In what condition, will international significantly overperform US?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: In what condition, will international significantly overperform US?

Post by Da5id »

Anon9001 wrote: Fri Apr 02, 2021 11:29 am I am also sceptical of the International exposure via revenue exposure as it ignores countries do favour their local companies over foreign companies. China is well known example of this. I personally am bullish on Indian Economy relative to Chinese, USA and European Economies so I over-weight the Indian companies and not assume ACWI will give me good exposure to Indian Economy via revenue exposure.
Your signature says that your equities holdings are 7% of your assets. I'm dubious that any weighting you do (100% US, 100% Indian, something else) would matter much for the end results you achieve? I also think trying to pick winners among countries is not a winning game, but you do you.
User avatar
Anon9001
Posts: 1884
Joined: Fri Dec 20, 2019 8:28 am
Location: بھارت

Re: In what condition, will international significantly overperform US?

Post by Anon9001 »

Da5id wrote: Fri Apr 02, 2021 11:46 am Your signature says that your equities holdings are 7% of your assets. I'm dubious that any weighting you do (100% US, 100% Indian, something else) would matter much for the end results you achieve? I also think trying to pick winners among countries is not a winning game, but you do you.
I would never do 100% US I would find that too risky (relative to MSCI ACWI in comparison to MSCI India it is less riskier) and tax inefficient. The AA is temporary for 10-20 years. When I do inherent the real estate/land I am going to sell them for buying stocks considering the idiosyncratic risks they have.
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
danrock54
Posts: 24
Joined: Fri Feb 05, 2021 10:22 am

Re: In what condition, will international significantly overperform US?

Post by danrock54 »

Tesla is an interesting case. Is it a random event that it rose in the US ?

By the end of the 20th century the American auto sector wasn't exactly leading the world. The knowledge to create an EV car certainly existed in Germany or Korea. But Tesla was founded in California (not,say, Detroit) and led to its current size by an immigrant Silicon Valley veteran.

Was it the 'disruption mindset' ? The appetite for extreme risk ? Easy access to vast amounts of capital ?
Could the insane media hype surrounding it have been generated in a Japanese company ?
vsk
Posts: 101
Joined: Sat May 02, 2020 2:58 pm

Re: In what condition, will international significantly overperform US?

Post by vsk »

Interesting question.

Let us look at history.

UK, once ruled the world - Where is it now?

I am an excellent driver with no accidents but why do I opt for the best car insurance?

Did the world think East & West Germany will unite?

The bottom line is "one cannot predict future" and you always hedge - One cannot put a Dollar value on Hedging.
you are the creator of your own destiny
Northern Flicker
Posts: 15363
Joined: Fri Apr 10, 2015 12:29 am

Re: In what condition, will international significantly overperform US?

Post by Northern Flicker »

Nathan Drake wrote: Fri Apr 02, 2021 12:06 am
Northern Flicker wrote: Thu Apr 01, 2021 11:42 pm Unless you hold non-US equities at world market cap or greater, you should be hoping for US outperformance. I hold US equities at 75% of equities. This is assuming that US equities will do well, but diversifying the risk that they fail to do so. Success of the strategy is not synonymous with non-US over-performance.
That’s like saying if you hold only Tesla you should hope for outperformance.

Well, of course...but hoping only gets you so far. You need to be planning appropriately for if that outperformance does not materialize
No, it is nothing like holding Tesla and hoping for out-performance. It is holding a well diversified portfolio (US stocks) that has an excellent chance of meeting my liabilities, but diversifying 25% of it into a portfolio that likely has a somewhat lower probability of meeting my liabilities, but offers some protection from scenarios where the first portfolio fails to meet my liabilities.

Maybe "hope" was the wrong verb to use. My point was that by holding equities at 75% US / 25% non-US as I do, non-US outperformance is neither a favorable outcome, nor what I am hoping for. My point was to demonstrate that hoping for, or expecting non-US outperformance is not the right reason to hold non-US equities. People who created narratives about demographics, economic growth rates, or whatever to believe US equities would under-perform are more likely to be disappointed, throw in the towel, and move to 100% US after non-US under-performance.

I hold non-US equities for inflation protection and to diversify the risk of long-term US under-performance, not to try to enhance return. I was 25% (technically 24% but the difference doesn't matter) non-US in 2004 as well. Non-US overperformance is not the metric of success of international diversification for most US investors.
User avatar
Anon9001
Posts: 1884
Joined: Fri Dec 20, 2019 8:28 am
Location: بھارت

Re: In what condition, will international significantly overperform US?

Post by Anon9001 »

It is very amusing reading these threads as you Americans have no disadvantages investing internationally unlike me. You get tax advantaged account exposure to Ex-US, have the ability to claim back DWT and your local Government does not tax foreign shares higher than domestic shares. If I were in your places I would cap-weight Ex-US stocks considering human capital is already concentrated in US Economy and majority of US out-performance was due to relative valuations to Ex-US increasing. If they don't keep increasing into the future majority of the past performance cannot be repeated.
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
User avatar
watchnerd
Posts: 13614
Joined: Sat Mar 03, 2007 10:18 am
Location: Gig Harbor, WA, USA

Re: In what condition, will international significantly overperform US?

Post by watchnerd »

hi_there wrote: Fri Apr 02, 2021 11:44 am You are free to draw the line between asset classes wherever you want. Classification is an arbitrary distinction, but stocks across different national jurisdictions can have different risks. A portfolio of 100% Chinese stocks might not be as suitable for most investors as a portfolio of 100% S&P 500 stocks. These stocks are different somehow - and nationality might be one convenient way to differentiate them. You could call people of Irish, French, or English decent all just white people, or you could choose not to. It's up to you.
Actually, it isn't an arbitrary distinction in the academic financial literature, economics, or modern portfolio theory.

It's rooted in regression analysis instead of just subjective labeling.

REITS, for example, after years of the financial services touting them as an "asset class", were tested to see if they were, indeed, an asset class.

They failed the test of being a distinct asset class from stocks -- they're just a sector.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
tradri
Posts: 606
Joined: Tue Mar 23, 2021 5:42 pm

Re: In what condition, will international significantly overperform US?

