Why the Obamaconomy doesn’t bother rich people: we’ve disinvested in the U.S.

by philg

To one of the 20+ million unemployed, underemployed, or “discouraged” Americans, the U.S. economic situation of 2009-2011 (let’s call it “the Obamaconomy” for shorthand, having been preceded by the “Bush Bubble” and the “Clinton Boom”) remains painful. Yet folks with jobs and the kind of rich people who have political influence (e.g., the folks who attended a $30,800/person fundraising dinner that resulted in the shutdown of one quarter of Manhattan on Tuesday night) don’t seem overly concerned about unemployment, government debt, or any of the other problems facing the U.S. going forward. The newspapers are filled with stories about our new Libyan war rather than what is happening to families of the chronically unemployed.

As part of my efforts to complete 2010 taxes, I took a look at my investment portfolio, which is probably pretty typical for an American (sadly it is not sized like a Wall Streeter’s or plastic surgeon’s, but the allocations are likely similar). It turns out that I have unintentionally disinvested in the U.S. About ten years ago I invested in a mixture of mutual funds. The U.S. large capitalization stocks (S&P 500) have stagnated. They’re worth about the same in nominal dollars, but the dollar has been debased relative to Euros, gold, oil, or almost any other yardstick. So the U.S. stocks are worth about 30 percent less. The foreign stocks have held up reasonably well, especially the emerging markets. Meanwhile the S&P 500 companies have experienced so much more growth in foreign countries, that a healthy fraction of an investment in the S&P 500 is now foreign economy exposure.

If my foreign market exposure was about 30 percent ten years ago, it is now closer to 60 percent, despite the fact that I haven’t made any trades. Simply as a consequence of the poor performance of U.S. equities and the U.S. dollar, only those folks who’ve been conscientious about portfolio rebalancing are still primarily investors in the U.S. economy. So it would be nice if the U.S. economy grew fast enough to create some jobs for the unemployed, but really the typical investor’s main financial interest is in the growth of other economies.

7 thoughts on “Why the Obamaconomy doesn’t bother rich people: we’ve disinvested in the U.S.”

  1. I think the people who rebalance their portfolio might be even less exposed to US equities; typically those who take the time to rebalance portfolios understand the real-vs-nominal argument you made above better than the average person.

    Cheers,
    -JCS

    PS: Ain’t it great to be visited by important dignitaries that shut down significant fractions of the traffic flow at convenient times like rush hour? Especially for us, peons, who get to enjoy none of the perks of the visit.

  2. Plus, for the past 5 years we’ve been told to invest more robustly in internationals.

  3. Reality is that anyone with a net worth of any liquidity, over $5-10 million, is engaged in moving their money overseas or otherwise shielding their assets. That the USA will impost very strict capital controls or other punitive measures on wealth that the IRS can get to, is obvious to anyone reading the political tea leaves.

  4. Patrick: What is your source for the idea that people with $5-10M are doing creative things with their money? The folks that I know aren’t (setting up an offshore corporation to hold profits legitimately earned offshore does not count).

  5. @patrick
    Strange that you wrote that. I have done the same here in Germany. There are just small accounts here plus some stuff in a safe. Most of the money is outside the EUDDSR (formerly known as EC) and yes parts of the money are on the other side of the world.

    @Phil. I once had some bonds from countries, But I sold them all some year or so ago. The debt records of most of the countries are devastating, This devastation will be shown to anyone not too far in the future.

    Overall the biggest problems theses days are governments. It’ s hard enough falling under their laws which to not hold for themselves and it’s even more bitter to see one’s money burned by diverse “fail-out” package (be it banks or countries)

    But maybe you can hope for some relief. If the Utah money path will get exemplary, you may be lucky…

  6. @PhilG: for one, my recent trip to the Philippines where overseas investors, not just returning Filipinos, are snapping up $150 to $200K condo units like candy. Not a bad idea to have rental units which you then visit, and write the visit to your income-earning property off your taxes. I think Friedrich’s post backs me up, however anecdotally.

    Second, it is all the buzz amongst the self-employed people I know who are in that range, though sadly I am not (yet, he says hopefully) in that bracket.

Comments are closed.