Domestic Or International Investing: Where Are The Opportunities?

Jim Jubak took the view in “For now, the money’s made in the USA” that over the next few months the U.S markets should lead the globe. Here is some of his reasoning:

I can think of a dozen reasons why, in the long term, U.S. stocks will do worse than stocks in China, Brazil, India and Canada — and maybe even in Norway, South Africa, Germany and Turkey.

Huge government debt, highly leveraged consumers, underinvestment in infrastructure, a lagging education system, rising interest rates, a small and, in industries such as autos, uncompetitive manufacturing sector, out-of-control health care costs . . . do I need to go on?

But in the next three to six months, I can’t think of a better stock market in the world for my money. China? Beijing is raising interest rates and shrinking the money supply. Brazil? It’s looking at rate increases, too, and all the uncertainty that comes with a close presidential election. India? Interest rates and inflation are both due to climb.

In contrast, the U.S. looks like it’s in for stable interest rates, inflation just high enough to take worries about deflation off the table, and easy year-to-year corporate-earnings comparisons with the first half of 2009.

Hey, I still think there’s plenty of bad news coming our way in the fourth quarter of 2010 or early in 2011, but in the short run, the U.S. stock market looks, comparatively, like the best bet in the world for equities. I’m not saying the U.S. market and economy are perfect or wonderful — just that for this period they look better than the other guys’.

Conditions aren’t so fabulous that I want to go out and bet the farm on U.S. stocks, but they are good enough that I might want to add a dash of U.S. stock to my portfolio for the next quarter or two. I’m not going to tear up my long-term plan to overweight developing market equities, though.

Over five to 10 years, I think stocks from China, Brazil and the rest of the developing world will leave U.S. stocks — and stocks from other developed economies even more so — in their dust. But U.S. stocks are attractive enough in the short run that putting some cash to work there makes sense.

Think long, act short

One of the lessons that the bear markets of 2000 and 2007 should have taught us is that investors need to think both long and short term. It’s not enough to put your money behind a great long-term stock and then forget about it, lulled into complacency by a belief that in the long run your investments will do fine.

In the short run, we’ve learned, even the best long-run stocks can take beatings so horrible that most investors can’t hold on for the turnaround.

There is much more to this story as Jim goes on to share his views dissected in 5 paragraphs as to why he favors the U.S. markets for the short-term. While all of his reasons have merit, they’re based on an assessment of the fundamentals as they are right now.

From my point of view, we are living in a fast paced world where fundamentals can change at a moment’s notice, which renders them useless when it comes to making investment decisions. A sudden debt default in Europe, or anywhere else for that matter, can change the game in a hurry and derail the domestic market just as easily as it would affect global markets.

While there is nothing wrong with looking at fundamentals, just don’t get stuck on the idea it has to play out a certain way. World markets are intertwined and will affect each other. With too much debt represented in all global economies, a black swan event is bound to happen sooner or later.

My point is that your thinking has to be flexible when it comes to your investments. Do not become married to any of your holdings and make your decisions based on what the market tells you.

In other words, focus on trend direction and get out when your sell stops indicate you should. Don’t rely on fundamentals; the only reality you have is the price of your holdings at the end of the day. Everything else is just useless market noise.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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