Consistent with his "Investment Rules," this post describes a psychologically easier trade for Chicken Little of shorting Non-US stocks.
|Chicken Little is betting against Stocks Outside the US |
Chicken Little Dating Rules - very condensed
Chicken Little seeks positions that are consistent with a deflationary depression and positions that exhibit momentum.
In a deflationary depression, stocks all around the world will plummet. So based on the first criteria, one might expect Chicken Little to be betting against stocks all over the world. However, US stocks continue to hit new all-time highs; the opposite of what a momentum investors seeks to bet against.
In sharp contrast, however, stocks outside the US can be argued to exhibit bearish momentum.
The chart and the table show prices for a basket of 'EAFE' stocks - Companies in this group are domiciled outside the US in places that include Britain, Continental Europe, as well as Japan and Australia.
A momentum investor likes to bet against assets that are going down in price. International stocks have not hit a new high in over nine years. The chart shows a series of lower highs. (To be fair, however, since the low in 2007, the prices also show a series of higher lows -- time will tell whether the negative view is correct.)