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From 50 to zero: Why Investors Create International Stocks – SPDR S & P 500 Trust ETF (NYSEARCA: SPY)



Leading in 2008 dominated the stock markets and international stock economic show. "Talking Heads" agreed that investors should allocate as much as 50% abroad to a well-diversified portfolio.

The reason? One should be adjusted with the world's stock market spai. After all, half of the world's market value belonged to US stocks, and half belonged to stocks from elsewhere around the world.

However, the real cause had little to do with market value. Indeed, foreign stocks were dramatically better than US stocks. You had to be in the "euro area". You had to be in "BRIC" (Brazil, Russia, India, China). Essentially, you had to invest more in the winners.

Since 2008, however, allocation abroad has been an exercise in the futile. While the US market has experienced admirable total return gains that have largely erased memories of the "lost decade" (2000-2009), non-US stocks have reached almost nothing for 11 years.

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What do you hear about diversification with non-US shares these days? Maybe you come across a 2000s heuristic as 20%. You probably don't hear about placing 50% of your money in foreign stocks, because half of the world's market values ​​belong to non-US public companies.

Ironically, there are many lawyers to distribute 0% to foreign shares. The reason? Scores of US companies account for as much as half of revenue and / or revenue from foreign operations. According to this shift in thinking, an American sole investor is only diversified.

Sounds like a new effort to get back to the last decade's winner. 50% in 2008. 0% in 2019.

It is worth noting that some country / regional diversification has damaged itself since the financial crisis. In addition, a fair assessment of shares as an asset class should constitute the negative impact of non-US equity exposure.

For example, did a global equity bear actually begin in 2018? Or do the eight consecutive weeks of recovery that flip-flopping central banks have laid a permanent floor under warehouse waste?

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One thing is certain: American stocks are back in favor. So much, in fact, so bad earnings news goes unpunished.

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And bad economic news? Well, it just means that the Fed and other central banks will remain accommodating.

Remember that the latest tax reform stimulates 2% economic growth up to 3% -4%. No one seems to talk about 3% anymore.

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In light of the economic downturn, both in the United States and in influential economies abroad, many of the Federal Reserve's credible refuge credit. Nevertheless, the full effects of non-aircraft decisions cannot feel for a while.

Consider what the Fed had to do to reduce the impact of the three previous setbacks. The committee's members had to bring down the Fed's lending rate by an average of 500 basis points. And it still does not prevent two 50% amount carrier.

If a recession begins in 2019 or 2020, the Fed may have a weak 225 basis point to lower its daily lending rate. (Unless negative interest rate policy is introduced as well.) It is also unclear how many trillion electronic dollar credits would have to be created without thin air to buy US government bonds and other demanding assets to promote liquidity and stimulate borrowing. The existing $ 4 trillion on the Fed books is already quite scary.

What is largely forgotten by investor inflamation for central banks is that their actions are unlikely to prevent the next decline or eliminate bearish exchange rate depreciation. Should we not see households' net worth, which largely consists of shares, bonds and real estate, back to the economic trend line? In that case, property prices will move sideways for a long time or, more likely, plummet.

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It may be easy for some people to say they enjoy the opportunity to buy the next big bearish dip. On the other hand, you cannot buy shares or properties or assets that have lost one-third or half of the value without money on the sidelines.

Cash can be garbage when the Fed makes it worth 0%. But today? Cash equivalents like SPDR 1-3 Month T Car (NYSEARCA: BIL), First Trust Enhanced Short Maturity (NASDAQ: FTSM) and JPMorgan Ultra Short Income (BATS: JPST) are competitive with 10-year government bond yield of 2.63%.

Disclosure : Gary Gordon, MS, CFP is President of Pacific Park Financial, Inc., a registered investment adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc and / or its customers may have positions in the ETF, Funds and / or Investment Objects mentioned above. The commentary does not constitute individualized investment advice. The opinions offered here are not personal recommendations for buying, selling or holding securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising on the ETF Expert website. ETF Expert Content is created regardless of advertising conditions.


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