Post by tradri »

Anon9001 wrote: Fri Apr 02, 2021 2:05 pm It is very amusing reading these threads as you Americans have no disadvantages investing internationally unlike me. You get tax advantaged account exposure to Ex-US, have the ability to claim back DWT and your local Government does not tax foreign shares higher than domestic shares. If I were in your places I would cap-weight Ex-US stocks considering human capital is already concentrated in US Economy and majority of US out-performance was due to relative valuations to Ex-US increasing. If they don't keep increasing into the future majority of the past performance cannot be repeated.
I agree. As an Austrian I would never even think of investing all my money into this small, little economy. Even Europe is too small and not well-enough diversified. The only logical conclusion is to own everything through an ETF like VT. Everything else is just making a bet that one region of the world will do better than another, which is not really "passive" investing, IMO.
KyleAAA
Posts: 9498
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: In what condition, will international significantly overperform US?

Post by KyleAAA »

watchnerd wrote: Fri Apr 02, 2021 11:14 am
KyleAAA wrote: Fri Apr 02, 2021 9:36 am If US stocks were to lose 15% next year and international stocks gain 20%, that alone would flip the script.
That would be quite the divergence from current correlation behaviors.

Vanguard thinks the more likely scenario is that US just has valuation contraction.
Sure, the point was that over-performance over a 20-30 year period doesn't mean nearly as much as people pretend. Even very long-term performance numbers are very sensitive to exact start and end dates.
zhuyz05
Posts: 66
Joined: Mon Nov 12, 2018 2:33 pm

Re: In what condition, will international significantly overperform US?

Post by zhuyz05 »

Scooter57 wrote: Wed Mar 31, 2021 6:48 am Instead of thinking theoretically, take a look at the international stocks you can buy as an American investor and see what kinds of companies they are. When you do that, you see that part of the reason for their apparent lower valuation (when put together in an index fund) is the preponderance of companies in industries that always have lower valuations because they are cyclical: banks, insurers, extractive industries, and the like. You also see that size is a huge factor, with many companies serving relatively small, local markets. People in Romania buy a lot more products from US companies than US citizens buy from companies headquartered in Romania.

Go look at the top 100 companies in VTIAX (Vanguard Total International Stock Market). How many have you ever heard of as a consumer? How many have operations outside of their country or in the case of European countries, where many are just the size of a US state, continent? How many are in the industries projected to grow in the 21st century? How many are colonial type companies that supply raw materials to the US (oil, mining, agricultural products, factories producing goods where the majority of the profit from what they make goes to another, US, company?)

For international to outperform you would have to see the rise of a couple hundred or so huge, highly profitable companies that have an international footprint and are in businesses that have the possibility of dramatic growth. They would have to be in countries that have adopted accounting regulations that limit fraud. They would have to have governmental policies that welcome foreign investment and set no limits on it. That has not been the case over the past couple decades, but if it became the case, it would allow international to outperform.
You could do the same thing by looking top holdings of a small cap value index fund -- you would not recognize most of the top names, but the small cap index outperform the total market index long term.
User avatar
Anon9001
Posts: 1884
Joined: Fri Dec 20, 2019 8:28 am
Location: بھارت

Re: In what condition, will international significantly overperform US?

Post by Anon9001 »

This article is very interesting detailing domestic revenue exposure for Morningstar Country Indexes. My take-away is that even a 65% allocation to Indian Stocks will only give me 45.51% exposure to Indian Economy due to 31.56% foreign revenue exposure so the concentration risk of having high (>50%) allocation to domestic stocks is not that much due to foreign revenue exposure. This is very good considering there is tax advantages to fund investing equal to or greater than 65% in Indian Equities. I am confused why US investors are saying 100% US stocks is not bad idea due to foreign revenue exposure and 100% India is bad idea considering the foreign revenue exposures for the two are similar.
Image
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
02nz
Posts: 10508
Joined: Wed Feb 21, 2018 2:17 pm

Re: In what condition, will international significantly overperform US?

Post by 02nz »

zhuyz05 wrote: Fri Apr 02, 2021 9:04 pm You could do the same thing by looking top holdings of a small cap value index fund -- you would not recognize most of the top names, but the small cap index outperform the total market index long term.
It has outperformed over certain time period and underperformed over others. These statements CANNOT be made in the present tense, as no one knows what will happen in the future, whether that's Monday or over the next 20 years. There are those who say its expected returns are higher than total stock market, but again that's a prediction about the future that no one can know.
User avatar
Schlabba
Posts: 831
Joined: Sat May 11, 2019 9:14 am

Re: In what condition, will international significantly overperform US?

Post by Schlabba »

Anon9001 wrote: Sat Apr 03, 2021 9:10 am ...
I am confused why US investors are saying 100% US stocks is not bad idea due to foreign revenue exposure and 100% India is bad idea considering the foreign revenue exposures for the two are similar.
...
Because India's market cap in the world is insignificant at 1.3%, and the US market cap is roughly 55.8%.
User avatar
Anon9001
Posts: 1884
Joined: Fri Dec 20, 2019 8:28 am
Location: بھارت

Re: In what condition, will international significantly overperform US?

Post by Anon9001 »

Schlabba wrote: Sat Apr 03, 2021 9:35 am Because India's market cap in the world is insignificant at 1.3%, and the US market cap is roughly 55.8%.
I am not sure why I am supposed to care about market-cap considering local Government taxes foreign shares higher than domestic shares, DWT cannot be claimed back for foreign shares and there is no tax advantaged account allowing even small exposures to Ex-Indian shares and debt instruments. If these hurdles are all removed I will move to cap-weighting but I think hell will freeze over before that happens. Also I think Japan was having very high market-cap in the 1980s yet if you invested 100% into it at the time you would have lost money for three decades. I would not assume 100% US is safer than 100% India just because it is having higher market-cap.
Image
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
Robot Monster
Posts: 4215
Joined: Sun May 05, 2019 11:23 am

Re: In what condition, will international significantly overperform US?

