The conventional wisdom for at least the last five years for American investors is this: Go abroad to find returns. Emerging markets like Brazil, India, and China, and even Europe are the places to seek gains. The only choice for those preferring to invest locally is through American multi-nationals that create jobs overseas and keep the earnings abroad to avoid taxes.
Happily, for those of us clinging to the antiquated belief that America rocks, Paul Hickey, co-founder of Bespoke Investment Group, says the prevailing wisdom is wrong. "After a ten year period of underperformance the U.S. started to bottom in late 2008 versus the rest of the world," he says. "In the last year or two the U.S. has been vastly outperforming global peers."
It gets even better for folks who are resentful of the multinationals refusing to repatriate and pay taxes on over $1,000,000,000,000 in overseas earnings. "Companies with more exposure overseas this year are doing much worse than U.S. companies (focused on domestic growth)," Hickey says.
In other words the closer U.S. investors get to home with their investments, the better off they may be. Among other catalysts for this, according to Hickey, is dollar strength. Though dollar weakness relative to the Euro is contributing to today's powerful rally, Hickey notes the EUR/USD actually peaked two years ago and has been losing steam ever since, at least in the big picture.
I don't agree with Hickey on the greenback, but I don't have to. He also points to slowing growth abroad, international instability, and a wildly overhyped BRIC theme. Not to mention investors penchant for believing cyclical trends last forever; when they don't. After ten years of underperforming global markets, U.S. stocks are outperforming the rest of the world and doing so without banana republic/dictatorial risk.
The bottom line, at least according to Hickey, is that investors don't have to chase returns all over the globe. They can outperform right here at home by investing in companies not reliant on tax avoidance and creating jobs overseas for their earnings.
It's hard to find anything wrong with that idea. Let us know your thoughts in the comment section below.
- Bespoke Investment Group