Invest outside the US

[Captain Oates 911]

Investing outside the US has foreign currency risks built in.

However, the latest fright about Europe has seen the US dollar go up for 'safety'

When the rest of the world starts moving ahead, and as the US declines, the dollar is bound to decline.

We thus will have the twin effects of

A Appreciating foreign currencies

B A Growth differential with foreign countries getting bigger returns on their businesses

This can be played from within the US by stocks which are HEAVILY biased towards foreign earnings, (some are much more than 50%), or direct ownership of foreign stocks

I have reduced my ownership of stocks which are US based and sell heavily to the US economy - they carry too much risk

Sentiment has no place in economics, and anyway, if I did well with my foreign investments, I would be spending those profits into the US economy

The 'wealth creators' and 'job creators' are Darwinian in their utterances, (which is ironic for a bunch of born agains who don't believe in evolution), and they want unsuccessful US businesses to fail, with the theory that better businesses will rise to take their places. They will, but not here, and the US 'job creators' know that and act on it, and that's why a large US manufacturer without an overseas supply chain, does not exist

It's been a good play for the last decade to own businesses who sell into the US while the US consumer has borrowed up from 30% to 115%, but that game is over now, the buffalo are all dead, and its time to seek greener pastures.

[mawilson 2,133]

Good analysis, Alan - the only question is "when the rest of the world starts moving ahead". Can we avoid another global recession? If we can't, the dollar will get stronger and foreign stocks will carry more risk.

If current US earnings estimates are correct, then the S&P 500 is trading at a multiple of only about 10-11 times the next 12 months' earnings.

A 10 times multiple is very cheap and usually indicates a market bottom, unless the market is convinced the estimates are wrong. We'll find out soon enough. A strong earnings season could definitely push stocks up.

My gut feeling is that we'll see another dead cat bounce before the next correction.