With Europe in crisis and Asian economies slowing, I've been slowly but surely shifting my portfolio back toward assets in the United States. That's why I've been recently recommending U.S. blue-chips like Ford (F), MasterCard (MA) and even Berkshire Hathaway (BRK.B).
This is highly unusual for me. I have always been an evangelist of sorts for global stocks. I've done this for the same reason that Willie Sutton gave for robbing banks: "That's where the money is."
And for a long while, that approach worked well. Thanks to a combination of superior economic growth prospects of global economies and the tailwind of a declining U.S. dollar, global markets over the past decade offered far superior returns to a stagnant, choppy U.S. market. After all, it's worth remembering that on Friday, the S&P 500 closed at 1219.50 -- just below the level it first breached on Dec. 23, 1998, almost exactly 13 years ago. Throw in the effects of inflation, and a U.S. index investor is down about 30% in real terms.
But I'm now starting to think that 2011 just might mark a turning point where the U.S. starts to outperform the rest of global markets. This year, only the U.S. and Indonesian stock markets are in the black as we head into the final weeks of 2011. The MSCI Emerging Market Index is down by 20.76%. The BRIC markets (Brazil, Russia, India and China) have all dropped by more than that this year.
There are two reasons for this scenario.
First, the U.S economy and companies offer superior growth prospects. For all the virtual ink being spilt over congressional gridlock, partisan politics and the prospect of double-dip recessions, the U.S economy is expanding near trend.
Second, no matter what your politics, it is highly likely that the U.S. elections in November -- and potential regime change in the U.S. in January 2013 -- will occur peacefully. We take that for granted. But citizens of many countries around the world cannot do the same.
This extraordinary level of uncertainty was driven home to me this past weekend when I was in Budapest. Although Hungary is a member of the EU, a nationalistic government is gradually dismantling the most basic of institutional framework of a free-market economy. After nationalizing the last of its citizens private pensions funds, the regime just proposed that the equivalent of the Fed and the SEC be merged under a "tsar" appointed by the current prime minister, who has an absolute majority in the equivalent of both houses of Congress. As a result, the professional class is starting to quietly transfer its financial assets out of the country. Their currency of choice? The U.S. dollar.
So what do the travails of a country with an economy the size of the city of Minneapolis have to do with the price of stocks on Wall Street?
Think of what's happening at the periphery of the EU as a canary in a coal mine. Throw in the fact that the Chinese yuan is now under pressure from the millions of Chinese who are seeking to expatriate their wealth into the U.S. and Canada, and you can see why all U.S. assets -- stocks, bonds, currency, real estate -- can start to look incredibly cheap. And the prospect of this huge wall of money escaping uncertain climes all across the globe is extremely bullish for U.S. assets over the coming years.
I must confess, this all still sounds a bit extreme to me. But after what I've seen on the ground at Europe's edges last week, I'm no longer so sure.
The bottom line? I'm bringing a lot of my money home.