Why international underperformed - it’s the earnings growth rate!

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
kosomoto
Posts: 500
Joined: Tue Nov 24, 2015 8:51 pm

Why international underperformed - it’s the earnings growth rate!

Post by kosomoto »

Great article linked below discussing why international has underperformed. Both US and intentional stocks have had the same multiple expansion over the years but US stocks grew their earnings at more than twice the rate of international stocks. Sectors really weren’t the drag.

https://www.morningstar.com/articles/96 ... ave-lagged
garlandwhizzer
Posts: 2984
Joined: Fri Aug 06, 2010 3:42 pm

Re: Why international underperformed - it’s the earnings growth rate!

Post by garlandwhizzer »

Lower earnings growth rate is not only why INTL underperformed US but also why value underperformed. I believe this to be largely due to macroeconomic factors. In developed markets economic growth has been slow, interest rates have been extremely low, and inflation has been almost nonexistent for more than a decade. These macroeconomic factors are very favorable for growth stocks relative to blend or value. Also the US is pretty much the only DM in the world to demonstrate such growth. When growth is hard to come by companies that that can produce reliable consistent top line and bottom line growth demand and get a big premium. US growth stocks have as a result become very expensive because consistent profit growth has been so hard to come by since 2007.

Whether this decade plus trend will continue going forward is unknown. What we can say is that if investors followed the advice of some experts a decade or so ago and heavily overweighted value and INTL which were expected to outperform, they paid an opportunity cost. The market periodically reminds us that experts are entirely fallible as it did this time. US growth especially LCG tech massively outperformed, so much so that it is now IMO very richly priced relative to its future prospects which suggests that in the next decade market leadership is likely to change.

Garland Whizzer
visualguy
Posts: 2079
Joined: Thu Jan 30, 2014 1:32 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by visualguy »

garlandwhizzer wrote: Fri Oct 16, 2020 3:27 pm US growth especially LCG tech massively outperformed, so much so that it is now IMO very richly priced relative to its future prospects which suggests that in the next decade market leadership is likely to change.
Change to what? European and Japanese stock markets (which are more than half of ex-US)?
Scooter57
Posts: 1468
Joined: Thu Jan 24, 2013 9:20 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Scooter57 »

Are buybacks legal outside of the US?

A shocking amount of "earnings" growth has been engineered by reducing share counts.

By the same token there are a lot of ways to manipulate financial reporting that are legal but deceptive. Do other countries apply more stringent accounting rules to the reporting of earnings?
Scooter57
Posts: 1468
Joined: Thu Jan 24, 2013 9:20 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Scooter57 »

Are buybacks legal outside of the US?

A shocking amount of "earnings" growth has been engineered by reducing share counts.

By the same token there are a lot of ways to manipulate financial reporting that are legal but deceptive. Do other countries apply more stringent accounting rules to the reporting of earnings?
Topic Author
kosomoto
Posts: 500
Joined: Tue Nov 24, 2015 8:51 pm

Re: Why international underperformed - it’s the earnings growth rate!

Post by kosomoto »

Scooter57 wrote: Fri Oct 16, 2020 5:39 pm Are buybacks legal outside of the US?

A shocking amount of "earnings" growth has been engineered by reducing share counts.

By the same token there are a lot of ways to manipulate financial reporting that are legal but deceptive. Do other countries apply more stringent accounting rules to the reporting of earnings?
Even if earnings could be manipulated in the short run, doing so over 10-20 years stops being manipulation and starts being a trend.
garlandwhizzer
Posts: 2984
Joined: Fri Aug 06, 2010 3:42 pm

Re: Why international underperformed - it’s the earnings growth rate!

Post by garlandwhizzer »

visual guy wrote:

Change to what? European and Japanese stock markets (which are more than half of ex-US)?
Good question. The forward risk/reward relationship for investment returns in both stocks and bonds are in my opinion (which could be totally wrong) are not nearly as attractive as they have been in past decades in the US and INTL as well. The investment gift horse is not knocking on our door. Bonds with zero real or less, stocks with much better expected returns that bonds but not nearly the 7% real of the long term past. There are some relatively undervalued pockets IMO like value, especially SCV if you don't mind a lot of volatility and you have the patience of Job. Value does not however guarantee long term success IMO.

The good news, if you can call it good news, is that so much money is now concentrated in the hands of the US investing class that lofty asset valuations, perhaps even more lofty than now, are likely to persist for a long time. It didn't take long for the 30% decline in the bear market of March this year to totally reverse itself and for the market go on to new highs. Tons of money is ready to pounce on risk or safe asset investing opportunities. The glut of worldwide savings seeking investment opportunities plus the FED plus fiscal stimulus will IMO provide a backstop to prevent catastrophic market declines. Quick deep risk is gone. This time the FED bought corporate bonds to prevent a nasty unwinding of corporate debt. Next time they may buy stocks as well to prop up the market which the Japanese Central Bank has already done. Risk of catastrophe has been essentially eliminated which is why people are almost forced embrace risk to squeeze out good returns. This drives up the prices and down the expected returns of equity and bonds. Still the markets both US and INTL will almost certainly to go up with positive real returns long term. I own both US and INTL equity and plan to continue doing so.

All these rather guarded perceptions will change if the economies worldwide shift into a self-sustaining robust growth mode after the pandemic. The future is unpredictable and IMO it's best to prepared not only for what you expect to happen but for what you don't expect at all. Things may turn out a lot better or a lot worse than I expect, but regardless of whether they do or not, as Bogle said: Invest we must. Diversified investing on a regular basis for decades has always worked in the past and is very likely to do so in the future regardless of what the current situation looks like.

Garland Whizzer
typical.investor
Posts: 2288
Joined: Mon Jun 11, 2018 3:17 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by typical.investor »

kosomoto wrote: Fri Oct 16, 2020 7:02 pm
Scooter57 wrote: Fri Oct 16, 2020 5:39 pm Are buybacks legal outside of the US?

A shocking amount of "earnings" growth has been engineered by reducing share counts.

