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Why I chucked my international developed assets.

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  • Why I chucked my international developed assets.

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    Since 1998, the US stocks/ foreign developed stocks have become increasingly synchronized. The trend and magnitude of dispersions is minimizing, but with developed foreign public corporations cumulatively lagging US. The Callen charts don't reveal the effect of cumulative differences.
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    3.3% annualized returns over the past 20 years.

    Looking forward to the next 20 years, the profitability of publicly traded corporations will depend upon demographics, levels of corruption, and economic freedoms, as measured by the Fraser Institute .
    The US has recently moved up among nations re: economic freedoms.

    Europe is dying; or at best being repopulated by Africans and Middle Easterners. The assimilation is going poorly. In the US, demographics show a surge of millennial population to spend and expand the economy over the next 20 years.

    So how am I wrong?

  • #2
    I'm not going to touch the demographics issue. Way too racially and politically sensitive.

    US is top 5 right now in economic freedom according to that site, but was 16th not too long ago (2016). You think that can't or won't change with the political winds? Have you been following politics lately?

    Not that many people were shorting the Nikkei 30 years ago.


    • #3
      Well, I don’t know if you are wrong, but I plan to keep my international stock allocation based on its class underperformance over the past decade or so. Sooner or later, and I do not predict when, presumably there will be a reversion to the mean.


      • #4
        looking at the graph I would find it hard to say I’m not worried about the next decade looking similar to 99-09.

        you’re not concerned about that?


        • #5
          I see a trend of increasingly positive correlation; the duration and magnitude of dispersion are diminishing. The only real negative correlation is between bonds and US stocks; that's what I will count on.

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          Lithium, Thanks for the Japan example. Demography is destiny.


          • #6
            The top chart seems to provided evidence for the opposite conclusion.
            Helping those who wear the white coat get a fair shake on Wall Street since 2011


            • #7
              I've sold most of my international funds for similar reasons. They have under-performed the domestics over the past 10 years. I don't know if they will catch up to domestics over the next decade but I am not too optimistic. I agree that I think that Europe will stagnate like Japan did due to an aging population, resistance to immigration, and socialists/xenophobic movements there. I think that the Chinese market could/should outperform the US market but I think that there is a lot of fraud going on in their markets so that it is hard to invest properly there. South east Asia may outperform the US, but I think that the large cap companies will largely benefit from any growth there. That's probably the primary reason that I don't think that it is necessary to invest in international stocks anymore, most of the large corporations in the S+P 500 are multi-national businesses. I don't see why you wouldn't be able to capture most of the growth in certain areas just by investing in those companies. The US stock market has the benefit of being highly regulated and tested, unlike some of the developing nations markets as well. That probably lessens your risk.


              • #8
                Originally posted by jz- View Post
                I see a trend of increasingly positive correlation; the duration and magnitude of dispersion are diminishing. The only real negative correlation is between bonds and US stocks; that's what I will count on.

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                Lithium, Thanks for the Japan example. Demography is destiny.
                Trying to make sense of the demography claim. I just did some quick googling and the USA's median age is 3.5 years younger than Europe's. Birth rates in US are lower than France, the same as UK, higher than Germany, overall maybe a touch higher. Is this what it amounts to? Or is it more about Europe becoming less European? America is becoming more diverse too.

                Doesn't sound that much like Japan to me. My point was that nation's economies tank for reasons no one sees coming ahead of time but seem stunningly obvious in hindsight.


                • #9
                  “International developed”

                  so OP you’re keeping emerging markets?


                  • #10


                    • #11
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                      Interesting that China is on track for low growth for the next 30 years, no doubt resulting from the 1-child policy. It is the 30-50 year olds who drive growth, buying and borrowing.

                      If I were planning an AA for the next 20 years, I would not include emerging markets either. They offer boom and bust volatility for rebalancing, but for simplicity I'd stick with US stocks/ US bonds. Alas, I'll keep the EM that I've got to avoid paying the embedded cap gains. A holistic look at the future potential for capitalistic growth would include economic freedom, demography and degree of corruption. Europe is contracting and I'm not betting on recovery for the next 20 years.


                      • #12
                        ………..and my chucking included the Vanguard TD funds; they hold up to 35% international.


                        • #13
                          That chart shows percent of population growth. So of course it will be easier for the low population countries to manage high percentage growth. But a high percentage of a low population is not a big number. However even with China's lower growth rate they have a tremendous head start and 5-10% of a billion is a lot of people.


                          • #14
                            Valuations in the U.S. equity market are awfully high. It is true that nobody knows when these P:E ratios will fall back to historical levels, but unless I miss my guess, I believe they will. I will continue to hold a reasonable percentage of both developed and emerging markets in the interest of diversification, but I acknowledge that the correlation between international and domestic equities will likely increase when the big bear eventually comes, and those with no internationals may suffer not at all.


                            • #15
                              I've read that a lot of companies/countries are investing in Africa because that area is where the largest growth is supposed to occur in the next century. I don't know if rapid growth is always a good thing for economies though because the climate in certain parts of Africa can't sustain large enough amounts of agriculture and water to support a rapidly growing population which in turn leads to poverty and instability (natural resources<population). The population growth chart does explain the limitations of US growth though. That's why economists were dismissive of Trump's claims that he could grow the economy at 4-5%, there is only so much GDP that each person can produce so barring a large scale change in the population via births which have been declining or immigration, the GDP is stuck growing at 2-3%. Besides having large amounts of people, I think that China and India's growth has been largely through mobilizing sectors of their population from rural impoverished citizens to productive laborers. I would imagine that places like China and India will eventually level out though as their birth rates decline and they reach maximum output. It's very interesting, I don't think that most people in this country realize how different it is here vs other countries where non-native immigrants tend not to assimilate and are always discriminated against. I think that's what happened in Japan, they were doing great, everyone got rich, they didn't want any immigrants and had a low birth rate so their economy stalled. I think that is happening in Europe as well, although a lot of it is probably self inflicted too with their politicians (ie Brexit).