The global investing trend is dead, and the next big thing is what I call the “America trade,” i.e., investing in North and South American stocks.
For years, U.S. investors have been told to “go global” in search of stronger growth and higher returns. Americans obliged and poured billions of dollars into international stocks, mutual funds and exchange-traded funds (ETFs), which have outperformed during the past seven years.
But, as the saying goes, “Trees do not grow to the sky.” The seeds of underperformance were sewn by the over-performance of Chinese, Indian and European stocks. Nothing lasts forever, my friends.
The time of shorting U.S. stocks and going long stocks in emerging markets is over.
The global markets topped out in late 2007, while the United States — the source of the subprime nightmare — has dramatically outperformed some of last year’s hotshots.
The U.S. stock averages have lost much less than their major European and Asian counterparts in this global bear market. The six-year run in which the foreign bourses routinely thrashed the S&P 500 (SPX) and the Dow Jones Industrial Average (DJI) has come to an end.
Once everyone has piled into a trend, it no longer works. As for going global, when everyone including my grandmother has 70% or more of the money in their 401(k) plan in developing countries’ markets, you can bet the trend is dead. And when those people open their 401(k) statement for the first quarter, it’s going to hurt — not as much as it did after the Nasdaq meltdown in 2000, but it’ll still be painful.
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