By the same token there are a lot of ways to manipulate financial reporting that are legal but deceptive. Do other countries apply more stringent accounting rules to the reporting of earnings?
Even if earnings could be manipulated in the short run, doing so over 10-20 years stops being manipulation and starts being a trend.
Half of buybacks were funded with debt in recent years.
Over the past five years, U.S. companies have bought back $2.7 trillion of their own shares and paid out $3.3 trillion in dividends, but they've taken on $2.5 trillion of additional debt, the bank's analysts wrote.
Some 30% of average growth in earnings per share has come from stock buybacks.
Scooter57
Posts: 1468
Joined: Thu Jan 24, 2013 9:20 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Scooter57 »

No one is answering my question: is the difference in international stocks' earnings due to differences in how much those companies earned or to different regulatory frameworks? This is significant, because if the answer is that they earn as much real profit but it looks different on the charts, it would point to possible future outperformance when the debt-fueled U.S. market finally has to pay the piper.
User avatar
nedsaid
Posts: 13808
Joined: Fri Nov 23, 2012 12:33 pm

Re: Why international underperformed - it’s the earnings growth rate!

Post by nedsaid »

garlandwhizzer wrote: Fri Oct 16, 2020 3:27 pm Lower earnings growth rate is not only why INTL underperformed US but also why value underperformed. I believe this to be largely due to macroeconomic factors. In developed markets economic growth has been slow, interest rates have been extremely low, and inflation has been almost nonexistent for more than a decade. These macroeconomic factors are very favorable for growth stocks relative to blend or value. Also the US is pretty much the only DM in the world to demonstrate such growth. When growth is hard to come by companies that that can produce reliable consistent top line and bottom line growth demand and get a big premium. US growth stocks have as a result become very expensive because consistent profit growth has been so hard to come by since 2007.

Whether this decade plus trend will continue going forward is unknown. What we can say is that if investors followed the advice of some experts a decade or so ago and heavily overweighted value and INTL which were expected to outperform, they paid an opportunity cost. The market periodically reminds us that experts are entirely fallible as it did this time. US growth especially LCG tech massively outperformed, so much so that it is now IMO very richly priced relative to its future prospects which suggests that in the next decade market leadership is likely to change.

Garland Whizzer
It is also currency and flight to quality. The US Dollar has been strong relative to foreign currencies and also the U.S. is seen as a safe haven for investors. We also have many of the world's best companies. The strong dollar is also affected by relatively higher interest rates compared to Europe and Japan. Also the US economy has reacted better to Covid-19 than other industrialized countries. As I like to say it, the United States is the least dirty shirt in the laundry hamper.
A fool and his money are good for business.
typical.investor
Posts: 2288
Joined: Mon Jun 11, 2018 3:17 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by typical.investor »

kosomoto wrote: Fri Oct 16, 2020 1:12 pm Great article linked below discussing why international has underperformed. Both US and intentional stocks have had the same multiple expansion over the years but US stocks grew their earnings at more than twice the rate of international stocks. Sectors really weren’t the drag.

https://www.morningstar.com/articles/96 ... ave-lagged
To me it seems like buybacks explains more than differences in growth rates.

PEGY Ratio = (P/E Ratio) / (Annual EPS growth rate in % + Dividend Yield).

US 1.63 (2.23 without debt boost)
EM 0.96
DEV 1.67

Sure, the US is slightly cheaper than developed international today. Consider though that US stocks have been acquiring debt to boost their EPS. The US would be at 2.23 if the estimate of 30% boost to EPS from debt is accurate. Not sure how much foreign equities have used buybacks in that way though. While likely greater than zero, surely it is much less.
Alchemist
Posts: 556
Joined: Sat Aug 30, 2014 6:35 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Alchemist »

Japan has been stagnating since their demographics went off a cliff. Europe got a double whammy in the wake of the great financial crisis. They chose the wrong policy strategy of austerity instead of stimulus, and their own demographics went into decline at about the same time.

The U.S. responded correctly to the GFC with Fed support/stimulus while enjoying positive demographics (working age population growth).

An even more stark version will repeat in the 2020's. Europe looked like they 'got it' on the stimulus front, but the EU relief fund is a fraction the size of the U.S. stimulus thus far and they have not even distributed most of it yet. Even worse, it seems like that was a one time only deal with no further stimulus on the horizon.

The U.S. is likely to pump more stimulus into the recovery early next year which will be well timed with an improving public health situation. It will also enjoy demographic tailwinds instead of headwinds.

Needless to say, I will be keeping my 100% U.S. asset allocation.
Chicken Little
Posts: 396
Joined: Fri Feb 22, 2019 5:03 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Chicken Little »

Alchemist wrote: Sat Oct 17, 2020 5:38 am Japan has been stagnating since their demographics went off a cliff. Europe got a double whammy in the wake of the great financial crisis. They chose the wrong policy strategy of austerity instead of stimulus, and their own demographics went into decline at about the same time.

The U.S. responded correctly to the GFC with Fed support/stimulus while enjoying positive demographics (working age population growth).

An even more stark version will repeat in the 2020's. Europe looked like they 'got it' on the stimulus front, but the EU relief fund is a fraction the size of the U.S. stimulus thus far and they have not even distributed most of it yet. Even worse, it seems like that was a one time only deal with no further stimulus on the horizon.

The U.S. is likely to pump more stimulus into the recovery early next year which will be well timed with an improving public health situation. It will also enjoy demographic tailwinds instead of headwinds.

Needless to say, I will be keeping my 100% U.S. asset allocation.
How many times can we "respond correctly".

How much "response" can we have at any given time. If we have 27 units of response right now, is their a ceiling, or do we just respond in increasing amounts to 54, 108, 216, 432 with each ensuing crisis?

If no practical limit to the amount of response is currently in sight (basically the heart of modern economic thought), then why don't we respond to combat veterans who are having a difficult time readjusting?
User avatar
abuss368
Posts: 21504
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why international underperformed - it’s the earnings growth rate!

Post by abuss368 »

kosomoto wrote: Fri Oct 16, 2020 1:12 pm Great article linked below discussing why international has underperformed. Both US and intentional stocks have had the same multiple expansion over the years but US stocks grew their earnings at more than twice the rate of international stocks. Sectors really weren’t the drag.

https://www.morningstar.com/articles/96 ... ave-lagged
That is a good article and I appreciate you sharing.
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
abuss368
Posts: 21504
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why international underperformed - it’s the earnings growth rate!

Post by abuss368 »

kosomoto wrote: Fri Oct 16, 2020 7:02 pm
Scooter57 wrote: Fri Oct 16, 2020 5:39 pm Are buybacks legal outside of the US?

A shocking amount of "earnings" growth has been engineered by reducing share counts.

