I became involved in international investing, mostly by accident, in the early 1980s, when I took a job managing an Australian portfolio for a big US-based money manager. Within six months or so, I also had responsibility for the rest of the Pacific, ex Japan. That meant mostly Hong Kong, Singapore/Malaysia and Thailand.

This was lucky for me, in two ways:

–my boss, a stern taskmaster, would call me into her office every day and call out ticker symbols. I had to talk about the price, trading volume, major buyers and sellers, and how the price action deviated from either the stock’s industry group or the market in general. I also had to know the brokerage houses involved in the trading. It was brutal at first, but it made me much more sensitive to trying to understand the stories behind price moves.

–this was also an incredible time for international markets, one we have not seen in the last quarter-century. The EU was being formed, as a counter to the power of the US; China was entering the post-Mao era; yen strength was causing a renaissance of Japan’s domestic economy; and labor-intensive manufacturing was shifting from the developed to the developing world.

All that began to fade away after Y2K, with American-led IT taking center stage. The UK’s blowing up the EU, the senescence of Japan, and the Chinese Communist Party’s reassertion of Mao-like control over that country were all also helpful, but of minor significance. A second major plus factor for the US, though, was that as the working population of the rest of the developed world aged, the US kept itself relatively youthful by accepting young hard-working immigrants.

Since the beginning of this year, however, the EAFE index of foreign stocks is up by about +8%. In contrast, NASDAQ is down by about 12% and the S&P has declined by about 7%. The spread between EAFE and NASDAQ is a stunning +20%. Against the S&P, spread is almost +15%.

It’s the kind of thing one might generally expect, given the strong anti-growth economic policies of the Trump administration. I’m surprised, though, that the relative decline has been so fast. Yes, despite his new hair color and more subdued face paint, Trump does appear increasingly Biden-esque. I don’t think worries about possible accelerating cognitive decline are the key factor here, though. To my mind, the bigger worry is that Congress seems to be amplifying the anti-growth, raise tariffs/shrink the workforce impulse emanating from the White House.

generally speaking…

To my mind, the most important rule for any investor is not to make stupid investments.

The reality is though, that even the best professional investors do things that seem good at the time but turn out in the end to be really stupid. The dividing line between success/survival as a professional and failure/being fired is not determined by avoiding doing a fair measure of dumb things, but rather how big the percentage of the portfolio dedicated to stupidity turns out to be and one’s diligence in working out which holdings are clunkers and replacing them with something not as dumb.

A second is not letting scary times, like the one we’re in now, get you so emotionally out of balance that you do extra-strength stupid things, i.e., stuff that will give you emotional satisfaction for the moment but which will not look that great in calmer waters.

Given that in scary times people tend to do extra-stupid things, a reasonable first rule is to do nothing. Take a walk, go to the gym, read a bunch of 10-Ks …but don’t dump out the crown jewels of the portfolio simply because they’re going down.

Perhaps oddly, but I think it makes a lot of sense, this is a good market for upgrading your portfolio by getting rid of the clunkers that are hiding in plain sight–the holdings that have never gone up–and replace them with stocks that are former (and future) stars that are now falling through the floor. A simple screen would be stocks that haven’t gone up at all in the past year–and which are now starring on Wall Street by not going down.

the biggest imponderable

In more normal times, I’d assess what’s happening in the stock market now as a typical correction in an ongoing, gently rising, bull market.

Another strong possibility is that, putting culture wars to the side and looking solely at the professed economic agenda of the current administration, the stock market is beginning to work out that its plans to: shrink the labor force, raise domestic prices and deemphasize teaching children skills that will make them more valuable workers, is a recipe for economic stagnation. Personally, I do think this is the administration’s plan, given its (unfounded) belief that its actions won’t have bed consequences. The real issue is whether saner heads will prevail. One can easily read the current market as saying that no one will ride to the rescue.

If the second, the market downturn will likely be longer and deeper than most expect. And multinationals will likely continue to do better than companies whose sole market is the US.

two things:

–for almost two decades, there’s really been no reason for investors to bother with any stock market other than the US. This is in part because of political woes elsewhere–the continuing demise of Japan, Brexit, the rise of Xi in China. Mostly, though, it has been the economic strength of the US and the country’s role as the world’s technology center. Not so this year, however. The US market is a very distinct laggard.

–I get no sense that the downtrend in the US stock market, either in absolute terms or relative to other markets in the world, is close to being over. On the other hand, I get no strong sense from current stock price action that a lot more bad is still to come.

Two reasons for the latter.

The simpler is that a large portion of the earnings of the S&P and NASDAQ come from abroad. Companies are required to disclose this in their 10ks, but since this is commercially valuable information tend to do so in as unclear a way as they can get away with. Half is a reasonable guess, but for IT in particular it’s probably significantly more.

The other is that given that Trump’s tariff ideas are bad for the US economy–and that his failure to understand this is lost likely not a pretense (a scary combination)–it’s hard to assess how much of his program will actually get done. So far there seems to be no opposition at all. However, the market seems to be thinking that some will soon emerge.

what I’m doing

–I’m buying Hong Kong stocks for the first time in ages

–I’ve tilted my holdings toward you-can’t-fall-off-the-floor value names

My list of types of retail stores sorted by prices charged, from high to low, goes like this:

luxury goods

specialty retail

department stores, to the degree they still exist

Target

supermarkets go in someplace around here

Walmart

dollar stores, with Dollar General at the top and Ollies at the bottom

thrift stores

home gardens, other non-listed low-end retail.

In economic expansions, consumers typically trade up; in contractions, they trade down. So you can get a quick and dirty view of how the economy is doing by watching how the escalator is operating.

One of the notable aspects of the second half of the Biden administration is that shoppers seem to me to have ridden up to Walmart, but no farther. Part of that is that I think Walmart (I own shares) has done a surprisingly good job of holding on to customers who might otherwise have ridden higher.

Where are we now?

WMT recently reported that it expected subdued same sales growth for this year, with maybe +3% vs. a pre-Trump goal of +5%. Tariffs–now in place–would dent that. TGT just reported that it expects a same store sales decline in the current quarter, followed by maybe flat.

Sounds to me like the start of an economic contraction. If so, the Fed will, sooner or later, step in to lower short-term interest rates. This is a plus, in that it makes borrowing cheaper, but maybe also a minus–if it causes currency weakness that raises the cost of foreign-sourced goods.

Not a pretty picture.

Shame on me for my neglect. I’ve been wrapped up more than usual with the market, though, and have had a prolonged case of whatever horrible flu-like bug that’s been going around. But…

here’s Keeping Score for February 2025 and year-to-date. Not pretty reading for the US economy.