Wednesday, November 28, 2007

Kudlow 101: The U.S. is a Winner

There’s a news story out there that some big state pension funds like Texas, California, and New York are moving out of U.S. stocks and into foreign equities. In some cases, these guys are dropping their U.S. exposure to as low as 25 percent. Here's my question: Are you really sure you want to do this folks?

Let’s take a look at some factoids:

The above chart covers the last twenty years. The big winner—no question about it—is emerging market stocks. The global spread of capitalism has been going gangbusters shown by emerging markets near 20,000 percent rise since 1987. Excluding that however, the U.S is up 481 percent, with Europe close behind at 435 percent. Japan is actually down 9 percent. The world (excluding the U.S.) came in on the low side at 160 percent, with total world at 314 percent. In other words, after our friends in India, Brazil, China, and Eastern Europe, it’s the United States that won the sweepstakes.

Now for the final chart. The big picture story. You’ve no doubt seen this before.

Look at the move from the early 1980s right up to present day. The Dow’s up about 1200 percent during that time including dividends. That’s a 14 percent annual rate of return. Not too shabby.

Bottom Line: It would be wise for these pension guys to reconsider vacating the U.S. stock market.