By the same token there are a lot of ways to manipulate financial reporting that are legal but deceptive. Do other countries apply more stringent accounting rules to the reporting of earnings?
Even if earnings could be manipulated in the short run, doing so over 10-20 years stops being manipulation and starts being a trend.
Think about that for a moment. No company could manipulate earning for over 20 years. Market pullbacks always flush out fraud. Enron, Worldcom, Global Crossing among others right around tech pullback. Madoff during Great Recession. Luckin Coffee in China during pandemic.

The US has a lot of oversight, financial watchdogs, and audits. I am not so sure of the financial oversight in other countries.
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
abuss368
Posts: 21504
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why international underperformed - it’s the earnings growth rate!

Post by abuss368 »

Scooter57 wrote: Fri Oct 16, 2020 5:39 pm Are buybacks legal outside of the US?

A shocking amount of "earnings" growth has been engineered by reducing share counts.

By the same token there are a lot of ways to manipulate financial reporting that are legal but deceptive. Do other countries apply more stringent accounting rules to the reporting of earnings?
By this note I would say that is a HUGE difference in the laws between countries. US is favorable towards investors and investor protection.
John C. Bogle: “Simplicity is the master key to financial success."
BV3273
Posts: 674
Joined: Mon Oct 19, 2015 7:20 pm

Re: Why international underperformed - it’s the earnings growth rate!

Post by BV3273 »

Meanwhile my Vanguard International Growth Admiral is up 36.87% this year. Weird stuff man.

My Fidelity Growth Co Pool is up 51%.

I know growth funds are not widely accepted around here but they are doing great things for me this year.
Whakamole
Posts: 1192
Joined: Wed Jan 13, 2016 9:59 pm

Re: Why international underperformed - it’s the earnings growth rate!

Post by Whakamole »

abuss368 wrote: Sat Oct 17, 2020 9:46 am Think about that for a moment. No company could manipulate earning for over 20 years. Market pullbacks always flush out fraud. Enron, Worldcom, Global Crossing among others right around tech pullback. Madoff during Great Recession. Luckin Coffee in China during pandemic.
GE?
User avatar
abuss368
Posts: 21504
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why international underperformed - it’s the earnings growth rate!

Post by abuss368 »

Whakamole wrote: Sat Oct 17, 2020 11:16 am
abuss368 wrote: Sat Oct 17, 2020 9:46 am Think about that for a moment. No company could manipulate earning for over 20 years. Market pullbacks always flush out fraud. Enron, Worldcom, Global Crossing among others right around tech pullback. Madoff during Great Recession. Luckin Coffee in China during pandemic.
GE?
“GE?” Not sure I follow. So are you implying: a) they actually manipulated earning, b) fraud was committed (which I have not read in the Wall Street Journal), or c) there audited financial statements were on a level of complexity that many investors and Wall Street firms could not comprehend (as discussed on CNBC).
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
abuss368
Posts: 21504
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why international underperformed - it’s the earnings growth rate!

Post by abuss368 »

BV3273 wrote: Sat Oct 17, 2020 10:29 am Meanwhile my Vanguard International Growth Admiral is up 36.87% this year. Weird stuff man.

My Fidelity Growth Co Pool is up 51%.

I know growth funds are not widely accepted around here but they are doing great things for me this year.
I have been thinking more and more about this exact point you made!

There are articles and interviews starting to appear where passive indexing, and specifically passive international indexing, may not be the best strategy and that perhaps active may be a better fit internationally. Not sure I agree as there would still be manager risk.

I am happy that Vanguard International Growth 9and all growth funds) are up 37% this year, that could just as easily be down 37%. I would think indexing “works” in any market as Jack Bogle explained in his many books. Mr. Bogle, when discussing international in “The Little Book of Common Sense Investing, said for those so inclined an index fund is best.
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
jeffyscott
Posts: 9139
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Why international underperformed - it’s the earnings growth rate!

Post by jeffyscott »

Sotiroff:
But then, when you got to the EPS growth, that is where U.S. companies just blew away foreign stocks, and it wasn't even close. Foreign stocks grew their EPS, earnings per share, by about 4% per year. The number for U.S. stocks was a little over 10%, I think around 10.3%, 10.4%. So, that's where you see that extra 6.5% gap that I was referencing before.

So does the current difference in valuations between foreign and US reflect an expectation that this difference in earnings growth will continue? If not, can the difference in EPS growth that would result in equal returns, be determined from the difference in current valuations? Using CAPE, US valuations are about double foreign with that at 15.7 for EAFE, 14.9 for EM, and 30.8 for US.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
User avatar
Kenkat
Posts: 6664
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Why international underperformed - it’s the earnings growth rate!

Post by Kenkat »

BV3273 wrote: Sat Oct 17, 2020 10:29 am Meanwhile my Vanguard International Growth Admiral is up 36.87% this year. Weird stuff man.

My Fidelity Growth Co Pool is up 51%.

I know growth funds are not widely accepted around here but they are doing great things for me this year.
Tesla and Amazon.com in the top 10 holdings of Vanguard International Growth didn’t hurt...
User avatar
abuss368
Posts: 21504
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why international underperformed - it’s the earnings growth rate!

Post by abuss368 »

Kenkat wrote: Sat Oct 17, 2020 11:50 am
BV3273 wrote: Sat Oct 17, 2020 10:29 am Meanwhile my Vanguard International Growth Admiral is up 36.87% this year. Weird stuff man.

My Fidelity Growth Co Pool is up 51%.

I know growth funds are not widely accepted around here but they are doing great things for me this year.
Tesla and Amazon.com in the top 10 holdings of Vanguard International Growth didn’t hurt...
I have heard this before. So active management, and there is no fund rule to be 100% international. If those two companies were stripped out, I am assuming the performance results would be something much less correct?
John C. Bogle: “Simplicity is the master key to financial success."
BV3273
Posts: 674
Joined: Mon Oct 19, 2015 7:20 pm

Re: Why international underperformed - it’s the earnings growth rate!

Post by BV3273 »

abuss368 wrote: Sat Oct 17, 2020 11:54 am
Kenkat wrote: Sat Oct 17, 2020 11:50 am
BV3273 wrote: Sat Oct 17, 2020 10:29 am Meanwhile my Vanguard International Growth Admiral is up 36.87% this year. Weird stuff man.

My Fidelity Growth Co Pool is up 51%.

