USA: 5% of world population with 50% of global market cap ?

[Delawaredave]

I continue to be amazed that the USA can have 5% of the world's population, use 25% of the world's energy, and have 50% of the world's stock market capitalization.

Does this mean anything towards long term asset allocation strategies ?

With globalization accelerating, I just gotta believe the US proportion will decrease (and/or global portion will grow faster).

Or maybe the US always was this dominant proportion and will continue to be so..

And maybe the proportion doesn't matter or correlate with the return on that capitalization.

 

[cute fuzzy bunny]

I think we also rule in butt size.

In the four pillars of investing, Bernstein made a nice chart of economic growth cycles against (IIRC) market returns. All societies/economies emerge, 'hit their stride', reach maturity, stagnate and eventually expire.

Much discussion on where we are in the cycle, but somewhere in 'reaching maturity' seems reasonable to me. Which means our historic returns are from an emerging market/boom times and will absolutely not be what we'll see going forward.

As to whether our economy/society will expire like all the other great ones have...we'll see.

 

[Nords]

I continue to be amazed that the USA can have 5% of the world's population, use 25% of the world's energy, and have 50% of the world's stock market capitalization.

I think the U.S. proportion of world GDP is also relevant. I don't remember the number, but it put the energy-use & market-cap percentages into perspective. If you're producing more than anyone else then you're probably eligible to use more energy and keep more of the profits.

Does this mean anything towards long term asset allocation strategies ?

Yeah. Diversify.

When people play the demographics they frequently encounter years-- even decades-- of underperformance as the stock prices lag the demographics. It took 20-30 years for the advantages of high-tech industries like railroads & automobiles to trickle down to company stock prices. Same for radio, TV, and computers. Internet productivity gains are still being realized.

When people play the country growth statistics they're also years ahead of the profits. Bernstein has pointed out that the GDP growth of countries like Brazil, Russia, India, & China may be ahead of the rest of the world, but their returns on their country funds are lagging.

Finally, globalization makes it a little bit more difficult to figure out that world's stock-market cap number. When a company chartered in the U.S. makes more than half its money overseas, whose stock market cap does it count against? When another company's American profits have been flat for over a decade but its overseas profits have doubled every few years during that same period, what market cap does that count against? When a country is pursuing policies that slash its currency to boost its exports and reduce its trade imbalance, should we invest in its currency or its stocks?

I think it's still prudent to have a big chunk of one's equity holdings outside U.S. companies and in currencies other than the dollar.

 

[CCdaCE]

Finally, globalization makes it a little bit more difficult to figure out that world's stock-market cap number.

I've often wondered how state GDP could possibly be calculated. Everything produced in each state is likely sold in others, but registers as GDP in the originating state.

GDP by state is derived as the sum of the GDP originating in all the industries in the state.

From less than 1/3 of the way down the page. Under Explanatory Notes.

So, I'm assuming its done the same way, without actually lookin' that up. Ahhh, assumptions.

Bah, I'm wrong, apparently it "doesn't matter where you're from", it's who you're selling to.

By contrast, GDP measures the total amount of goods and services that are produced within a country's geographic borders. Therefore, for GDP purposes, an American company with a plant in Brazil will actually contribute to Brazilian GDP.

Streetauthority.com

... assuming, again, that what is produced by an Amer. company is sold in Brazil. Probably not the case either.

-CC

 

[W2R]

In the four pillars of investing, Bernstein made a nice chart of economic growth cycles against (IIRC) market returns. All societies/economies emerge, 'hit their stride', reach maturity, stagnate and eventually expire.

I happened to have that book on my lap when I read this, so I looked it up. Of course, you recollect correctly (why am I not surprised? ).

Bernstein's Figure 1-15 on p. 30 shows "Years National Market in Existence" versus "Real Annualized Market Capital Returns".

Very interesting!

 

[cute fuzzy bunny]

Well hell, it was only two years ago that I read the dang thing!

 

[W2R]

Well hell, it was only two years ago that I read the dang thing!

When you got it, you got it!

 

[d]

I think the U.S. proportion of world GDP is also relevant. I don't remember the number, but it put the energy-use & market-cap percentages into perspective.

it's about 28%