Post by Robot Monster »

Schlabba wrote: Sat Apr 03, 2021 9:35 am
Anon9001 wrote: Sat Apr 03, 2021 9:10 am ...
I am confused why US investors are saying 100% US stocks is not bad idea due to foreign revenue exposure and 100% India is bad idea considering the foreign revenue exposures for the two are similar.
...
Because India's market cap in the world is insignificant at 1.3%, and the US market cap is roughly 55.8%.
That makes VT at 100% seem far superior than US-only at a mere 55%. If you received 55% on a test, that wouldn't even be a passing grade. You US-only investors should be ashamed of yourselves! LOL, I'm joking. US-only is fine. 55% is good enough. But so is 45%, so if you're an international-only investor, you're good. At least, I guess. But who knows. I mean, what do I know.
Scooter57
Posts: 2019
Joined: Thu Jan 24, 2013 8:20 am

Re: In what condition, will international significantly overperform US?

Post by Scooter57 »

zhuyz05 wrote: Fri Apr 02, 2021 9:04 pm You could do the same thing by looking top holdings of a small cap value index fund -- you would not recognize most of the top names, but the small cap index outperform the total market index long term.
This is not necessarily true. The findings of academic research are that in the past, going back decades, small cap companies outperformed. But what this doesn't take into account is that in those past decades companies went public when they were small, whereas nowadays many stay in the hands of private equity investors until they are large enough to IPO with at billion dollar market caps.

Additionally, promising small companies over the recent decades have been acquired by large companies at a rate very different from what was the case in the 1950s-1980s, which is a period that is heavily represented in academic research. And in the rare event that a small public company gets much more successful (like say, Dunkin Donuts or Dell Computer or Dollar General) it is often acquired by private equity and taken off the market.

That is why iff you look at the stocks listed in small cap indexes nowadays, you will find them filled with small, old, legacy-business companies, small banks, and companies that have no obvious growth trajectory. They are not the hotbed from which the Apples and other hugely successful companies of the future will spring. Almost all the IPOs nowadays have market caps too large to ever make it into a small cap index. Hence they are not likely to outperform anything.
User avatar
Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Re: In what condition, will international significantly overperform US?

Post by Taylor Larimore »

frand wrote: Tue Mar 30, 2021 9:13 am I switched to 3 funds after discovered Bogleheads 6, 7 years ago. Today, I did a comparison to my previous asset allocation and discovered that I am underperform by more than 8 years of expenses because of International. So I am trying to re-exam the rational to have international in the first place.
frand:

My reasons for including 20% (of equity) in international stocks in The Three-Fund Portfolio:

viewtopic.php?t=196956

Best wishes
Taylor
Jack Bogle's Words of Wisdom: “Buying funds based purely on their past performance is one of the stupidest things an investor can do.”
"Simplicity is the master key to financial success." -- Jack Bogle
Northern Flicker
Posts: 15363
Joined: Fri Apr 10, 2015 12:29 am

Re: In what condition, will international significantly overperform US?

Post by Northern Flicker »

The risk that US equities may underperform over long horizons is not just a theoretical risk. It happened over the last 50 years. Templeton Global Growth Fund vs S&P500:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

Based on an online inflation calculator, the endooints would be divided by 5.8 to get real growth charts.
txhill
Posts: 628
Joined: Tue Mar 16, 2021 12:27 pm

Re: In what condition, will international significantly overperform US?

Post by txhill »

Northern Flicker wrote: Sat Apr 03, 2021 2:01 pm The risk that US equities may underperform over long horizons is not just a theoretical risk. It happened over the last 50 years. Templeton Global Growth Fund vs S&P500:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
Sure, but your results will vary depending on your starting point. The past ten years have favored the US so heavily that international investors have paid a steep price in terms of lost opportunities: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

Of course, no one knows for sure what will happen going forward--maybe it's international's turn to have a good decade. I think so myself, which is why I plan on putting maybe 20% of my 100% US equities portfolio (which I've had since 2010) into emerging markets or a broad international fund. But I think it is perfectly reasonable to have a thesis on whether it makes sense to favor US over international (as Jack Bogle and Warren Buffett did), or vice versa, and to follow it through. And in the absence of such a thesis, it is very wise to diversify.
DB2
Posts: 1396
Joined: Thu Jan 17, 2019 9:07 pm

Re: In what condition, will international significantly overperform US?

Post by DB2 »

tradri wrote: Fri Apr 02, 2021 11:13 am
Maybe there is something special about holding stocks in a country that has the ability to pump the stock market by inflating the world's reserve currency. ;)
I think there is some truth to this especially since 2009.
DB2
Posts: 1396
Joined: Thu Jan 17, 2019 9:07 pm

Re: In what condition, will international significantly overperform US?

Post by DB2 »

frand wrote: Tue Mar 30, 2021 6:28 pm I was comparing my current net worth to if I didn't change my asset allocation to include international.

We have seen periods where US vastly over-perform international, I am trying to find out in what conditions International has vastly over-performed US. If this condition does not exist, why do I include international in my portfolio?
We diversify to lower risk (hence, not put of all our eggs in one basket). But doing so makes it less likely to have the max performance as that is something that can only be looked upon in retrospect. In hindsight, putting everything into FAANG would have been better than the Total Stock Market, but who in their right mind would have taken on that risk? But look how much higher that return was over the last 5-10 or so years. If all of us would have just invested everything into Amazon 20 years ago. :happy Investing in international or global market cap is truly a lifetime, buy and hold proposition - or at least should be. There will always be countries in a given year or period of time that over and underperform. But having a balanced global diversification at least lowers risk of a catastrophe and is the best way to acknowledge you cannot predict the future.
GaryA505
Posts: 2907
Joined: Wed Feb 08, 2017 1:59 pm
Location: New Mexico

Re: In what condition, will international significantly overperform US?

Post by GaryA505 »

Marseille07 wrote: Wed Mar 31, 2021 10:03 am
frand wrote: Wed Mar 31, 2021 9:53 am There is a difference though. I can see clearly when Value over-perform Growth, when Small Cap over-perform Large Cap, but I can't see when International over-perform US. That's why I ask this question.

