Smart Money Leaving America: Where Capital Is Flowing Now

The smart money is preparing to leave the United States stock market.

American equities have experienced a historic run over the last 17 years. The outperformance against the rest of the world has been uncanny. But this is not the way it always goes, and it is not the way it's likely to continue. I think this picture will probably flip over the next five years.

If you've been watching your retirement account over the last few weeks, you know it hasn't been a lot of fun. With the exception of maybe some crude oil, everything is down in price. Metals, commodities, stocks, and every sector.

Instead of just watching my account go down every day, I decided to do something useful. I started looking for the best values available right now, what's cheap and likely to go up over the next several years.

What I found was another stock market that is in some ways superior to the US market today. It trades at a fraction of the price. And I believe it will substantially outperform the US in the coming years.

America's Macro Picture Is Breaking Down

The first thing we need to do as American investors is take a hard look in the mirror. The macroeconomic picture in this country is deteriorating.

The US just started a war. The executive branch is attacking the independence of the central bank, pitting Trump against Powell. We're running budget deficits of $2.5 trillion per year. And keep in mind, this massive deficit spending is happening in a good economy. We have judicial interference with monetary policy. These tariffs, no one knows who's in control.

On top of all that, our politicians have already spent our children's tax dollars. There is zero plan to ever solve the debt problem that will one day hit our financial system.

Then you have to look at our largest, most profitable companies. The Amazons and Googles and Microsofts of the world are burning cash at record rates. These are the characteristics typically seen in emerging markets. And yet the US stock market still carries a premium developed-market valuation.

The Global Valuation Disconnect

Stock prices in America today are high. Even on a relative basis, our valuations are some of the highest we have ever seen. I don't like paying top dollar for generic merchandise.

Think about expats moving overseas. You hear about people moving to Colombia because of what they get for their money. The house they can have. The food they can buy. The exact same principle applies to stocks.

We measure this using the price-to-earnings ratio. The PE ratio simply tells you how many times a company's earnings you're paying for a stock. Imagine you're buying a restaurant. You don't have to do any work, and the restaurant makes $100,000 a year. If you buy that business for $500,000, you're paying five times earnings. Your PE is five. If you pay $5 million for that same restaurant making $100,000 a year, you're paying 50 times earnings. That is not a very good return. The higher the number, the more expensive the stock.

The United States is the largest economy and stock market in the world. It makes sense that our stocks hold a premium. But that premium is getting ridiculous.

Right now, the United States is trading at 21 to 22 times earnings. The rest of the world? About 13 or 14 times earnings. Emerging markets are trading at a PE of 12, roughly half the US. China sits at about 11. And Brazil? The Brazilian stock market trades at about 7 to 8 times earnings.

We're not talking about tiny micro-cap startups riding bicycles to deliver packages. These are big, multi-billion dollar companies trading at a massive discount.

A Historic Shift Is Underway

Yes, it looks like the US is the only game in town right now. But when you zoom out, a completely different reality emerges.

There are distinct periods where emerging markets have massively outperformed the United States. The early 2000s are the clearest example. From mid-2003 to the peak right before the 2008 crash, emerging markets rose 370% compared to just 52% for the United States.

If you look at the growth of one dollar across major indexes over a hundred years, from 1926 to the present, the performance is all pretty similar. US large caps, developed nations outside the US, and emerging markets outside the US all end up in a similar place over a century. If these markets all eventually go to the same place, you want to buy the one that is currently down. You don't want to buy the one already all the way up.

Right now, emerging markets are breaking out from a near 20-year base pattern. They are just now exceeding the prices they were back in 2007. This action reminds me of gold about two years ago. Gold had a huge run in the early 2000s, chopped around for the next 10 to 15 years, broke out, and then surged to the levels we see today.

When I look at emerging markets, I don't see a lagging market. I see the early stages of a multi-year run.

Why Brazil Is the Ultimate Target

I analyzed every nation's index to find where the best momentum and fundamentals are hiding. Over the last couple of years, the United States has been middle of the pack at best.

Other markets are doing far better. Israel (EIS) is the second best over the last couple of years. South Korea (EWY) and Austria (EWO) are showing strong momentum. South Africa is benefiting from a resource boom. But the single most attractive market to me right now is Brazil.

From a fundamental standpoint, the valuations in Brazil are beautiful. You're paying about half, or a little bit less, for every dollar of earnings and sales compared to the US. Beyond the cheap valuations, Brazil and its companies have huge resources. We're talking about petroleum, natural gas, gold, aluminum, iron ore, plus agricultural resources like soybeans and coffee. And we are extremely bullish on commodities right now.

The Interest Rate Fuel

There is one other tailwind that will push the Brazilian market higher. That tailwind is interest rates.

Here in the US, investors freak out over interest rates hitting 5.5% or 6%. Brazilian interest rates are currently sitting at 14.75%. That's the highest they've been since 2006.

The correlation between interest rates and stocks is straightforward. When rates go up, stock prices come down. When rates go down, stock prices go up. This is exactly why US stocks sell off when Powell holds a meeting with the Fed and it's a no cut to interest rates.

Lower interest rates mean the consumer spends more. Businesses borrow more and expand. People take on more debt. There's more leverage. It just pushes stock prices higher. Plus, the valuations of stocks rise because the alternative is a bond paying a very low interest rate.

How to Position Your Portfolio

You can get exposure to this shift with simple ETFs. You can buy these in any investment account, IRA, or brokerage. They trade just like regular stocks.

The Broad Emerging Market Play

If you want to play the whole emerging market trend, the ticker is EEM. That's the iShares MSCI Emerging Market Index. It gives you broad exposure to countries like India, Brazil, Spain, Poland, and Austria.

The Focused Brazil Play

If you want to focus specifically on Brazil, the ticker is EWZ. This is the iShares MSCI Brazil ETF. It's an investment-grade ETF with about $9 billion in assets under management. It holds 53 stocks, banks and industrials, very heavily weighted. This is a huge trade right now.

Markets to Avoid

While I love Brazil, I'm not buying everything. I wouldn't pick the dogs at the bottom of the performance list. KSA, Saudi Arabia? No thank you. India? I'm good. You have to be selective.

My Personal Portfolio Move

I'm putting my money exactly where my mouth is. Three days ago, I sold all of my Vanguard S&P 500 ETF shares. I took all of that money and replaced that allocation entirely with EWZ.

I'm not trying to short the US market. I'm not saying the US stock market is about to crash, nothing like that. But when I step back and take a macro view, take a real look at where the values are, who has the most resources, which stocks are trading at low multiples, this is just far more attractive than the S&P 500.

Shielding Your Wealth Outside the US

If you're getting a little tired of watching the US market chop around, if you're worried about $38 trillion in debt, the situation with Iran, or worried the AI bubble is going to become a bubble and explode and the $600 billion in annual capex is not going to result in profits, this is a way to at least shield yourself. Get some exposure to markets outside the United States.

I think EWZ is a great way to do exactly that.

The smart money recognizes when a 17-year trend is exhausted.

We are watching a 20-year base pattern break out in emerging markets. The valuations are cheap, the resources are huge, and the interest rate tailwinds are just beginning. Don't wait for the rest of the market to catch on.