Catching Up

There has been some interesting news and good comments to catch up to.

Google is going to be added to the S&P 500. I thought, incorrectly, that the name would have been added sooner than this. I was very public with my purchase last August (probably too late) and my sale last October (definitely too early). My thesis was that there would be a secondary effect of managers that are benchmarked to the S&P 500 (not index funds but active managers) would have to buy the stock because a then $80 billion growth juggernaught would make keeping up with the cap-weighted S&P much more difficult.

While this theory was never assured I feel less confidence about the theory working out now, six or seven months after I expected the SPX inclusion to come.

After the 9% pop after hours, I would be surprised if it outperforms the market sufficiently enough to compensate the risk and volatility. For example would it be worth owning if the market goes up 3% over the next six months and the stock went up 6% in that same time? Maybe not. Don't focus too much on the 3% and 6% but the idea of reasonably outperforming the market with a hot potato.

I had a lot of comments and personal email come in Thursday afternoon, I am sorry I won't get to all of them right away. One comment from "Investing Intelligently" stuck out. He wanted more from me about why I think understanding foreign currencies will become more important in the next few years. He wanted to know what will be different in the next 100 years from the last 100 years.

First, it is just an opinion and as opinions go I don't think this really goes too far out on a limb. That being said there are so many things that play in to my thought that I'll just bullet point a list.

• History says the US will not have two centuries in a row
• De-pegging in China and the coming free float of the Indian rupee are anecdotal evidence that the dollar will be less important, globally, as time goes on
• The EMU is getting larger and will probably soon be larger than the US economy
• There is visibility for commodities to trade in other currencies (like the euro)
  
• There has been chatter of an EMU-like union in the ASEAN region
• Continued globalization of the world economy
  

The sum of this, I believe, is that the US dollar will at best share the role of world reserve currency, the US will be on more equal footing economically with other countries. This creates visibility for a weaker dollar. If this pays out to any degree I think it will make a lot of sense and add a lot of value to understand currencies and perhaps strategize around the weaker dollar scenario.

I do not know if this will happen, and this is not a call to be a currency trader if it does, but there is visibility to this and distortions to our economy and stock market are possible. Trying to isolate potentially important risks that could be out there in the future is a big part of my job and sharing how I do my job is a big part of this blog.