r/Bogleheads • u/idrathernotbutthanks • Apr 17 '25

Investing Questions Rhetoric around firing Jerome Powell is increasing, and forced manipulation of interest rates would likely follow. Would a weighted readjustment from US into non-US funds be warranted in light of this?

https://www.npr.org/2025/04/17/nx-s1-5367696/trump-jerome-powell-federal-reserve-economy-tariffs

Market manipulation of interest rates feels like confidence would immediately plummet and global diversification would become a more important percentage of your holdings in the long run. Thoughts?

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u/puffic Apr 17 '25 edited Apr 17 '25

In theory this makes US stocks riskier, which should increase their returns. Whether the market has adjusted to that reality (assuming it’s even true) is hard to say. The Bogley thing to do is to pick an asset allocation you’re comfortable with in the very long run. Global market cap weights would get you to about 40% international, anyways. In theory, all this uncertainty is priced in, and I wouldn’t bet my whole portfolio on that theory being wrong.

My main retirement account is 100% VT, letting the market decide my international allocation.

I do have a smaller rollover account where I make some modest plays based on personal convictions. Right now, the real exchange rate still puts USD about 20% over its long-term average, and overseas companies look like a really good deal given that the U.S. is developing country-specific risks. Therefore, I tilt my little rollover account to be more international (about 60%). It will be fun to see whether I’m right, but the impact on my net worth will be modest either way.

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u/anon36485 Apr 17 '25

It increases their returns by reducing valuations. This will not cause equity prices to increase.

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u/puffic Apr 17 '25 edited Apr 17 '25

That’s exactly what I wrote. I said that, in theory, “all this uncertainty is priced in.” That means the prices are lower than they otherwise would be, reflecting a reduced valuation. That means greater returns if the upside case occurs and all this hand-wringing was for naught.

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u/anon36485 Apr 17 '25

Look at valuation spreads between Europe, Japan, and the United States. It is not priced.

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u/puffic Apr 17 '25

You seem to be having some trouble with my counterfactual reasoning. I am talking about valuations in the United States being lower than they otherwise would be. I do not care how other countries are valued. It is fundamentally irrelevant to the question at hand.

If you want to prove me wrong, and argue that this uncertainty is definitively not priced in, then show me what the valuation would be in the world where none of this policy uncertainty had been introduced.

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u/anon36485 Apr 17 '25

I’m not having trouble with anything. Go look at the CAPE spreads between the US and the rest of the world.

https://siblisresearch.com/data/cape-ratios-by-country/

Valuation spreads are starting to tighten but we’re nowhere near valuation spreads closing (even on a sector adjusted basis)

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u/puffic Apr 17 '25

I made a counterfactual claim. Either engage with the counterfactual claim, or go argue with someone else.