Ocean77 wrote: Tue Mar 30, 2021 6:38 pm
This was an analogy, but you can apply it to almost any asset class comparison - US/international, Value/Growth, etc. It is impossible to predict when any such shift may start. The best indication may be to just count the number of threads on sites such as ours asking if it makes sense to get out of the [Fill in recently underperforming asset class here].
Why not? Already happened between 2000-2010: https://www.portfoliovisualizer.com/bac ... ion2_2=100

There's nothing to say this can't happen again.
It can, and I believe it will. But will it be enough to make up for the many periods of underperformance? Nobody knows.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
foodhype
Posts: 190
Joined: Thu May 25, 2017 10:38 pm

Re: In what condition, will international significantly overperform US?

Post by foodhype »

When the best investors value individual stocks, they often want to see that it is trading below intrinsic value, but they also want to see that the business has durable competitive advantages that will last for decades and a capacity for high return on each additional unit of invested capital. This return on capital employed tends to dominate in the long term even if the initial valuation is a little high or a little low.

Let's suppose that the strengths and weaknesses of the US and international are mostly baked into prices. The cash flows in the far future get discounted a lot more, are much more difficult to predict, and are typically forecasted more conservatively. (It's hard to predict far into the future.) Thus, the companies with durable competitive advantages that can continue to get high returns on invested capital tend to outperform expectations eventually.

Valuations do matter, but if they're not too crazy, competitive advantages and return on invested capital tend to matter more over the long haul. So let's pose two questions:

1. Are average valuations in the US too crazy (e.g. > 2-3x what companies are worth)?

They're higher than average. If interest rates stay fairly low (3-5%), they're cheap. But they're definitely not crazy overall after taking interest rates into account.

2. Who will maintain durable competitive advantages and high returns on incremental invested capital in 10 years?

I think that the US has some special advantages.

1. The most favorable VC environment in the world.
2. The US market is like a massive incubator where a company can scale up to a massive size before branching out into foreign markets. (Branching out can cost a lot of time and money.) This economy of scale gives US companies a much better fighting chance of breaking into foreign markets. Economy of scale is also a great competitive advantage in its own right.
3. Lax laws and regulations on corporations than most competitors
4. A massive lead in the tech sector, which have extreme advantages in returns on invested capital (very little capital required to scale up compared to other industries).

There are others, but I won't go too far off track. Europe is greatly handicapped in these areas. China is improving in some of these areas but less transparent with fewer investor protections.
User avatar
Beensabu
Posts: 5657
Joined: Sun Aug 14, 2016 3:22 pm

Re: In what condition, will international significantly overperform US?

Post by Beensabu »

Nathan Drake wrote: Wed Mar 31, 2021 10:27 am Should we discredit US outperformance due to low interest rates and big tech concentration?
Nope. Come on. Everyone who has been paying attention knows it has only a little to do with that. Really, it's that we're the wild wild west... We do what we want and we make moooooonneeeeyyyy, and "we" make sure "we" can...
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Monsterflockster
Posts: 980
Joined: Wed Nov 20, 2019 11:03 pm

Re: In what condition, will international significantly overperform US?

Post by Monsterflockster »

investorpeter wrote: Wed Mar 31, 2021 12:32 am When the US is no longer the driving force for technological innovation.
+1
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: In what condition, will international significantly overperform US?

Post by Da5id »

For those who think US will always outperform international, is there ANY valuation of the US market at which you no longer think that would be the case? If US CAPE 10 were 40 and rest of world 10? 60 to 10? 100 to 10? If there is such a relative valuation, how can you identify it? Feels like the predictions of US prospective outperformance are stated very unconditionally.
Northern Flicker
Posts: 15363
Joined: Fri Apr 10, 2015 12:29 am

Re: In what condition, will international significantly overperform US?

Post by Northern Flicker »

txhill wrote: Sat Apr 03, 2021 2:16 pm
Northern Flicker wrote: Sat Apr 03, 2021 2:01 pm The risk that US equities may underperform over long horizons is not just a theoretical risk. It happened over the last 50 years. Templeton Global Growth Fund vs S&P500:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
Sure, but your results will vary depending on your starting point. The past ten years have favored the US so heavily that international investors have paid a steep price in terms of lost opportunities: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

Of course, no one knows for sure what will happen going forward--maybe it's international's turn to have a good decade. I think so myself, which is why I plan on putting maybe 20% of my 100% US equities portfolio (which I've had since 2010) into emerging markets or a broad international fund. But I think it is perfectly reasonable to have a thesis on whether it makes sense to favor US over international (as Jack Bogle and Warren Buffett did), or vice versa, and to follow it through. And in the absence of such a thesis, it is very wise to diversify.
What in my post was trying to predict future returns? I said that the risk of long-term underperformance is not just theoretical, but that it has happened before, giving an example. A risk that actually has materialized in the past is always one you have to take seriously. It only takes one example to demonstrate it, so this is a scenario where cherry-picking of a start and end date is quite appropriate.
UpperNwGuy
Posts: 9479
Joined: Sun Oct 08, 2017 7:16 pm

Re: In what condition, will international significantly overperform US?

Post by UpperNwGuy »

Da5id wrote: Sat Apr 03, 2021 7:27 pm For those who think US will always outperform international
I don't need to decide whether or not the US will always outperform international. I only need to decide if the US will outperform international for my personal investing horizon, and that's a relatively short number of years and getting shorter with each passing year.
txhill
Posts: 628
Joined: Tue Mar 16, 2021 12:27 pm

Re: In what condition, will international significantly overperform US?

Post by txhill »

Northern Flicker wrote: Sat Apr 03, 2021 7:37 pm
What in my post was trying to predict future returns? I said that the risk of long-term underperformance is not just theoretical, but that it has happened before, giving an example. A risk that actually has materialized in the past is always one you have to take seriously. It only takes one example to demonstrate it, so this is a scenario where cherry-picking of a start and end date is quite appropriate.
Sorry, my fault. I misunderstood the intent of your post.
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: In what condition, will international significantly overperform US?