I know growth funds are not widely accepted around here but they are doing great things for me this year.
Tesla and Amazon.com in the top 10 holdings of Vanguard International Growth didn’t hurt...
I have heard this before. So active management, and there is no fund rule to be 100% international. If those two companies were stripped out, I am assuming the performance results would be something much less correct?
Valid point. I’m not sure why those 2 stocks are in there but it seems to be working for now.
typical.investor
Posts: 2288
Joined: Mon Jun 11, 2018 3:17 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by typical.investor »

abuss368 wrote: Sat Oct 17, 2020 9:46 am
kosomoto wrote: Fri Oct 16, 2020 7:02 pm
Scooter57 wrote: Fri Oct 16, 2020 5:39 pm Are buybacks legal outside of the US?

A shocking amount of "earnings" growth has been engineered by reducing share counts.

By the same token there are a lot of ways to manipulate financial reporting that are legal but deceptive. Do other countries apply more stringent accounting rules to the reporting of earnings?
Even if earnings could be manipulated in the short run, doing so over 10-20 years stops being manipulation and starts being a trend.
Think about that for a moment. No company could manipulate earning for over 20 years. Market pullbacks always flush out fraud. Enron, Worldcom, Global Crossing among others right around tech pullback. Madoff during Great Recession. Luckin Coffee in China during pandemic.

The US has a lot of oversight, financial watchdogs, and audits. I am not so sure of the financial oversight in other countries.
I'm not so sure of Ernst & Young whose great work has resulted in over $30 billion in losses.

Germany's Wirecard AG (Oops E&Y missed that the "trust" where cash was supposed to be wasn't ever licensed to function as one).

China's Luckin Coffee (assured investors and board in a comfort letter that the books were fine after video of "customers" coming and going were released that showed numbers looked fake. Oh and notified a long time E&Y customer and Luckin's chair before disclosing the problems to the board allowing the allowing the chair to transfer 9 figures mysteriously out).

U.K.'s NMC Health and Finable PLC (missed $5B in undisclosed loans and illegal transfers to a former EY partner who was running the show).

https://www.wsj.com/articles/string-of- ... 1602863319

And the U.S.'s WeWork? Hmmm. E&Y had no concerns. In fact:
None of its 2019 IPO clients, including WeWork, disclosed material weaknesses in internal controls over financial reporting in their S-1s, according to my reporting on September 4.

However, more than 20% of the audit clients of all the other Big 4 firms — Deloitte, KPMG and PwC—include management disclosures of ICFR weaknesses in their S-1s.
User avatar
abuss368
Posts: 21504
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why international underperformed - it’s the earnings growth rate!

Post by abuss368 »

typical.investor wrote: Sat Oct 17, 2020 6:54 pm
abuss368 wrote: Sat Oct 17, 2020 9:46 am
kosomoto wrote: Fri Oct 16, 2020 7:02 pm
Scooter57 wrote: Fri Oct 16, 2020 5:39 pm Are buybacks legal outside of the US?

A shocking amount of "earnings" growth has been engineered by reducing share counts.

By the same token there are a lot of ways to manipulate financial reporting that are legal but deceptive. Do other countries apply more stringent accounting rules to the reporting of earnings?
Even if earnings could be manipulated in the short run, doing so over 10-20 years stops being manipulation and starts being a trend.
Think about that for a moment. No company could manipulate earning for over 20 years. Market pullbacks always flush out fraud. Enron, Worldcom, Global Crossing among others right around tech pullback. Madoff during Great Recession. Luckin Coffee in China during pandemic.

The US has a lot of oversight, financial watchdogs, and audits. I am not so sure of the financial oversight in other countries.
I'm not so sure of Ernst & Young whose great work has resulted in over $30 billion in losses.

Germany's Wirecard AG (Oops E&Y missed that the "trust" where cash was supposed to be wasn't ever licensed to function as one).

China's Luckin Coffee (assured investors and board in a comfort letter that the books were fine after video of "customers" coming and going were released that showed numbers looked fake. Oh and notified a long time E&Y customer and Luckin's chair before disclosing the problems to the board allowing the allowing the chair to transfer 9 figures mysteriously out).

U.K.'s NMC Health and Finable PLC (missed $5B in undisclosed loans and illegal transfers to a former EY partner who was running the show).

https://www.wsj.com/articles/string-of- ... 1602863319

And the U.S.'s WeWork? Hmmm. E&Y had no concerns. In fact:
None of its 2019 IPO clients, including WeWork, disclosed material weaknesses in internal controls over financial reporting in their S-1s, according to my reporting on September 4.

However, more than 20% of the audit clients of all the other Big 4 firms — Deloitte, KPMG and PwC—include management disclosures of ICFR weaknesses in their S-1s.
It is incredible. I am betting Congress could just take apart the Big Four accounting firms, like Arthur Anderson, if they wanted and it would be easy.
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
abuss368
Posts: 21504
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why international underperformed - it’s the earnings growth rate!

Post by abuss368 »

BV3273 wrote: Sat Oct 17, 2020 3:04 pm
abuss368 wrote: Sat Oct 17, 2020 11:54 am
Kenkat wrote: Sat Oct 17, 2020 11:50 am
BV3273 wrote: Sat Oct 17, 2020 10:29 am Meanwhile my Vanguard International Growth Admiral is up 36.87% this year. Weird stuff man.

My Fidelity Growth Co Pool is up 51%.

I know growth funds are not widely accepted around here but they are doing great things for me this year.
Tesla and Amazon.com in the top 10 holdings of Vanguard International Growth didn’t hurt...
I have heard this before. So active management, and there is no fund rule to be 100% international. If those two companies were stripped out, I am assuming the performance results would be something much less correct?
Valid point. I’m not sure why those 2 stocks are in there but it seems to be working for now.
Performance up! Active wins! Attracts cash flows! Manager compensation up!
John C. Bogle: “Simplicity is the master key to financial success."
columbia
Posts: 2924
Joined: Tue Aug 27, 2013 5:30 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by columbia »

As it's an active fund, those two stocks are in there because the managers knew the base material was a dog.
Valuethinker
Posts: 41124
Joined: Fri May 11, 2007 11:07 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Valuethinker »

Scooter57 wrote: Fri Oct 16, 2020 8:35 pm No one is answering my question: is the difference in international stocks' earnings due to differences in how much those companies earned or to different regulatory frameworks? This is significant, because if the answer is that they earn as much real profit but it looks different on the charts, it would point to possible future outperformance when the debt-fueled U.S. market finally has to pay the piper.
There are differences between US GAAP and IFRS accounting standards.

