From Downtown Milwaukee, welcome to Money talk with Bob. Each week, professional advisors from Land and company investments, discuss the latest financial developments offering timely insight and long term perspective. This is Money talk for the fifth of July. While the brewers are N la for the long July fourth weekend and then fly across country to Pittsburgh.
Summer fest wraps up this weekend, and you'll have to go to the county park for the fireworks unless you're the daring kind doesn't mind losing a finger. Let's start with a crocodile. A crock was terror a small Austrian Australian town by chasing children and eating their pets. So the residents killed him, cooked him and ate him. He was 12 feet long and fed nearly everyone in the village. Lead singer the legendary 4 tops is suing a Michigan hospital.
The staff thought he was delusional because he told them He was the lead singer of the 4 tops. Didn't believe him, so they put him in a strait jacket. It was clearly haven't cardiac distress. I'm surprised they didn't ask for autograph. And finally, an American airlines passengers being sued by the Faa after being duct taped to her seat. Heather Wills is her name and reportedly, she got she bit kicked and spat on the staff and attempted to open front cabin door.
Duct tip. Don't leave home without it. On the podcast today, we have Dave Sands, Adam Bi, Joel Dr and wrapping up the week. Here's Kyle tit. Well, thanks, Max. No closing numbers this week. On a trade short week with the fourth of July on Thursday. We're gonna, record a little bit ahead of time here, and so the numbers will be available, but not not recording him on podcast today.
Instead, I wanna spend just a little bit of time with the idea of what it means to be an investor here in Am america and all the great opportunities we have, all the reasons why it makes sense often to focus on investing in Us businesses, know, we are such a global economy now that it is so easy to say. Well, what's the right amount to have?
You in foreign stocks. What's the right exposure I should have as an investor and plenty of reasons why you want some I think it's also critical to understand that what happens here in the Us is a great reason to be a Us investor. And that isn't necessarily unique to us, Home country bias is a topic that's been written about. We've talked about it on our own Youtube channel in the past, but when you look globally, it is a
concept that is quite common. Investors in Australia in the Uk and Canada, have proportionally, more of their portfolio invested in their own countries, than they do in what they otherwise would have as their country's proportion of gross domestic product or as invest market. And so when we kinda jump off from the idea adam it's, I think fair to understand that this isn't unique to just country or even just us here in America. No. It's not. And I think it just... Hits home with
invest with what you know. I mean, in in essence it's kind of a theme, and that's true here. United States it's true In Europe it's to Australia where Australian investors would probably have a lot of their own personal assets in Australian companies or through a German and Germany or United States Citizen here the United States.
And it does make a fair amount of sense, and that's essentially what we mean by home company, home country bias as having the the dominant share, the lion share of your equity exposure or even bond exposure to your own country and your currency and in here in the United States there's lots of reasons to to have that in part because we have, you know, stable government. We have stable infrastructure we have. And exposure to very profitable
growing businesses and good to accounting practices. So there's lots of reasons to have a dominant exposure of your portfolio here in Us businesses. But you gotta have more than just Us because there's lots of opportunities overseas as well. Yeah, and I love the invest in what you know. There was a great study going back to the nineties looking at the breakup of At and T. And you had all of these baby bell companies coming from My that were regional specific. And when you looked at
who the... The majority of investors were in those businesses. They tended to be people from those regions. It wasn't even a... Well, I want this American company. It was I want the baby bell that's specific to my corner of the Us because that's the 1 that I'm paying. That's the the deal I'm getting. That's the the sales that I'm helping stimulate when I make that long distance call. And so I think, you know, we see it across the board.
And then I think as we look at what it means more broadly to have that home country bias. I think it's fair. Dave, maybe to understand that the way we look at a portfolio strictly measures, dom. Right? It strictly measures. What's the headquarters of the company we're buying, is that a Us company, Irish company, a British company, whatever that looks like. But when you think about the nature of businesses here in the Us, they're not strictly selling to Us consumers. And so I think there's a
bigger story than just strictly. Where's the headquarters for this company? And and I think Kyle has a big role and and why we've seen over the years, some of that... Benefit of the diversification by company based on where they are located, because of the multinational and the and just basically the globalization of the the world economy. So, you know, companies here in the United States, big ones that they're selling in every.