Post by Da5id »

UpperNwGuy wrote: Sat Apr 03, 2021 7:45 pm
Da5id wrote: Sat Apr 03, 2021 7:27 pm For those who think US will always outperform international
I don't need to decide whether or not the US will always outperform international. I only need to decide if the US will outperform international for my personal investing horizon, and that's a relatively short number of years and getting shorter with each passing year.
And you think that you can predict that now based on current valuations with what level of confidence?
gideon trumpet
Posts: 72
Joined: Sat Feb 27, 2021 1:44 pm

Re: In what condition, will international significantly overperform US?

Post by gideon trumpet »

I'm not interested in entering a debate about whether all-world is better than all-US (or vice versa) but it should be beyond debate that sticking to one or the other through good times and bad IS better than switching between the two based on relative performance. It's a virtual certainty that a broadly diversified portfolio of ex-US stocks will eventually have their day in the sun. Switching now only ensures that you permanently forgo those gains after having bought in for nearly 8 years at historically low prices. Don't tinker; hold.

But to answer your question, to the extent markets are efficient, there are no conditions that will cause a broadly diversified portfolio of international or US stocks to outperform the other for extended periods because prices will adjust accordingly. So the one "condition" that will cause this to happen is an inefficient market.
Last edited by gideon trumpet on Sat Apr 03, 2021 9:22 pm, edited 1 time in total.
User avatar
drumboy256
Posts: 673
Joined: Sat Jun 06, 2020 2:21 pm

Re: In what condition, will international significantly overperform US?

Post by drumboy256 »

Ex-US is the OG Small Cap Value. That said, I won't go over 20% of my portfolio in international because perfect is the enemy of good enough.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson | 20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
User avatar
Beensabu
Posts: 5657
Joined: Sun Aug 14, 2016 3:22 pm

Re: In what condition, will international significantly overperform US?

Post by Beensabu »

Scooter57 wrote: Sat Apr 03, 2021 12:54 pm
zhuyz05 wrote: Fri Apr 02, 2021 9:04 pm You could do the same thing by looking top holdings of a small cap value index fund -- you would not recognize most of the top names, but the small cap index outperform the total market index long term.
This is not necessarily true. The findings of academic research are that in the past, going back decades, small cap companies outperformed. But what this doesn't take into account is that in those past decades companies went public when they were small, whereas nowadays many stay in the hands of private equity investors until they are large enough to IPO with at billion dollar market caps.

Additionally, promising small companies over the recent decades have been acquired by large companies at a rate very different from what was the case in the 1950s-1980s, which is a period that is heavily represented in academic research. And in the rare event that a small public company gets much more successful (like say, Dunkin Donuts or Dell Computer or Dollar General) it is often acquired by private equity and taken off the market.

That is why iff you look at the stocks listed in small cap indexes nowadays, you will find them filled with small, old, legacy-business companies, small banks, and companies that have no obvious growth trajectory. They are not the hotbed from which the Apples and other hugely successful companies of the future will spring. Almost all the IPOs nowadays have market caps too large to ever make it into a small cap index. Hence they are not likely to outperform anything.
Mmmmm. Darn it. So much of what I've seen you say I'm like "Yeaaaaaaaaaaah!!! Go them!!! Reality! Tell them about reality!!!"

But the US large cap thing... I dunno man. It's good for now and for who knows how long. Maybe forever. Maybe not. It just takes a little bit of enough disruption at the right time to start a new thing. You've seen that before.

Some of that small cap ownership has more grit than I think you're giving them credit for. Some people won't be bought. They'll do their thing. The trend might be for mid-cap IPOs at the moment, but trends change. There's always room for surprises.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
gubernaculum
Posts: 240
Joined: Sat May 02, 2020 2:31 pm

Re: In what condition, will international significantly overperform US?

Post by gubernaculum »

International will never outperform US. USA controls 80% of all the money in the world. Just aint gonna happen.
Last edited by gubernaculum on Sat Apr 03, 2021 9:32 pm, edited 1 time in total.
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: In what condition, will international significantly overperform US?

Post by Da5id »

gubernaculum wrote: Sat Apr 03, 2021 9:20 pm International will never perform US. USA controls 80% of all the money in the world. Just aint gonna happen.
In fact, US market cap will grow until it is 100% of the world stock market cap. It is inevitable.
Jags4186
Posts: 8198
Joined: Wed Jun 18, 2014 7:12 pm

Re: In what condition, will international significantly overperform US?

Post by Jags4186 »

danrock54 wrote: Fri Apr 02, 2021 12:12 pm Tesla is an interesting case. Is it a random event that it rose in the US ?

By the end of the 20th century the American auto sector wasn't exactly leading the world. The knowledge to create an EV car certainly existed in Germany or Korea. But Tesla was founded in California (not,say, Detroit) and led to its current size by an immigrant Silicon Valley veteran.

Was it the 'disruption mindset' ? The appetite for extreme risk ? Easy access to vast amounts of capital ?
Could the insane media hype surrounding it have been generated in a Japanese company ?
Maybe, but it sure seems odd that these “random events” like Tesla seem to disproportionately happen in the US.
Jags4186
Posts: 8198
Joined: Wed Jun 18, 2014 7:12 pm

Re: In what condition, will international significantly overperform US?

Post by Jags4186 »

vsk wrote: Fri Apr 02, 2021 12:21 pm Interesting question.

Let us look at history.

UK, once ruled the world - Where is it now?

I am an excellent driver with no accidents but why do I opt for the best car insurance?

Did the world think East & West Germany will unite?

The bottom line is "one cannot predict future" and you always hedge - One cannot put a Dollar value on Hedging.
The world is fundamentally different today than it was when the UK ruled the world. Wars of conquest are no longer tolerated. Colonialism doesn’t drive modern economies.
gideon trumpet
Posts: 72
Joined: Sat Feb 27, 2021 1:44 pm

Re: In what condition, will international significantly overperform US?

Post by gideon trumpet »

foodhype wrote: Sat Apr 03, 2021 6:24 pm
I think that the US has some special advantages.

