Peter Turchin that looks at that question:
Peter Turchin’s End Times is a brilliant, sprawling, and oft-times maddening look at the rise and fall of nations and empire. He’s worried, and rightly so, about the United States.
The book posits that the economies of prosperous states inevitably turn into “wealth pumps” that enrich well-placed elites and immiserate everyone else – so-called “counter-elites” – who respond with devastating backlashes that afflict their societies with discord and, at worst, civil war.
Turchin says that the U.S. is now well down this road, and for this reason alone the book is well worth reading.
https://www.advisorperspectives.com/articles/2023/08/07/global-markets-wealth-william-bernstein?hsid=28216572&utm_campaign=AP Newsletters&utm_medium=email&_hsmi=269348208&_hsenc=p2ANqtz--hBzWBtYQfnM5FvkR-TEBNP_bUNSVC2oWOy_KhRFciTMbK8n89rsCSB-xuzIscfyN71qkdutyjVI7NaZXvw2UIJ2vL8g&utm_content=269348208&utm_source=hs_email
Germany’s economy hasn’t looked this weak since the start of the pandemic
Germany suffered the steepest decline in business activity for more than three years this month, according to survey data published Wednesday, stoking fears that Europe’s biggest economy is falling back into recession. The survey highlighted a “deepening downturn in manufacturing,” with output falling for the fourth consecutive month. Activity in services fell for the first time in eight months.
“Any hope that the service sector might rescue the German economy has evaporated. Instead, the service sector is about to join the recession in manufacturing,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which publishes the survey of German companies in partnership with S&P Global.
The figures add to evidence that Germany’s economy is sputtering again after it emerged from a winter recession in the second quarter by the narrowest of margins. Data earlier this month revealed a steeper-than-expected slowdown in industrial production in June — driven by a sharp contraction in the country’s vast automotive sector.
Germany’s economic malaise is spilling over to the other 19 countries that use the euro, with the wider region also at risk of slipping into recession after eking out growth in the second quarter.
An initial PMI reading for the euro area fell to 47 in August, the lowest since November 2020, according to a separate survey published Wednesday by Hamburg Commercial Bank and S&P Global.
“The downward pressure on the economy of the eurozone in August stems mainly from the German service sector,” said De la Rubia.
https://www.cnn.com/2023/08/23/economy/germany-economy-recession-pmi/index.html