Arguably US GAAP is tighter

I doubt that earnings are systematically tighter one way or the other. One might have a bit more confidence in US earnings numbers than international taxes. That seems to be more than covered by the difference in PE ratios.
Alchemist
Posts: 556
Joined: Sat Aug 30, 2014 6:35 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Alchemist »

Chicken Little wrote: Sat Oct 17, 2020 6:01 am
How many times can we "respond correctly".
Until you encounter undesirable levels of inflation.
User avatar
abuss368
Posts: 21504
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why international underperformed - it’s the earnings growth rate!

Post by abuss368 »

Valuethinker wrote: Sun Oct 18, 2020 2:47 am
Scooter57 wrote: Fri Oct 16, 2020 8:35 pm No one is answering my question: is the difference in international stocks' earnings due to differences in how much those companies earned or to different regulatory frameworks? This is significant, because if the answer is that they earn as much real profit but it looks different on the charts, it would point to possible future outperformance when the debt-fueled U.S. market finally has to pay the piper.
There are differences between US GAAP and IFRS accounting standards.

Arguably US GAAP is tighter

I doubt that earnings are systematically tighter one way or the other. One might have a bit more confidence in US earnings numbers than international taxes. That seems to be more than covered by the difference in PE ratios.
Correct. US GAAP is more rules based. IFRS is more theory based.
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
Kenkat
Posts: 6664
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Why international underperformed - it’s the earnings growth rate!

Post by Kenkat »

abuss368 wrote: Sat Oct 17, 2020 7:17 pm
typical.investor wrote: Sat Oct 17, 2020 6:54 pm
abuss368 wrote: Sat Oct 17, 2020 9:46 am
kosomoto wrote: Fri Oct 16, 2020 7:02 pm
Scooter57 wrote: Fri Oct 16, 2020 5:39 pm Are buybacks legal outside of the US?

A shocking amount of "earnings" growth has been engineered by reducing share counts.

By the same token there are a lot of ways to manipulate financial reporting that are legal but deceptive. Do other countries apply more stringent accounting rules to the reporting of earnings?
Even if earnings could be manipulated in the short run, doing so over 10-20 years stops being manipulation and starts being a trend.
Think about that for a moment. No company could manipulate earning for over 20 years. Market pullbacks always flush out fraud. Enron, Worldcom, Global Crossing among others right around tech pullback. Madoff during Great Recession. Luckin Coffee in China during pandemic.

The US has a lot of oversight, financial watchdogs, and audits. I am not so sure of the financial oversight in other countries.
I'm not so sure of Ernst & Young whose great work has resulted in over $30 billion in losses.

Germany's Wirecard AG (Oops E&Y missed that the "trust" where cash was supposed to be wasn't ever licensed to function as one).

China's Luckin Coffee (assured investors and board in a comfort letter that the books were fine after video of "customers" coming and going were released that showed numbers looked fake. Oh and notified a long time E&Y customer and Luckin's chair before disclosing the problems to the board allowing the allowing the chair to transfer 9 figures mysteriously out).

U.K.'s NMC Health and Finable PLC (missed $5B in undisclosed loans and illegal transfers to a former EY partner who was running the show).

https://www.wsj.com/articles/string-of- ... 1602863319

And the U.S.'s WeWork? Hmmm. E&Y had no concerns. In fact:
None of its 2019 IPO clients, including WeWork, disclosed material weaknesses in internal controls over financial reporting in their S-1s, according to my reporting on September 4.

However, more than 20% of the audit clients of all the other Big 4 firms — Deloitte, KPMG and PwC—include management disclosures of ICFR weaknesses in their S-1s.
It is incredible. I am betting Congress could just take apart the Big Four accounting firms, like Arthur Anderson, if they wanted and it would be easy.
We could make each split into two firms and call it the “Big Eight”. Some ideas for names could be Arthur Young, Deloitte Haskins and Sells, Touché Ross, Ernst & Ernst (or Ernst & Whinney as it was called when I worked there out of college), etc. :wink:
whereskyle
Posts: 1249
Joined: Wed Jan 29, 2020 10:29 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by whereskyle »

Scooter57 wrote: Fri Oct 16, 2020 8:35 pm No one is answering my question: is the difference in international stocks' earnings due to differences in how much those companies earned or to different regulatory frameworks? This is significant, because if the answer is that they earn as much real profit but it looks different on the charts, it would point to possible future outperformance when the debt-fueled U.S. market finally has to pay the piper.
Difference in earnings. Ex-US Growth/tech stocks have done fine because many of these companies have also grown earnings. The Morningstar article makes it clear to me that the big difference here is which companies are earning the most. The structural factors you're alluding to do not seem to have made the difference.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
User avatar
jeffyscott
Posts: 9139
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Why international underperformed - it’s the earnings growth rate!

Post by jeffyscott »

jeffyscott wrote: Sat Oct 17, 2020 11:37 am Sotiroff:
But then, when you got to the EPS growth, that is where U.S. companies just blew away foreign stocks, and it wasn't even close. Foreign stocks grew their EPS, earnings per share, by about 4% per year. The number for U.S. stocks was a little over 10%, I think around 10.3%, 10.4%. So, that's where you see that extra 6.5% gap that I was referencing before.

So does the current difference in valuations between foreign and US reflect an expectation that this difference in earnings growth will continue? If not, can the difference in EPS growth that would result in equal returns, be determined from the difference in current valuations? Using CAPE, US valuations are about double foreign with that at 15.7 for EAFE, 14.9 for EM, and 30.8 for US.
I think I found a version of the answer to this, using RA expected returns with their "yield & growth" model.
https://interactive.researchaffiliates. ... e=Equities

For US large cap, they give this:
Image

And for EAFE:
Image

So in order for the returns to be equal, using this model, real US growth would need to be increased by 1.5% to 2.7%. That would be about a 70% greater earnings growth rate for US over EAFE's 1.6% estimate.

I don't know how these growth rates would relate to the EPS growth rates talked about in the article, though.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
User avatar
Kenkat
Posts: 6664
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Why international underperformed - it’s the earnings growth rate!

Post by Kenkat »

abuss368 wrote: Sat Oct 17, 2020 11:54 am
Kenkat wrote: Sat Oct 17, 2020 11:50 am
BV3273 wrote: Sat Oct 17, 2020 10:29 am Meanwhile my Vanguard International Growth Admiral is up 36.87% this year. Weird stuff man.

