Obsidian Sync 2024-10-21 18:05:14

content/daily-notes/2024-10-21.md

@@ -44,4 +44,9 @@ On why the dollar is the preferred global reserve currency:
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 > Network effects do not guarantee the status quo for ever, as shown by the fall of past reserve currencies such as the British pound and the Dutch guilder. The problem faced by rivals now is that they simply cannot offer as safe and liquid a store of value, and in such quantities. China’s authoritarian system and controlled capital account, which restricts how much money can be taken out of the country, make investors skittish. Europe lacks safe, jointly issued assets on the scale of the Treasury market. Nowhere offers America’s combination of the rule of law, deeply liquid markets and an open capital account, meaning that investors know they can get their money out easily.
 
+On the dominance of US stock markets:
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+> There are two ways for a stockmarket to outperform its rivals, setting aside ephemeral ups and downs (and America’s stockmarket is no more volatile than those of other major economies). One source of high returns is if the companies comprising the market make more profits. The other is for investors to value those profits more highly. America’s recent stellar record reflects primarily the latter effect. In a paper last year Cliff Asness, Antti Ilmanen and Dan Villalon of AQR Capital Management compared the American market with a currency-hedged index of large- and mid-cap stocks in other developed countries. They found that once the effect of rising valuation multiples was stripped out America’s outperformance fell by nearly three-quarters and became statistically insignificant. Today America’s valuations are unmatched: the US market trades at 24 times forward earnings, compared with 14 in Europe and 22 in Japan.
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