International Markets

The last time I posted a chart of the Shanghai stock index, it had just double-bottomed and was rallying. In a year since then, the index has doubled. And so have the Nikkei and the Bombay indices. Japan is a cheerful surprise, as it is generally regarded as having restructured and streamlined itself so that it can grow again after a decade-long recession. Many foreign markets have been doing great, in fact.

Right now I am biased against US financial instruments. Up until the dotcom crash, performances of US equities and the dollar were much better than the international average. But after that point, something happened. American indices started to lag the international average. You can see performance results at the government’s retirement program site.

I’m going to throw some possible reasons out there for this shift. Perhaps US businesses over-committed to the hype and in the short-term (5 years) are still reeling from the wasted resources. Perhaps Bush’s economic policies failed to implement any true reforms for distributing wealth to the working class (it all went to rich people, sorry) or for holding firms accountable for shady business practices (Enron and Worldcom were just the worst examples of common US business practice).

Most likely, maybe the US’s more internationally-exposed businesses seriously began to outsource after the crash as they realized they needed to cut operating costs and distribute risk after the bubble burst. Thus, the foreign investment would benefit those foreign economies to varying degrees, particularly those with sophisticated production capabilities like China.

I just read that Halliburton re-incorporated itself in Dubai, leaving Houston. Politically this seems like huge news because it decreases the exposure to federal investigations that Henry Waxman is more than happy to provide right now (thankyougod). The company known as a money trough for Dick Cheney and his buddies is now fleeing the country, instead of remaining American. But it also hurts the US and Houston economically through losing US employment, tax revenue, and prestige. Did it leave partly because Dubai offered such sweet tax incentives over the US?

This is the sort of shit that worries me. China is already diversifying its reserves out of US dollars, partly because it has so much already but also because it is worried about the dollar’s inflationary value looking forward, as the Bush Administration bankrupts America. Some have even gone so far as to bring up the Euro’s rising bid as a competitor for an international currency.

Money is flowing out of and is circumventing the US.

I personally think that while some US businesses are definitely flourishing in this rapidly-shifting environment, the popular mindset in American business is still that no one does business better than us. This kind of hubris and lack of fear to remain competitive in the future is repulsive to me. While smart CEOs and boards and CFOs may maneuver their businesses into the global economy, investors in general will be in denial for quite a bit longer until the point they realize that the US has been left behind. All the sudden they will want to shift their money out of the country or hold their companies responsible for not adapting fast enough. I can’t see this as being good for US equities.

China’s huge dip the other week was short-lived but scared the shit out of everyone. But China’s stocks have roared to the upside with little correction. And seasonally it’s approaching a weak time of year, so I wasn’t too surprised. In the US, the period after tax day (Apr. 15th) to August or so is a dead period when people hold their money close, and is probably the worst time to own stocks. Most of the rallies come after climactic sell-offs in Aug-Oct and continue through until tax day.

The Shanghai index, by the way, has bounced back and isn’t really that much off its highs.

The US indices did not bounce back as well as everyone else did.

I just don’t think that the US has come to the realization of what it needs to do to compete in the future. It has benefited from framing the way international markets have worked for half a century but recently the other large powers (EU, China, India) have been building ways to work around us. Of course, the slack-jawed yokels here will see it as antagonistic but it’s really just moneyflows and geopolitical risk analysis at work, seeking the easiest paths…

I guess what I’m trying to say is that I’d rather hold international stocks right now than American stocks. Why grind out a few percentage points in some bigass company like IBM or Microsoft or Alcoa? There’s no growth left in these companies. Meanwhile, there’s shitloads of companies internationally that are growing at massive factors above American companies. And some of them are backed by more pragmatic and economically-sound policies than what we have here, which is a perilously debt-ridden and stubborn old Baby Boomer economy.