Interesting Comment Thread

The Seeking Alpha version of my post over the weekend about the US' standing as an investment destination drew a couple of (for lack of a better phrase) anti-emerging-market-investing comments which was surprising and interesting given that I never said "emerging markets" in the original post.

One bit of context is that I believe the term emerging markets has lost most if not all of its meaning. All countries have their positive attributes and their vulnerabilities and good diversification means blending different attributes together in such a way as expectations are favored but without being overly exposed to some negative event--for example if all you own are commodity based countries you will get pasted during the occasional commodity price correction.

One interesting thing is that there is a tone that I am too bearish on the US. Two years ago I was too bullish yet my thesis has been the same the whole time, actually it has been the same since before the financial crisis started.

As I quick recap I have felt that taking in the entire fundamental story, the US will be a less compelling investment destination. I have never been in the Armageddon/dollar going to zero/hyperinflation/complete tearing of the social fabric camp. The headwinds that have come and will continue to come will, IMO, result in equity market growth that is below "normal" when looked at over a period of many years. If we used to get 10% average annual return, I think it will be something like 3-5% over the next ten years. As I said, this has been my base case for a long time.

It is not clear whether this little bit of anti-emerging sentiment (there have also been outflows from funds) is simply because of the lag coming out of the gate in 2011 or something else but in those comments there seemed to be a lack of acknowledgment of what has happened over the last ten years with emerging versus the US. Clearly it would be a mistake to simply extrapolate but if you can buy into the idea of looking at history and combining that with what appears to be happening today to make a forward looking analysis then I think the space in question merits a decent position.

As time goes on I become more convinced of the importance of investing for a stock market cycle (or longer)--this really is an on your own mat issue. Over the last five and ten years many of the markets in question here have dramatically outperformed (you can reference Bespoke's country results for the previous decade) the US market and while clearly there was an element of hot money flows, fundamentals also mattered and whereas the fundamentals in these places are still healthy, but not without risk factors, it is reasonable to give the benefit of the doubt in a reasonable proportion.

I realize not everyone wants to think in five year increments but the context here is the ultimate goal of giving clients the best chance at having enough money when they need it which I believe minimizes the need to beat the market in a given quarter or given year and I am far from alone with this idea.

The picture comes via Barry Ritholtz and is the new Ferrari Hatchback!