My Fidelity Growth Co Pool is up 51%.

I know growth funds are not widely accepted around here but they are doing great things for me this year.
Tesla and Amazon.com in the top 10 holdings of Vanguard International Growth didn’t hurt...
I have heard this before. So active management, and there is no fund rule to be 100% international. If those two companies were stripped out, I am assuming the performance results would be something much less correct?
Tesla + 746.33% YTD and Amazon + 84.13%, so yes.

I don’t really have any issues around active managers making picks that align with what the prospectus allows (I am one of the holders of low cost active funds here). Some will want to adjust the active manager’s decisions to account for this when comparing to an index but I don’t buy this argument - i.e., “well if you adjust the target benchmark to account for the Tesla and Amazon holdings, the outperformance is far less“...well, yeah - wasn’t that the idea of pricking an active fund to begin with?
Tingting1013
Posts: 388
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why international underperformed - it’s the earnings growth rate!

Post by Tingting1013 »

Kenkat wrote: Sun Oct 18, 2020 11:03 am
abuss368 wrote: Sat Oct 17, 2020 11:54 am
Kenkat wrote: Sat Oct 17, 2020 11:50 am
BV3273 wrote: Sat Oct 17, 2020 10:29 am Meanwhile my Vanguard International Growth Admiral is up 36.87% this year. Weird stuff man.

My Fidelity Growth Co Pool is up 51%.

I know growth funds are not widely accepted around here but they are doing great things for me this year.
Tesla and Amazon.com in the top 10 holdings of Vanguard International Growth didn’t hurt...
I have heard this before. So active management, and there is no fund rule to be 100% international. If those two companies were stripped out, I am assuming the performance results would be something much less correct?
Tesla + 746.33% YTD and Amazon + 84.13%, so yes.

I don’t really have any issues around active managers making picks that align with what the prospectus allows (I am one of the holders of low cost active funds here). Some will want to adjust the active manager’s decisions to account for this when comparing to an index but I don’t buy this argument - i.e., “well if you adjust the target benchmark to account for the Tesla and Amazon holdings, the outperformance is far less“...well, yeah - wasn’t that the idea of pricking an active fund to begin with?
If they picked the Tesla or Amazon of the international equity world, sure.

But violating your putative investment universe like this just presents hidden concentration risk for your investors who likely have other exposure to US tech.
finite_difference
Posts: 1969
Joined: Thu Jul 09, 2015 7:00 pm

Re: Why international underperformed - it’s the earnings growth rate!

Post by finite_difference »

typical.investor wrote: Fri Oct 16, 2020 7:40 pm
kosomoto wrote: Fri Oct 16, 2020 7:02 pm
Scooter57 wrote: Fri Oct 16, 2020 5:39 pm Are buybacks legal outside of the US?

A shocking amount of "earnings" growth has been engineered by reducing share counts.

By the same token there are a lot of ways to manipulate financial reporting that are legal but deceptive. Do other countries apply more stringent accounting rules to the reporting of earnings?
Even if earnings could be manipulated in the short run, doing so over 10-20 years stops being manipulation and starts being a trend.
Half of buybacks were funded with debt in recent years.
Over the past five years, U.S. companies have bought back $2.7 trillion of their own shares and paid out $3.3 trillion in dividends, but they've taken on $2.5 trillion of additional debt, the bank's analysts wrote.
Some 30% of average growth in earnings per share has come from stock buybacks.
I thought stock buybacks are just a more tax efficient way to distribute dividends. Kind of like a forced DRIP program.

That said, a lot of companies do seem obsessed with short term growth metrics, lobbying, and financial shenanigans vs long term vision and investments that build intrinsic company value. Maybe it’s a good idea to avoid those companies, but I’m not a stock picker and I believe the free market will sort it all out.

Some decades Intl outperforms and some decades US outperforms.

Look at South Korea, Japan, Taiwan, China. They have all made enormous strides in the past several decades and I believe they will continue to grow and reward investors.

I am with Taylor Larimore that 20% Intl seems optimal. 20% Intl is also sanctioned by Bogle, who said 0-20% Intl was fine.

There is also absolutely nothing wrong with 100% Vanguard Total Stock Market. It has some Intl diversification. 0% Intl for a US investor was obviously sanctioned by Bogle.

A purist Boglehead approach might be Vanguard Total World Stock Market, which is like 50% Intl, whatever the world market cap floats to.

What worries me is all the threads of fellow Bogleheads capitulating on their IPS and switching out of Intl when it’s down. Selling low and buying high. If you do it once, fine. But will you capitulate again if US stocks ever underperform in the future? That’s exactly how you lose money.

Whatever your plan is, pick one that you can stick with.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
User avatar
WoodSpinner
Posts: 1657
Joined: Mon Feb 27, 2017 1:15 pm

Re: Why international underperformed - it’s the earnings growth rate!

Post by WoodSpinner »

BV3273 wrote: Sat Oct 17, 2020 10:29 am Meanwhile my Vanguard International Growth Admiral is up 36.87% this year. Weird stuff man.

My Fidelity Growth Co Pool is up 51%.

I know growth funds are not widely accepted around here but they are doing great things for me this year.
Have you looked under the covers at what this fund really owns???

Frankly a vanguard should be ashamed of themselves with such a deceptive practice.
https://investor.vanguard.com/mutual-fu ... view/VWILX

The returns are not coming from the international Side .....

WoodSpinner
User avatar
abuss368
Posts: 21504
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why international underperformed - it’s the earnings growth rate!

Post by abuss368 »

WoodSpinner wrote: Sun Oct 18, 2020 3:08 pm
BV3273 wrote: Sat Oct 17, 2020 10:29 am Meanwhile my Vanguard International Growth Admiral is up 36.87% this year. Weird stuff man.

My Fidelity Growth Co Pool is up 51%.

I know growth funds are not widely accepted around here but they are doing great things for me this year.
Have you looked under the covers at what this fund really owns???

Frankly a vanguard should be ashamed of themselves with such a deceptive practice.
https://investor.vanguard.com/mutual-fu ... view/VWILX

The returns are not coming from the international Side .....

WoodSpinner
That was my earlier point! I assume the fund prospectus allows for managers to pick both domestic and international stocks! Ok, but that is misleading when looking at the fund name!
John C. Bogle: “Simplicity is the master key to financial success."
BV3273
Posts: 674
Joined: Mon Oct 19, 2015 7:20 pm

Re: Why international underperformed - it’s the earnings growth rate!

