Monday, January 15, 2007
A reply to Roubini bashers: investing at the precipice
It could be.
Shrimplate, bonds are cash-like enough to include those as low-beta investments. Granted, they are not risk-free.
I certainly understand your choices. But all countries carry risk. For example, China is very non-transparent, so we don't know what the risks are. If they go down, so will many Pacific Rim economies. And there's earthquakes, which can be devastating to places like Japan.
The reason not to place all one's bets against the dollar is that one may have to tap cash for living expenses, and that means converting to dollars. I think a reasonable proportion of investment based on market size is 40% US/60% foreign.
China will go down, because there's just no way there's enough petroleum left to sponsor their envy of U.S.-like growth. Then again, they can *walk* to the Middle East and Siberia to establish control over oil resources there.
I just don't think they can do it, and the same will happen in India and the southeast Asian "tigers."
We'll see what happens in the next 15 years or so.
The US has been a preferred destination because of the size of the market, fairly good transparency, and lower volatility. But these advantages are rapidly disappearing.
Ignoring currency risk, the ONLY advantages I see to investing in the US are that (a) one can pick individual stocks, either for reasons of socially conscious investing or for small cap investing purposes, (b) one can avoid some management expenses, and (c) geographic diversification. In fact, markets are so highly correlated, the latter advantage is disappearing.
More blogs about politics.