ex-US stocks rising

[Kevin K.]

Admittedly this is definitely crossing over into politics but historically one of the main reasons cited by Bogle and others for owning mostly or entirely U.S. stocks is less corruption, stronger financial regulations and more government checks and balances in the U.S. vs. other countries. Since a lot of that stuff is being dismantled before our eyes in the interests of kleptocratic autocracy maybe overweighting international and emerging markets is not such a bad idea. Just playing devil's advocate here - no intention of doing anything other than watching the show (and being damn sure to hang on to some gold).

[yankees60]

Admittedly this is definitely crossing over into politics but historically one of the main reasons cited by Bogle and others for owning mostly or entirely U.S. stocks is less corruption, stronger financial regulations and more government checks and balances in the U.S. vs. other countries. Since a lot of that stuff is being dismantled before our eyes in the interests of kleptocratic autocracy maybe overweighting international and emerging markets is not such a bad idea. Just playing devil's advocate here - no intention of doing anything other than watching the show (and being damn sure to hang on to some gold).

Regarding foreign .. this is some private advice I got from someone. Anyone here, of course, will agree or disagree with it.

"I don't own Total International as I prefer to exclude emerging markets. 
Safety of your investments is imperiled when influenced by a government without solid property laws, well regulated liquid markets etc.
To me that excludes China, Russia and India.    What is to stop China or Russia from seizing assets of companies you invest in ?
As far as India, I have first hand experience from my job, India makes it hard for foreign investors to buy their stocks, and they make us
do it in an unsafe way.  Read about ELN Equity Linked Notes and find out about them if interested."

[boglerdude]

Humans consistently underestimate corruption, because they look in the mirror and see an angel who cant be bought

They also cant handle the possibility that the covid narrative isnt exactly what they were told. Shatters too much faith in institutions. As Scott Adams said, people are watching different movies and they dont like films where good people do bad things

Fed isnt going to bail out ex-US, the next time the deflationary backdrop (aging population that doesnt take out loans) catches up to markets. OTOH we got Chinas catastrophic bust out of the way (priced into markets March 2020) and maybe India will open to US investors

https://www.business.hsbc.com/en-gb/ins ... ity-for-us
https://finance.yahoo.com/news/2008-hou ... 07651.html

I need to take my own advice and ease back in to vtsmx & some pfix as insurance.

[Kevin K.]

Good post by Cullen Roche today on this topic:

https://disciplinefunds.com/2025/03/26/ ... ing-again/

So fundamentally owning international is a currency play. Makes complete sense to me while also underlining Tyler's point in the quote I shared upthread that for a U.S.-based PP or GB investor the gold already fulfills that role while also being a far better diversifier than int'l vs. US stocks which are generally pretty tightly linked - especially during SHTF market meltdowns (remember 2008?).

That said, if I were invested in a more conventional stock-and-bonds only portfolio without gold I'd be sure to hold at least market weight (30%+) in international right now for all of the reasons Roche mentions.

[ochotona]

It's more than just currency.

Perth Tolle is the index creator for the FRDM emerging marker fund. I actually know her here in Houston. Her work suggests that less free, more autocratic, more oligarchic / State Owned Enterprises countries have poorer returns to investors. Since inception the FRDM fund certainly demonstrates that, outrunning other EM funds.

Since the US is absolutely going in the direction of autocracy, oligarchy, and not "State Owned Enterprises" but more like "State Pressured / Dictator Threatened Enterprises"... where the Autocrat picks winners or losers based on grift-measures, I think we're going to be less competitive in the future. Who donated to his campaign. who donated to his Inauguration, who donated to the White House Easter Egg roll. Which oligarch's media outlet gave him a nice word or held off on critcism.

We're going to have problems now that foreign grad students are being snatched off the streets and detained without charges and without access to counsel, and the Government is disobying Court orders to not move them (Columbia, Tufts, Alabama this morning). Foreign students will be less eager to come here. Let me remind you that non-US students dominate in US university STEM programs. American kids simply can't be bothered with "hard" subjects! That involve math and "word problems".

If you can't find the engineers in the USA... you move your high-value, high-pay R&D efforts overseas where you can hire engineers. There is no tariff (yet) on developing an idea overseas and importing that idea. I'm sure they will try to tariff ideas.

[Kevin K.]

It's more than just currency.

Perth Tolle is the index creator for the FRDM emerging marker fund. I actually know her here in Houston. Her work suggests that less free, more autocratic, more oligarchic / State Owned Enterprises countries have poorer returns to investors. Since inception the FRDM fund certainly demonstrates that, outrunning other EM funds.

Since the US is absolutely going in the direction of autocracy, oligarchy, and not "State Owned Enterprises" but more like "State Pressured / Dictator Threatened Enterprises"... where the Autocrat picks winners or losers based on grift-measures, I think we're going to be less competitive in the future. Who donated to his campaign. who donated to his Inauguration, who donated to the White House Easter Egg roll. Which oligarch's media outlet gave him a nice word or held off on critcism.

We're going to have problems now that foreign grad students are being snatched off the streets and detained without charges and without access to counsel, and the Government is disobying Court orders to not move them (Columbia, Tufts, Alabama this morning). Foreign students will be less eager to come here. Let me remind you that non-US students dominate in US university STEM programs. American kids simply can't be bothered with "hard" subjects! That involve math and "word problems".