Post by BV3273 »

WoodSpinner wrote: Sun Oct 18, 2020 3:08 pm
BV3273 wrote: Sat Oct 17, 2020 10:29 am Meanwhile my Vanguard International Growth Admiral is up 36.87% this year. Weird stuff man.

My Fidelity Growth Co Pool is up 51%.

I know growth funds are not widely accepted around here but they are doing great things for me this year.
Have you looked under the covers at what this fund really owns???

Frankly a vanguard should be ashamed of themselves with such a deceptive practice.
https://investor.vanguard.com/mutual-fu ... view/VWILX

The returns are not coming from the international Side .....

WoodSpinner
It’s bazaar but the return is good so I’m not complaining.
JBTX
Posts: 6947
Joined: Wed Jul 26, 2017 12:46 pm

Re: Why international underperformed - it’s the earnings growth rate!

Post by JBTX »

abuss368 wrote: Sun Oct 18, 2020 6:34 am
Valuethinker wrote: Sun Oct 18, 2020 2:47 am
Scooter57 wrote: Fri Oct 16, 2020 8:35 pm No one is answering my question: is the difference in international stocks' earnings due to differences in how much those companies earned or to different regulatory frameworks? This is significant, because if the answer is that they earn as much real profit but it looks different on the charts, it would point to possible future outperformance when the debt-fueled U.S. market finally has to pay the piper.
There are differences between US GAAP and IFRS accounting standards.

Arguably US GAAP is tighter

I doubt that earnings are systematically tighter one way or the other. One might have a bit more confidence in US earnings numbers than international taxes. That seems to be more than covered by the difference in PE ratios.
Correct. US GAAP is more rules based. IFRS is more theory based.
As a general trend they are converging ASC606 contract revenue recognition is an example.
User avatar
abuss368
Posts: 21504
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why international underperformed - it’s the earnings growth rate!

Post by abuss368 »

JBTX wrote: Sun Oct 18, 2020 6:53 pm
abuss368 wrote: Sun Oct 18, 2020 6:34 am
Valuethinker wrote: Sun Oct 18, 2020 2:47 am
Scooter57 wrote: Fri Oct 16, 2020 8:35 pm No one is answering my question: is the difference in international stocks' earnings due to differences in how much those companies earned or to different regulatory frameworks? This is significant, because if the answer is that they earn as much real profit but it looks different on the charts, it would point to possible future outperformance when the debt-fueled U.S. market finally has to pay the piper.
There are differences between US GAAP and IFRS accounting standards.

Arguably US GAAP is tighter

I doubt that earnings are systematically tighter one way or the other. One might have a bit more confidence in US earnings numbers than international taxes. That seems to be more than covered by the difference in PE ratios.
Correct. US GAAP is more rules based. IFRS is more theory based.
As a general trend they are converging ASC606 contract revenue recognition is an example.
Correct. Leases is another “hot button” topic! This was on track until the Great Recession.
John C. Bogle: “Simplicity is the master key to financial success."
Chicken Little
Posts: 396
Joined: Fri Feb 22, 2019 5:03 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Chicken Little »

Alchemist wrote: Sun Oct 18, 2020 5:50 am
Chicken Little wrote: Sat Oct 17, 2020 6:01 am
How many times can we "respond correctly".
Until you encounter undesirable levels of inflation.
So my reply to that plan would be that I'm not sure at all whether the planners get to decide what happens if they see undesirable inflation.

Common sense here says all they need to do is turn interest rate dial up a notch or two, and everything will be fine. I'm not so sure. First, the market is very sensitive to rate raises in the absence of inflation. Second who's to say what rates actually subdue undesirable inflation? Do central banks get to decide, or does the undesirable inflation decide (my overall thesis is that the risk of this not panning out the way you'd like is plenty enough reason not to poke-the-bear, and I feel quite comfortable disagreeing with modern, inflation-focused, debt-irrelevancy- based economists).

For the actionable part, posters on here ask all the time about what 2000 or 2007 "felt like. I said it before, feels like now. Balanced investing is out the window.

1. Some relatively conservative retail investors are ditching bonds and focusing on large-cap-growth at the expense of international

2. Overall, many investors have suddenly discovered movements which allow them to stop working at 35-40.

3. Retail traffic is really high, and thanks to fone apps, is heavy in options

Feel free to add anything.

The specific question doesn't even matter...it felt like now.
Alchemist
Posts: 556
Joined: Sat Aug 30, 2014 6:35 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Alchemist »

Chicken Little wrote: Mon Oct 19, 2020 6:04 am So my reply to that plan would be that I'm not sure at all whether the planners get to decide what happens if they see undesirable inflation.

Common sense here says all they need to do is turn interest rate dial up a notch or two, and everything will be fine. I'm not so sure. First, the market is very sensitive to rate raises in the absence of inflation. Second who's to say what rates actually subdue undesirable inflation? Do central banks get to decide, or does the undesirable inflation decide (my overall thesis is that the risk of this not panning out the way you'd like is plenty enough reason not to poke-the-bear, and I feel quite comfortable disagreeing with modern, inflation-focused, debt-irrelevancy- based economists).
Well you certainly have the right username. Interest rates are not the best answer to inflation in most cases. If our deficit becomes too large and causes inflation, the proper response is to reduce the deficit until inflation is under control. In an extreme case this could even result in a surplus. When the government runs a surplus it is deleting dollars out of the economy. When it runs a deficit, it is printing money whether we call that money dollar bills or treasury bills. The U.S. government is not in debt in any meaningful sense of the word. Treasuries are just interest bearing dollars.

I suspect you'll disagree. Thats ok. MMT is not super popular yet (but it is gaining ground....).
For the actionable part, posters on here ask all the time about what 2000 or 2007 "felt like. I said it before, feels like now. Balanced investing is out the window.

1. Some relatively conservative retail investors are ditching bonds and focusing on large-cap-growth at the expense of international

2. Overall, many investors have suddenly discovered movements which allow them to stop working at 35-40.

3. Retail traffic is really high, and thanks to fone apps, is heavy in options

Feel free to add anything.

