After reading columnist Martin Hutchinson's latest report on the Greek debt crisis last week, one Money Morning reader posed an excellent question: Given the crises already afflicting the markets in Europe and Japan – and the clearly darkening outlook for the U.S. economy – is it possible to craft a "non-U.S. investing strategy" of some type?
The answer, surprisingly enough, is "yes." You can put together an investment plan that largely avoids U.S.-related holdings – in essence, a non-U.S. investing strategy – and you can put it to work.
But before you can do that, you must fully understand the current challenges at hand.
Why You Need a Non-U.S. Investing Strategy
Back in the "good old days," there was always at least one developed region of the world an investor could flee to when the going got rough in the others.
Japan was ailing? No problem, take a look at the U.S. economy.
Germany was stumbling, causing Europe to wheeze? No sweat, Japan was looking good.
The U.S. market has stumbled? Don't worry – Europe's common market offered a nice haven.
Unfortunately, those once-predictable patterns have disappeared – and have been replaced by a highly daunting global-investing triple threat. For instance:
- In Europe, the Greek default looms as a financial catastrophe that might take down the European banking system.
- In Japan, a decades-long malaise has evolved into an economic sinkhole because of the nuclear power plant disaster that badly exacerbated the March 11 earthquake-and-tsunami catastrophe.
- In the United States, where the economy is generating new jobs at only one-quarter of the expected rate – it appears the nation is ready to flatline itself into a double-dip recession.
So it's no wonder that investors are looking for an investment strategy that doesn't include any U.S. holdings.
Moves to Make Now
Having identified that as our objective, we put the question to Hutchinson, a former global merchant banker who has advised companies and countries as they worked to craft economic and investing strategies of their own: If an investor wants to pursue a non-U.S. investing strategy, how should one go about it?
"A combination of gold and other commodities and investments in Asia is the simple answer to that question," Hutchinson said. "Places like Singapore, Korea, Japan and Taiwan will be affected by troubles in the West, but they have their own strengths and don't owe foreigners any money (Japan's huge public debt is almost entirely owed to its own people)."
And when it comes to Europe, Hutchinson cautioned against confusing the prospects and the suspects: In other words, there are some markets that will be okay – and safe for inclusion in a non-U.S. investing strategy, Hutchinson said.
"Germany and Scandinavia will also be okay, provided they don't bankrupt themselves trying to bail out Greece and the other PIIGS (Portugal, Italy, Ireland, Greece and Spain), or their own banks," Hutchinson said. "Again, they don't owe foreigners much money … and they do have strong economies."
Still, given escalating near-term worries of a "double-dip" recession, and the long-term fears of the fallout from the massive debt load this country has amassed, it's completely understandable that some folks want to avoid U.S. government bonds and the stocks of U.S.-domiciled companies. And it is possible to craft a non-U.S. investing strategy.
If you believe the U.S. faces long-term problems because of its ailing economy and massive post-financial-crisis debt burden, then you probably also believe that the dollar is doomed. To play the decline of the dollar, precious metals are the traditional method – either directly with physical gold, or indirectly through such exchange-traded funds (ETFs) as the SPDR Gold Trust (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV).
You should be aware, however, that both these vehicles are accumulating an increasing "tracking error," as the volatility of gold and silver prices and speculative demand for those metals prevents the funds from tracking gold and silver properly and makes their share prices fall further and further behind those of the actual metals.
Still, poor tracking is better than no tracking, and they remain a more convenient way to play the metals than the metals themselves, where retail investors invariably get ripped off when they want to sell.
For another way to play this non-U.S. investing theme, take a look at shares of companies or funds in countries that are not subject to U.S. monetary policy. In particular, the iShares MSCI Index ETFs for Germany (NYSE: EWG), South Korea (NYSE: EWY) and Singapore (NYSE: EWS) look like very attractive alternatives. And, for Taiwan, there's the iShares MSCI Taiwan Index ETF (EWT).
News and Related Story Links:
State of the U.S. Economy Grows Murkier.
- The Wall Street Journal:
Amid Greece Debt Fears, Few Options And None Of Them Good.