If you can't find the engineers in the USA... you move your high-value, high-pay R&D efforts overseas where you can hire engineers. There is no tariff (yet) on developing an idea overseas and importing that idea. I'm sure they will try to tariff ideas.

Great post - thank you!

FRDM is indeed impressive. And everything you said about the negative effects of - what to call it? - "Griftocracy?" - rings true. I guess we need to persuade the FRDM folks to come out with a TSM alternative that excludes Tesla (for starters) along with Amazon and Meta and any other mega-corps who've bent the knee and drunk the Kool-aid. Not holding my breath though.

[Jack Jones]

It's more than just currency.

Perth Tolle is the index creator for the FRDM emerging marker fund. I actually know her here in Houston. Her work suggests that less free, more autocratic, more oligarchic / State Owned Enterprises countries have poorer returns to investors. Since inception the FRDM fund certainly demonstrates that, outrunning other EM funds.

Since the US is absolutely going in the direction of autocracy, oligarchy, and not "State Owned Enterprises" but more like "State Pressured / Dictator Threatened Enterprises"... where the Autocrat picks winners or losers based on grift-measures, I think we're going to be less competitive in the future. Who donated to his campaign. who donated to his Inauguration, who donated to the White House Easter Egg roll. Which oligarch's media outlet gave him a nice word or held off on critcism.

We're going to have problems now that foreign grad students are being snatched off the streets and detained without charges and without access to counsel, and the Government is disobying Court orders to not move them (Columbia, Tufts, Alabama this morning). Foreign students will be less eager to come here. Let me remind you that non-US students dominate in US university STEM programs. American kids simply can't be bothered with "hard" subjects! That involve math and "word problems".

If you can't find the engineers in the USA... you move your high-value, high-pay R&D efforts overseas where you can hire engineers. There is no tariff (yet) on developing an idea overseas and importing that idea. I'm sure they will try to tariff ideas.

Great post - thank you!

FRDM is indeed impressive. And everything you said about the negative effects of - what to call it? - "Griftocracy?" - rings true. I guess we need to persuade the FRDM folks to come out with a TSM alternative that excludes Tesla (for starters) along with Amazon and Meta and any other mega-corps who've bent the knee and drunk the Kool-aid. Not holding my breath though.

Shouldn't we expect the notion that freedom leads to prosperity is already priced into these markets? In other words, perhaps we can expect higher returns in these ugly EM markets to compensate for the additional risk that we're all aware of?

[ochotona]

Shouldn't we expect the notion that freedom leads to prosperity is already priced into these markets? In other words, perhaps we can expect higher returns in these ugly EM markets to compensate for the additional risk that we're all aware of?

That's only true if you think markets are efficient! They are not efficient.

The capital headed into EM comes from ETFs, mutual funds, pensions, endowments, insurance companies, etc etc which are dominated by the market cap-weighted EM indices which have a huge weighting to China. No one is analyzing information. It's mindless. There is tons of room for being different and finding advantages that no one else is finding because they are locked into formulaic, cookie-cutter investing.

And it's the same thing for the S&P500, or any market-cap weighted index. Money printer go brrrr, number go up. No thinking.

[Kevin K.]

Shouldn't we expect the notion that freedom leads to prosperity is already priced into these markets? In other words, perhaps we can expect higher returns in these ugly EM markets to compensate for the additional risk that we're all aware of?

That's only true if you think markets are efficient! They are not efficient.

The capital headed into EM comes from ETFs, mutual funds, pensions, endowments, insurance companies, etc etc which are dominated by the market cap-weighted EM indices which have a huge weighting to China. No one is analyzing information. It's mindless. There is tons of room for being different and finding advantages that no one else is finding because they are locked into formulaic, cookie-cutter investing.

And it's the same thing for the S&P500, or any market-cap weighted index. Money printer go brrrr, number go up. No thinking.

So true. And of course this is also why firms like DFA (and more recently Avantis and others following in their footsteps) who specialize in small-cap, value-tilted international and emerging markets fund aren't indexers but rather use screening tools to construct their offerings. So echoing your comment, these markets (EM especially) are not only not efficient, they're not transparent.

[Kevin K.]

Getting back to the Cullen Roche piece on international vs US returns I posted upthread I was curious to see how small-cap value performed during the six "regimes" of US vs. Int'l he did a chart for. Here are the results (via Portfolio Visualizer):

1973-1980: US 4.78%, ex-US 8.22%, US SCV 16.6%
1980-1985 US 15.91%, ex-US 6.37%, US SCV 26.65%
1985-1992: US 15.06%, ex-US 17.16%, US SCV 16.74%
1992-2003: US 12.5%, ex-US 5.5%, US SCV 15.19%
2003-2008: US 5.36%, ex-US 14.13%, US SCV 5.18%
2008-2024: US 11.25%, ex-US 3.32%, US SCV 8.95%

IMHO this really underlines Tyler's point that diversification by size and industry rather than by the domicile of the corporations in the index are what matters most. More on this in this exceptionally useful post of his:

https://portfoliocharts.com/2021/12/16/ ... ortfolios/