1. The most favorable VC environment in the world.
2. The US market is like a massive incubator where a company can scale up to a massive size before branching out into foreign markets. (Branching out can cost a lot of time and money.) This economy of scale gives US companies a much better fighting chance of breaking into foreign markets. Economy of scale is also a great competitive advantage in its own right.
3. Lax laws and regulations on corporations than most competitors
4. A massive lead in the tech sector, which have extreme advantages in returns on invested capital (very little capital required to scale up compared to other industries).
None of these features explain outperformance; they illustrate why current US stock prices are higher than international and perhaps reflect lower or equivalent future expected returns.
michaeljc70
Posts: 10843
Joined: Thu Oct 15, 2015 3:53 pm

Re: In what condition, will international significantly overperform US?

Post by michaeljc70 »

Funny how no one seems to ask why should I have bonds since US stocks significantly outperform bonds. Certainly bonds have under performed international stocks but you don't hear about people getting rid of them due to under performance very much. Of course, I understand the correlation between US stocks and international stocks and US stocks and bonds is different.
foodhype
Posts: 190
Joined: Thu May 25, 2017 10:38 pm

Re: In what condition, will international significantly overperform US?

Post by foodhype »

gideon trumpet wrote: Sat Apr 03, 2021 9:30 pm
foodhype wrote: Sat Apr 03, 2021 6:24 pm
I think that the US has some special advantages.

1. The most favorable VC environment in the world.
2. The US market is like a massive incubator where a company can scale up to a massive size before branching out into foreign markets. (Branching out can cost a lot of time and money.) This economy of scale gives US companies a much better fighting chance of breaking into foreign markets. Economy of scale is also a great competitive advantage in its own right.
3. Lax laws and regulations on corporations than most competitors
4. A massive lead in the tech sector, which have extreme advantages in returns on invested capital (very little capital required to scale up compared to other industries).
None of these features explain outperformance; they illustrate why current US stock prices are higher than international and perhaps reflect lower or equivalent future expected returns.
I don't think you understood the first part of my post.
Nathan Drake
Posts: 6234
Joined: Mon Apr 11, 2011 12:28 am

Re: In what condition, will international significantly overperform US?

Post by Nathan Drake »

foodhype wrote: Sat Apr 03, 2021 6:24 pm When the best investors value individual stocks, they often want to see that it is trading below intrinsic value, but they also want to see that the business has durable competitive advantages that will last for decades and a capacity for high return on each additional unit of invested capital. This return on capital employed tends to dominate in the long term even if the initial valuation is a little high or a little low.

Let's suppose that the strengths and weaknesses of the US and international are mostly baked into prices. The cash flows in the far future get discounted a lot more, are much more difficult to predict, and are typically forecasted more conservatively. (It's hard to predict far into the future.) Thus, the companies with durable competitive advantages that can continue to get high returns on invested capital tend to outperform expectations eventually.

Valuations do matter, but if they're not too crazy, competitive advantages and return on invested capital tend to matter more over the long haul. So let's pose two questions:

1. Are average valuations in the US too crazy (e.g. > 2-3x what companies are worth)?

They're higher than average. If interest rates stay fairly low (3-5%), they're cheap. But they're definitely not crazy overall after taking interest rates into account.

2. Who will maintain durable competitive advantages and high returns on incremental invested capital in 10 years?

I think that the US has some special advantages.

1. The most favorable VC environment in the world.
2. The US market is like a massive incubator where a company can scale up to a massive size before branching out into foreign markets. (Branching out can cost a lot of time and money.) This economy of scale gives US companies a much better fighting chance of breaking into foreign markets. Economy of scale is also a great competitive advantage in its own right.
3. Lax laws and regulations on corporations than most competitors
4. A massive lead in the tech sector, which have extreme advantages in returns on invested capital (very little capital required to scale up compared to other industries).

There are others, but I won't go too far off track. Europe is greatly handicapped in these areas. China is improving in some of these areas but less transparent with fewer investor protections.
US valuations are significantly higher than International. In this low interest rate environment, international is valued around historical P/E multiples despite those lower interest rates. If lower interest rates justify higher P/Es, that certainly hadn’t materialized much for International

Companies don’t need to have impressive growth to have solid compounded earnings.

Most of the US outperformance is due to valuations expansion rather than superior earnings.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
foodhype
Posts: 190
Joined: Thu May 25, 2017 10:38 pm

Re: In what condition, will international significantly overperform US?

Post by foodhype »

Nathan Drake wrote: Sun Apr 04, 2021 12:15 am
foodhype wrote: Sat Apr 03, 2021 6:24 pm When the best investors value individual stocks, they often want to see that it is trading below intrinsic value, but they also want to see that the business has durable competitive advantages that will last for decades and a capacity for high return on each additional unit of invested capital. This return on capital employed tends to dominate in the long term even if the initial valuation is a little high or a little low.

Let's suppose that the strengths and weaknesses of the US and international are mostly baked into prices. The cash flows in the far future get discounted a lot more, are much more difficult to predict, and are typically forecasted more conservatively. (It's hard to predict far into the future.) Thus, the companies with durable competitive advantages that can continue to get high returns on invested capital tend to outperform expectations eventually.

Valuations do matter, but if they're not too crazy, competitive advantages and return on invested capital tend to matter more over the long haul. So let's pose two questions:

1. Are average valuations in the US too crazy (e.g. > 2-3x what companies are worth)?

They're higher than average. If interest rates stay fairly low (3-5%), they're cheap. But they're definitely not crazy overall after taking interest rates into account.

2. Who will maintain durable competitive advantages and high returns on incremental invested capital in 10 years?

I think that the US has some special advantages.

1. The most favorable VC environment in the world.
2. The US market is like a massive incubator where a company can scale up to a massive size before branching out into foreign markets. (Branching out can cost a lot of time and money.) This economy of scale gives US companies a much better fighting chance of breaking into foreign markets. Economy of scale is also a great competitive advantage in its own right.
3. Lax laws and regulations on corporations than most competitors
4. A massive lead in the tech sector, which have extreme advantages in returns on invested capital (very little capital required to scale up compared to other industries).

There are others, but I won't go too far off track. Europe is greatly handicapped in these areas. China is improving in some of these areas but less transparent with fewer investor protections.
US valuations are significantly higher than International. In this low interest rate environment, international is valued around historical P/E multiples despite those lower interest rates. If lower interest rates justify higher P/Es, that certainly hadn’t materialized much for International

Companies don’t need to have impressive growth to have solid compounded earnings.