Every market across the planet. And so you you are getting that international exposure through through those revenue streams that, you know, quite honestly, 50 years ago or 60 years ago, you probably had to buy the company that was in that particular market to take advantage of those consumers. So And and it's played out in the... Really in the correlation of those 2 asset classes, you know, Us versus...
International stocks. There used to be a much a much lower correlation between the 2 prior to that globalization prior to the the maybe the late eighties. Correlation between those stocks was, you know, around only about 40 percent. So you were... You had a pretty good diversify there. Now that's probably about 80 percent correlation between the 2. And it's probably because of that, the globalization and the multinational is taking you
know, basically spreading out the the risk. You to put some more meat on the bone from this. If you were to just own 1 share of the s and p 500. All of those are companies dom here in the United States. But when you look at revenue, even though they're all here in the United States 40 percent of their revenue comes from
overseas. So even owning just Us businesses, you just still have access to your point, to consumers are across the the globe in different countries in different currencies, you're you're doing business around the planet? How how how hard would it be to try to get a portfolio that was 100 percent Us companies doing business only in the Us. Nearly impossible unless you wanna buy just utility stocks. Or something that is a very
niche product. You know, it's really hard to bottle up electricity transport it over to France. They're gonna make their own electricity and transmitted over their own lines to their customers. And so there are some businesses certainly that are a hundred percent or nearly a hundred percent central to their
country, their region. But the vast majority of businesses is even very small businesses now are doing trade globally even if not intentionally, they have buyers that are all over the world, and I think it does speak to the global nature of these businesses, I was having a conversation with 1 of our colleagues that came from an auto parts supplier earlier this week, talking about how, their business essentially is in,
like, with headquarters in 25 different companies. There they're in Ireland dominic dom company. But when you look at where the business is actually conducted. Every business unit has a different country that they would call home. And so her paychecks would sometimes come from Italy or from Ireland or from a Caribbean island just depending on what projects she was working on because that's the business unit that was ultimately paying the salary. And so, when you think of it that way. Right??
Okay. Wisconsin electric, probably mostly gonna be revenue from Wisconsin consumers. But if you really are a company that sells anything that even remotely can be transmitted across a, you know, across a wide range of the world, you're probably dealing with a business that's got some revenue outside the Us. You know, I think as we look maybe a little bit more broadly at just how meaningful some of the opportunity here is in
the Us. I think there's lots of reasons why the things we do here look a little different than the rest of the world. They've. You know, we spend a lot of time on the podcast talking about the opportunities in technology. Well, you look at all of the technology businesses in the world, some of the biggest most profitable are right here in the Us. And I think that also leads to at least in the United States
this home country bias. Right? In the size of our stake here in this in this market is if you wanna on tech stocks, you're gonna basically be buying Us companies. And so that's gonna that's gonna overweight your position as it is. Now, you know, 1 of the things that you know, does raise that attraction for some of the overseas markets as valuations. If you if you look at right now be... And, you know, and in part because of the tech exposure here in the United States, You know,
the... You look at peas overseas, very close to their long term average right now, as opposed to here in the United States, you could argue that peas are are elevated to to some pretty steep, you know, price points. So I think there's some opportunities overseas with the attractiveness of those Pe. But, yeah, the tech companies have certainly been the dominant place to be recently. And it also plays into just market concentration. As well.
Part because here in the United States, we have a lot of the biggest tech businesses, and it has just led to a lot of market concentration. A lot of market dominance if you will, by Us companies. And, you know, the the dominance isn't an issue. It's not unprecedented. It's something if you remember back to what the seventies or eighties, the nifty 50, from the S and P 500 back then or the magnificent 7 as we call them today.
Market dominance it's dominance is not a problem for as long as it continues to be supported by the fundamentals And for now, at least, you know, interest rate still historically low earnings still on the rise, the fundamentals
still can support. For the moment. Yeah. We've talked to a lot about the stocks out of the portfolio and certainly, I think a lot of reasons why Us investors should focus a lot on Us businesses, there's another part of this conversation though, and that is that what we choose to invest in isn't strictly stocks. And Adam, I know you spend a lot of time looking at opportunities in the bond market, talking about kinda what that means for investors.
You know, historically, there were often better yield opportunities outside the Us. And I'm not sure that's the case anymore. Yeah. And when it relates to bonds, you know, if Joel, you asked the question, can you build a portfolio of a hundred percent, you know, Us centric? Maybe not in stocks, but you can in bonds specifically municipal?
