Is America losing its competitive edge?
moneyrelations :: Dec.11.2007
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The U.S. Federal Open Market Committee is meeting today and it is widely expected that they will cut the fed funds rate again by a quarter of a percent to 4.25.
That’s all well and good to keep offering relief for the subprime mess but according the the Wall Street Journal, there’s another problem on the horizon.
That’s right, just add it to the list.
In an article entitled The Other Market Crisis, the WSJ explains that the U.S. is losing its global competitiveness. Unfortunately, the online WSJ requires a subscription but here are excerpts from the Free Republic website.
I’ll cut to the chase and bring up these main points:
- There’s “pent-up demand” for foreign companies to delist from American stock exchanges.
- More American companies are going public (IPO) in foreign exchanges.
- The cost of regulatory compliance and litigation are driving companies out of the American markets.
As always, there’s doom and gloom for the American economy and I’ve always defended it by saying the Americans are resilient little buggers.
But maybe it’s time to face facts: trade deficit, huge debt, lack of consumer savings, foreign ownership. And now investment dollars are going abroad?
The financial experts say that when something goes out of favor, it’s time to buy. However, while America is important, it might not be as dominant as it once was.
Here’s a chart with data courtesy of S&P/Citigroup Global Equity Indices for the United States global market capitalization over the last 10 years.
| 1-12-97 | 1-12-98 | 1-12-99 | 1-12-00 | 3-12-01 | 2-12-02 | 1-12-03 | 1-12-04 | 1-12-05 | 1-12-06 | 3-12-07 |
| 54.55 | 56.23 | 53.78 | 55.57 | 57.19 | 55.55 | 53.41 | 50.55 | 48.48 | 44.6 | 40.73 |
You can see that the percentage has been declining over the last few years.
For those who invest along geographical lines, is it time to readjust the U.S. asset allocation given the current economic conditions?
In the news, Investing ::
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I love your insights…America is definitely losing its edge. It really makes me a bit nervous and a little upset. For Thanksgiving we had a lady from Europe over. It was her first ever Thanksgiving and she continuously mad comments about how it is so cheap for her to travel and buy things here. She says that she has friends who fly to New York just to go shopping because everything is so cheap. This makes me sick. We shouldn’t be trying to save everyone who made stupid decisions with their mortgages as our dollar continues to weaken. It blows me away. Things are really beginning to change.
Thank you very much, BG.
People with much bigger foreheads than me must have calculated the ramifications of lowering the fed rates and the consequences of a weak U.S. dollar vs a recession. But I agree with you on the bailout… perhaps this will be a wakeup call for societal change through decades of excess spending.
On the flip side, great for tourism and foreign money filtering in
The question becomes- if you reallocate outside of the U.S., where exactly do you go? I don’t trust the Chinese markets (no transparency, government can seize assets at any time), Europe is attractive but the exchange rate is a killer.
I keep looking at US stocks that have a lot of business in other parts of the world- you get the upside of growing economies but under the American regulatory and legal framework which respects shareholder rights.
Hi TMW,
As a noob investor, that’s exactly what I’m trying to decide. I’m primarily an indexer right now with about 30% of my portfolio in the States and I’m sitting on a lot of cash. Most likely I’ll keep piling it on to reach 40% with an eye on the multinationals. I just bought Kraft as a long term hold.
I’ve already had my fill of emerging market ETFs but for kicks, I’m interested in dabbling directly in EWY South Korea. I need to research if it’s still undervalued as everyone thinks and there’s a December election soon. Wonder how it will affect it…