Most of the US outperformance is due to valuations expansion rather than superior earnings.
Let's look at the average earnings growth rate among companies in VTSAX and VTIAX over the past 5 years:

VTSAX: 18.6%
VTIAX: 8.4%

You make a good point about how low interest rates should benefit international companies as well, but the issue is their abysmal earnings growth rates.
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: In what condition, will international significantly overperform US?

Post by abuss368 »

The one graph that has me pause, is the one which shows the US outperforming and then International outperforming over the past 50 or so years.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
Nathan Drake
Posts: 6234
Joined: Mon Apr 11, 2011 12:28 am

Re: In what condition, will international significantly overperform US?

Post by Nathan Drake »

foodhype wrote: Sun Apr 04, 2021 10:03 am
Nathan Drake wrote: Sun Apr 04, 2021 12:15 am
foodhype wrote: Sat Apr 03, 2021 6:24 pm When the best investors value individual stocks, they often want to see that it is trading below intrinsic value, but they also want to see that the business has durable competitive advantages that will last for decades and a capacity for high return on each additional unit of invested capital. This return on capital employed tends to dominate in the long term even if the initial valuation is a little high or a little low.

Let's suppose that the strengths and weaknesses of the US and international are mostly baked into prices. The cash flows in the far future get discounted a lot more, are much more difficult to predict, and are typically forecasted more conservatively. (It's hard to predict far into the future.) Thus, the companies with durable competitive advantages that can continue to get high returns on invested capital tend to outperform expectations eventually.

Valuations do matter, but if they're not too crazy, competitive advantages and return on invested capital tend to matter more over the long haul. So let's pose two questions:

1. Are average valuations in the US too crazy (e.g. > 2-3x what companies are worth)?

They're higher than average. If interest rates stay fairly low (3-5%), they're cheap. But they're definitely not crazy overall after taking interest rates into account.

2. Who will maintain durable competitive advantages and high returns on incremental invested capital in 10 years?

I think that the US has some special advantages.

1. The most favorable VC environment in the world.
2. The US market is like a massive incubator where a company can scale up to a massive size before branching out into foreign markets. (Branching out can cost a lot of time and money.) This economy of scale gives US companies a much better fighting chance of breaking into foreign markets. Economy of scale is also a great competitive advantage in its own right.
3. Lax laws and regulations on corporations than most competitors
4. A massive lead in the tech sector, which have extreme advantages in returns on invested capital (very little capital required to scale up compared to other industries).

There are others, but I won't go too far off track. Europe is greatly handicapped in these areas. China is improving in some of these areas but less transparent with fewer investor protections.
US valuations are significantly higher than International. In this low interest rate environment, international is valued around historical P/E multiples despite those lower interest rates. If lower interest rates justify higher P/Es, that certainly hadn’t materialized much for International

Companies don’t need to have impressive growth to have solid compounded earnings.

Most of the US outperformance is due to valuations expansion rather than superior earnings.
Let's look at the average earnings growth rate among companies in VTSAX and VTIAX over the past 5 years:

VTSAX: 18.6%
VTIAX: 8.4%

You make a good point about how low interest rates should benefit international companies as well, but the issue is their abysmal earnings growth rates.
This is during the past 5 years when tax legislation was kind to US corporations.

That said, the earnings growth rates for international aren’t bad, US was better for this selected period by quite a bit but not enough to justify the change in valuations alone. My statement was looking at the last 30.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
User avatar
watchnerd
Posts: 13614
Joined: Sat Mar 03, 2007 10:18 am
Location: Gig Harbor, WA, USA

Re: In what condition, will international significantly overperform US?

Post by watchnerd »

gubernaculum wrote: Sat Apr 03, 2021 9:20 pm International will never outperform US. USA controls 80% of all the money in the world. Just aint gonna happen.
No.

This is not true.

The dollar is not 80% of the world's money supply.

Euro is a reasonably close #2.

Euro + RMB > USD
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: In what condition, will international significantly overperform US?

Post by abuss368 »

watchnerd wrote: Sun Apr 04, 2021 11:50 am
gubernaculum wrote: Sat Apr 03, 2021 9:20 pm International will never outperform US. USA controls 80% of all the money in the world. Just aint gonna happen.
No.

This is not true.

The dollar is not 80% of the world's money supply.

Euro is a reasonably close #2.

Euro + RMB > USD
Just watched an hour long interview with Sam Zell that was very good. His biggest concern over the next 10 years is the possibility of the US Dollar losing the reserve currency status. He said the US Dollar was 85% of transactions 15 years ago and is now 65%.
John C. Bogle: “Simplicity is the master key to financial success."
foodhype
Posts: 190
Joined: Thu May 25, 2017 10:38 pm

Re: In what condition, will international significantly overperform US?

Post by foodhype »

Nathan Drake wrote: Sun Apr 04, 2021 11:00 am
foodhype wrote: Sun Apr 04, 2021 10:03 am
Nathan Drake wrote: Sun Apr 04, 2021 12:15 am
foodhype wrote: Sat Apr 03, 2021 6:24 pm When the best investors value individual stocks, they often want to see that it is trading below intrinsic value, but they also want to see that the business has durable competitive advantages that will last for decades and a capacity for high return on each additional unit of invested capital. This return on capital employed tends to dominate in the long term even if the initial valuation is a little high or a little low.

Let's suppose that the strengths and weaknesses of the US and international are mostly baked into prices. The cash flows in the far future get discounted a lot more, are much more difficult to predict, and are typically forecasted more conservatively. (It's hard to predict far into the future.) Thus, the companies with durable competitive advantages that can continue to get high returns on invested capital tend to outperform expectations eventually.

Valuations do matter, but if they're not too crazy, competitive advantages and return on invested capital tend to matter more over the long haul. So let's pose two questions:

1. Are average valuations in the US too crazy (e.g. > 2-3x what companies are worth)?

They're higher than average. If interest rates stay fairly low (3-5%), they're cheap. But they're definitely not crazy overall after taking interest rates into account.