The specific question doesn't even matter...it felt like now.
I have never invested in international anyway. The 'actionable' thing to do is simply stay the course. Things are VERY weird right now due to the virus. No one knows how this will shake out in the short term, but bogleheads are not playing short term games. Stick to your plan and hang on tight. It could get really ugly..or not. People have been predicting the next bubble being imminent for more than a decade. One day they might get it right.
Chicken Little
Posts: 396
Joined: Fri Feb 22, 2019 5:03 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Chicken Little »

Alchemist wrote: Mon Oct 19, 2020 9:29 amInterest rates are not the best answer to inflation in most cases. If our deficit becomes too large and causes inflation, the proper response is to reduce the deficit until inflation is under control.
Please don’t take this the wrong way, but isn’t that the same as saying if a meteor large enough to cause an extinction event was hurtling towards earth, a better solution to launching the Mars rocket would be to catch the meteor and throw it back into space?

What you’re proposing isn’t “out-of-left-field” it’s still out in left field.

Setting aside the fact that total debt could be the driver for inflation as much as annual debt, I’ve never heard another human advocate “balancing” either as a possible solution to unexpected inflation?
Chicken Little
Posts: 396
Joined: Fri Feb 22, 2019 5:03 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Chicken Little »

WSJ has recently posted a couple articles debating whether SPACs are bubblicious.

I lived through the last two iterations. Can’t tell you the future, all I can say is that in the last two episodes, the camp that voted “bubble” was correct (by a lot).
Chicken Little
Posts: 396
Joined: Fri Feb 22, 2019 5:03 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Chicken Little »

Alchemist wrote: Mon Oct 19, 2020 9:29 amThe U.S. government is not in debt in any meaningful sense of the word. Treasuries are just interest bearing dollars.
All this from MMT?

So we’ve stumbled badly as civilizations by not recognizing this earlier? Think of all the pain and suffering we could have avoided? Think all the pain and suffering we will avoid through the blank-check powers of MMT; free healthcare, free college, UBI?

People really did a bad job up until now.

I guess the downside is that, as I suggested earlier, rather than combat veterans having the best pensions and the best healthcare because we couldn’t afford it, they don’t have those because we just don’t want to do it? The money is there via MMT, we’re just not interested?

I’ve tried on MMT. Definitely don’t like the look.
User avatar
Ramjet
Posts: 440
Joined: Thu Feb 06, 2020 11:45 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Ramjet »

Chicken Little wrote: Mon Oct 19, 2020 10:26 am I’ve tried on MMT. Definitely don’t like the look.
Ultimately, what causes the experiment to end?
Chicken Little
Posts: 396
Joined: Fri Feb 22, 2019 5:03 am

Re: Why international underperformed - it’s the earnings growth rate!

Post by Chicken Little »

Ramjet wrote: Mon Oct 19, 2020 10:32 am
Chicken Little wrote: Mon Oct 19, 2020 10:26 am I’ve tried on MMT. Definitely don’t like the look.
Ultimately, what causes the experiment to end?
Asking the wrong guy, but I like trying...

If this were US alone, crafting a hypothesis would be as simple as A-R-G-E-N-T-I-N-A. However, Japan was first in the water (with their unique circumstances), and then they were cannonballed by EU, so pool was hardly empty as US is jumping in (China’s books may be better, but everything they’re carrying off-book puts them in the pool, too).

So what you really need is a global hypothesis, not a domestic one.

I think it’s just markets. Most of the Fed/treasury/executive/legislative actions in the last three crises were to provide liquidity and preserve functionality of markets. I assume what will happen is that in an ensuing “economic” crisis, there will be intervention to stabilize markets that will just fail? There will be all sorts of shiny new tools, but in the end, the thing will just fail.

That’s light on details, but heavy on common sense. It’s either that - market failure and reset, or balance annual budgets and pay down national debts?

The impracticality of the latter is what “birthed” MMT. I won’t add the possibility that MMT turns out to be real to my list of possible outcomes. A lot of people will ultimately be really embarrassed that their name was ever associated with MMT.
bikechuck
Posts: 806
Joined: Sun Aug 16, 2015 9:22 pm

Re: Why international underperformed - it’s the earnings growth rate!

Post by bikechuck »

Kenkat wrote: Sun Oct 18, 2020 9:26 am
abuss368 wrote: Sat Oct 17, 2020 7:17 pm
typical.investor wrote: Sat Oct 17, 2020 6:54 pm
abuss368 wrote: Sat Oct 17, 2020 9:46 am
kosomoto wrote: Fri Oct 16, 2020 7:02 pm

Even if earnings could be manipulated in the short run, doing so over 10-20 years stops being manipulation and starts being a trend.
Think about that for a moment. No company could manipulate earning for over 20 years. Market pullbacks always flush out fraud. Enron, Worldcom, Global Crossing among others right around tech pullback. Madoff during Great Recession. Luckin Coffee in China during pandemic.

The US has a lot of oversight, financial watchdogs, and audits. I am not so sure of the financial oversight in other countries.
I'm not so sure of Ernst & Young whose great work has resulted in over $30 billion in losses.

Germany's Wirecard AG (Oops E&Y missed that the "trust" where cash was supposed to be wasn't ever licensed to function as one).

China's Luckin Coffee (assured investors and board in a comfort letter that the books were fine after video of "customers" coming and going were released that showed numbers looked fake. Oh and notified a long time E&Y customer and Luckin's chair before disclosing the problems to the board allowing the allowing the chair to transfer 9 figures mysteriously out).

U.K.'s NMC Health and Finable PLC (missed $5B in undisclosed loans and illegal transfers to a former EY partner who was running the show).

https://www.wsj.com/articles/string-of- ... 1602863319

And the U.S.'s WeWork? Hmmm. E&Y had no concerns. In fact:
None of its 2019 IPO clients, including WeWork, disclosed material weaknesses in internal controls over financial reporting in their S-1s, according to my reporting on September 4.

However, more than 20% of the audit clients of all the other Big 4 firms — Deloitte, KPMG and PwC—include management disclosures of ICFR weaknesses in their S-1s.
It is incredible. I am betting Congress could just take apart the Big Four accounting firms, like Arthur Anderson, if they wanted and it would be easy.
We could make each split into two firms and call it the “Big Eight”. Some ideas for names could be Arthur Young, Deloitte Haskins and Sells, Touché Ross, Ernst & Ernst (or Ernst & Whinney as it was called when I worked there out of college), etc. :wink:
Thanks for the walk down memory lane, in your fantasy would Arthur Andersen rise from the dead?
Post Reply