And that's 1 of the areas where you probably wanna be Us centric, especially if you're in a higher tax bracket, municipal don't make sense for everybody, but if you're a Us investor, and you're a higher taxpayer individual or family, you're gonna wanna have some municipal bonds. And more broadly on the bond market itself, I guess, I don't have any problem at all being Us centric in your your bond portfolio allocation.
Because once you start to introduce non Us bonds, to your otherwise safe money, you're now introducing currency risk or political risk. And for the vast majority of people, I'm not so sure that's a risk you might need to take. If you do have some non Bonds inside of your your safe money, your bond money, keep it modest I always like to carve out at most, maybe 5 percent for bond money outside of the Us. You know, we
talk about levers of risk. Skin. What can you pull that might create opportunity or cause volatility within your portfolio? And generally for bonds, it's 2, it's credit and interest rates. And if credit becomes a problem if we see rising defaults, and you pulled the credit lever as something that you wanted exposure to you're gonna feel the pain of those rising
defaults. And if interest rates are the lever you're pulling, If you want exposure to the potential for rising and falling rates, Well, remember that inverse relationship rates go up. Your bond prices are gonna go down for a while. Rates go down. It's gonna work the other way. To your point, Adam, you add in that foreign bond component and now you've added a whole another lever, not just from a... Well, now we also have the currency risk perspective, but also from
the... What global central banks do isn't strictly tied to what our risks are. And so, you know, Dave, we've got some very specific risks to investors here in the Us, and think inflation being probably the bigger 1 speaks to maybe why the Fed might be doing things a little different at times than what's other global central banks are doing and maybe another reason why, you know, beyond stocks, beyond bonds. There's a range of investment opportunities there's are specific to Un Us investors.
You know, it's interesting that that you bring up the point about the central banks globally, Kyle because you're you know, we we came into this year and it was as markets were looking. It was a no brainer that the that our federal reserve was... Light years ahead of the rest of the central banks around the world. And and here we are and there's multiple foreign central banks that have already cut rates in in their attempts to, you know, already
start to spur some economic activity. So it it does create a situation with the with the foreign fixed income market, certainly, as volatile or even maybe at times more volatile than here in the United States, with And and I think to kinda to Adam's point too about some of the risks that's involved with investing in these other foreign countries and fixed income, it was a double w when you looked at the 0 interest rate policies that actually occurred globally. That wasn't just here in the
United States. That was everywhere. And so when you completely take all the yield out of the market and you still have that risk, it it really made it unattractive. You know, maybe that works its way out now that rates are normalizing a little bit and maybe some opportunities come up in the future, but that would that was a pretty tough sell. Over the last 10 years. So, yeah, The Japanese bond is now a positive 9 tenths of a percent. As so as is the the German bond, which is 2.4.
It wasn't too many years ago when we were talking about negative interest rates and, you know, they're positive now, which is good and it's healthy to see. You know, I think it is such a a critical reminder that Us investors and being a... An investor in the Us and investing in the Us. Encompasses a whole bunch of risks that are specific sometimes to our region, but also that when you when you view the world more
globally as we've had to. Again, Adam, your earlier 0.40 percent of revenue for the S and P coming from outside the Us. And Dave, when you kind of view, some of the risks of global central banks that you were talking about. I think it... There's so many reasons why we're gonna continue to be focused not exclusively, but certainly more than we might otherwise on the opportunities
that exist here in the Us. That said, as opportunities emerge globally as Us businesses kind of become more and or less profitable and more or less of value it's gonna be necessary to reassess that. And so I think... And, there isn't the right number. Sometimes the question I get, what's the right number to have in non Us stocks or what's the right number? Yeah. We have guidelines. We have rules of thumb, but it very much is specific to the
opportunity set that's out there. And so I think you know, our our attempt to be patriotic this week with the fourth just just behind us now and certainly as we kinda think through Alright. How how do we build a portfolio that best takes advantage of the opportunities that are out there? I think a lot of the Us stocks that we so much care about. Need to continue to be a big part of that. With that, we enjoy doing the program for you. We will talk to you again next week.
Thank you for listening to money talk with Bob Land. If you have a financial question you want answered on next week's show, email it to money talk dot com. To keep informed throughout the week, visit our money talk page at dot com.