2. Who will maintain durable competitive advantages and high returns on incremental invested capital in 10 years?

I think that the US has some special advantages.

1. The most favorable VC environment in the world.
2. The US market is like a massive incubator where a company can scale up to a massive size before branching out into foreign markets. (Branching out can cost a lot of time and money.) This economy of scale gives US companies a much better fighting chance of breaking into foreign markets. Economy of scale is also a great competitive advantage in its own right.
3. Lax laws and regulations on corporations than most competitors
4. A massive lead in the tech sector, which have extreme advantages in returns on invested capital (very little capital required to scale up compared to other industries).

There are others, but I won't go too far off track. Europe is greatly handicapped in these areas. China is improving in some of these areas but less transparent with fewer investor protections.
US valuations are significantly higher than International. In this low interest rate environment, international is valued around historical P/E multiples despite those lower interest rates. If lower interest rates justify higher P/Es, that certainly hadn’t materialized much for International

Companies don’t need to have impressive growth to have solid compounded earnings.

Most of the US outperformance is due to valuations expansion rather than superior earnings.
Let's look at the average earnings growth rate among companies in VTSAX and VTIAX over the past 5 years:

VTSAX: 18.6%
VTIAX: 8.4%

You make a good point about how low interest rates should benefit international companies as well, but the issue is their abysmal earnings growth rates.
This is during the past 5 years when tax legislation was kind to US corporations.

That said, the earnings growth rates for international aren’t bad, US was better for this selected period by quite a bit but not enough to justify the change in valuations alone. My statement was looking at the last 30.
Tax legislation has been kind to US corporations for much longer than 5 years, and there is little reason to believe that will change any time soon. (This forum has a no politics policy, but my justification for the latter claim would primarily focus on persistent structural forces in the US Senate that make it nearly impossible to pass sweeping tax reform legislation.)

The earnings growth rate has been driven primarily by the tech sector, not by any recent tax changes. The real question is: are there persistent reasons why this disparity in earnings growth should continue for a long period of time?

I would say yes. The tech industry is very well suited for high return on incremental invested capital compared to, say, the airline industry or some other industry that requires high capital expenditures to maintain growth. The US market is large enough that companies can scale up massively before branching out into foreign markets. These advantages of scale allow US companies to dominate their competition and buy competitors with high growth potential in foreign markets.
Valuethinker
Posts: 49031
Joined: Fri May 11, 2007 11:07 am

Re: In what condition, will international significantly overperform US?

Post by Valuethinker »

Jags4186 wrote: Sat Apr 03, 2021 9:27 pm
vsk wrote: Fri Apr 02, 2021 12:21 pm Interesting question.

Let us look at history.

UK, once ruled the world - Where is it now?

I am an excellent driver with no accidents but why do I opt for the best car insurance?

Did the world think East & West Germany will unite?

The bottom line is "one cannot predict future" and you always hedge - One cannot put a Dollar value on Hedging.
The world is fundamentally different today than it was when the UK ruled the world. Wars of conquest are no longer tolerated. Colonialism doesn’t drive modern economies.
Technically although it was the United Kingdom (from 1801) I think a better way of putting it is "the British Empire".

The United Kingdom included England, Scotland, Wales, Ireland. Only the first 2 were members by consent (there was some jiggery-pokery in the Scottish consent to the Act of Union in 1707, as well). Ireland was most definitely not a voluntary participant, except for the ruling (British) aristocracy (and the Ulster Protestants who were more British than the British, in some sense).

[OT comments removed by admin LadyGeek]
Valuethinker
Posts: 49031
Joined: Fri May 11, 2007 11:07 am

Re: In what condition, will international significantly overperform US?

Post by Valuethinker »

abuss368 wrote: Sun Apr 04, 2021 1:13 pm
watchnerd wrote: Sun Apr 04, 2021 11:50 am
gubernaculum wrote: Sat Apr 03, 2021 9:20 pm International will never outperform US. USA controls 80% of all the money in the world. Just aint gonna happen.
No.

This is not true.

The dollar is not 80% of the world's money supply.

Euro is a reasonably close #2.

Euro + RMB > USD
Just watched an hour long interview with Sam Zell that was very good. His biggest concern over the next 10 years is the possibility of the US Dollar losing the reserve currency status. He said the US Dollar was 85% of transactions 15 years ago and is now 65%.
And Barry Eichengreen has written about this extensively.

The "exorbitant privilege" to the US of others holding USD in preference to their own currencies has a benefit to the US of less than $100 bn pa ($65bh pa was the estimate, from memory).

The same thing happened to the GBP post 1913, post WW1. The USD did not instantly supplant it, it took decades.

The system might be somewhat less stable, but it is perfectly possible. After all Bretton Woods only lasted 1944-1971, and fell apart on US economic weakness.
User avatar
abuss368
Posts: 27850
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: In what condition, will international significantly overperform US?

Post by abuss368 »

Valuethinker wrote: Sun Apr 04, 2021 4:14 pm
abuss368 wrote: Sun Apr 04, 2021 1:13 pm
watchnerd wrote: Sun Apr 04, 2021 11:50 am
gubernaculum wrote: Sat Apr 03, 2021 9:20 pm International will never outperform US. USA controls 80% of all the money in the world. Just aint gonna happen.
No.

This is not true.

The dollar is not 80% of the world's money supply.

Euro is a reasonably close #2.

Euro + RMB > USD
Just watched an hour long interview with Sam Zell that was very good. His biggest concern over the next 10 years is the possibility of the US Dollar losing the reserve currency status. He said the US Dollar was 85% of transactions 15 years ago and is now 65%.
And Barry Eichengreen has written about this extensively.

The "exorbitant privilege" to the US of others holding USD in preference to their own currencies has a benefit to the US of less than $100 bn pa ($65bh pa was the estimate, from memory).

The same thing happened to the GBP post 1913, post WW1. The USD did not instantly supplant it, it took decades.

The system might be somewhat less stable, but it is perfectly possible. After all Bretton Woods only lasted 1944-1971, and fell apart on US economic weakness.
Thanks. I did not know that.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
Post Reply