The Russell 2000 index gives us the purest view of global investor thoughts about the US economy. It’s down by about -6% year to date in $US.

This contrasts with the EAFE index of stocks in the developed world ex the US, again investors’ best assessment, this time of the world outside the US. It’s up in $US so far this year by +18%.

The spread is 24%–which is enormous! My sense (I haven’t gone back to look) is that this is the largest outperformance of ROW stocks vs. US in at least a quarter-century.

Note: NASDAQ and the S&P 500 both have something like a 50/50 mix of US and foreign, so they don’t give an area-specific view.

More:–

If we take the UK, the sick man of Europe, its FT index is up by 7% in local currency terms so far this year Sterling has gained about another +7% against the USD, making the return in $US just under 15%.

Japan, whose working population peaked over 30 years ago and whose economic direction is, even now, deeply influenced by the old samurai codes–in other words, a train wreck still in progress–in the plus column in $US, although only by about +5%.

For what it’s worth, the S&P and NASDAQ are flattish.

Why is this happening?

I think the four main things are:

–tariffs. The domestic auto industry has had tariff or quota protection for over half a century. GM had half the domestic market back then, but was unable to keep pace with Japanese competition, even being given a leg up by Washington. This is in line with economic theory and real-world experience that protection engenders worse performance, not better.

GM is still a mess now, even after going through bankruptcy–and is neck and neck with Toyota–which has been on the receiving end of US government protective measures–for the domestic market share lead with ~15%.

Besides not working, tariffs add to inflation and reduce real incomes.

–ICE grabbing and deporting immigrants to foreign prisons before they can exercise their legal rights is a very bad look. It also conjures up images of Manzanar, or the gulags, or the fascism of post-WWI Europe–the opposite of what the land of the free and the home of the brave are supposed to be. This activity seems to have the enthusiastic approval of the President

–Trump himself. News articles are beginning to appear that suggest he is suffering from the same kind of cognitive decline that Biden’s handlers hid from the public during his second term.

–why isn’t either side of the aisle in Congress speaking up about any of this?

I’ve always thought of the UK as a sad country economically, lost in dreams of past glory–and not the kind of place you’d like to invest your money. I suspect that the US is starting to give off the same vibe. I hope not, but for the first time since the Nixon years I think we can’t simply rule this out.