“The flip side is that the U.S. has a lot of large, mega-cap companies that need the whole world, platform companies like Google and Facebook,” Weisman observes. If authoritarian nations like Russia and Turkey want control over their own intranets, the more authoritarian the nation where the tech platform resides, the more likely that platform wins the business.
European countries understandably will want to play both sides to the extent they can, especially since they don’t have these mega-cap tech companies.
Other developed economies face even bigger challenges, in McMillan’s view. Europe and Japan are beset by declining labor forces, and access to capital is likely to be constrained as global investors seek regions with more promising returns. Additionally, they could be forced to choose between markets the same way smaller emerging nations are.
Shifts also are occurring in the emerging markets space. Classifying China as an emerging nation today is dubious—newer emerging markets like India and Africa have more growth potential than China and display faster population growth.
Some like Grantham have argued that U.S. equity multiples could remain elevated longer than many believers in mean reversion think. Globalization is only one factor that explains lofty multiples. Other reasons include high profit margins sustained by the rise of duopolies in many industries ranging from beer to internet advertising, and the combination of global debt and aging demographics keeping a lid on interest rates and inflation.
What could trigger an end to the three decades of 1929-plus levels of equity prices Grantham has described? Steve Cucchiaro, president of 3EDGE Asset Management, believes the growing populist drumbeat is likely to result in a big political shift that could let the air out of the balloon.
For example, Sen. Elizabeth Warren recently echoed President Trump when she said the Federal Reserve should pursue a cheap dollar policy that would help create more U.S. jobs. In the past, politicians have respected central bank independence.
“No one knows what is the last snowflake to drop on the snow pile that triggers the avalanche,” Cucchiaro says. But it is safe to say “what worked well for the last 10 years won’t work well for the next 10.”