The writer, Sony Kapoor is one of those economists famous-for-being-famous.
Not that there is anything wrong with that.
He has parlayed his brand/branding into some sweet gigs, I'll post his World Economic Forum mini-bio after the jump.
From Bloomberg, February 5:
Trump’s policies have accelerated an overdue shift, as US market advantages fade and investors reassess their heavy exposure to American assets.
The US today accounts for roughly two-thirds of global listed equity benchmarks, about half of private capital assets and around 40% of global bond markets. Yet it represents only about 4% of the world’s population, 10% of global growth, 13% of global trade and roughly 15% of global GDP on a purchasing-power-parity basis.
This extreme concentration of financial capital is not merely striking. It is economically inefficient, financially risky, and ultimately unsustainable.
Contrary to standard economic theory, global savings have flowed “uphill” from younger, faster-growing economies into a slowing and aging one. The result has been inflated US asset prices, rising correlations across global portfolios, and persistent capital scarcity in parts of the world where investment would raise productivity most. As Herbert Stein, the former chairman of the US Council of Economic Advisers, once observed: “If something cannot go on forever, it will stop.”
It was only a matter of time before economic gravity, rising concentration risk, concerns about AI-driven asset-price excesses and the most basic investment tenet — diversification — triggered a rebalancing away from the United States.
Today, capital flows, relative market performance and institutional portfolio decisions show that the rebalancing is well underway and speeding up. And as I said in a series of speeches to investors in early 2025, “this rebalancing will boost growth and increase the resilience of the global economy.”
US policy under President Donald Trump has helped catalyze this acceleration. Tariff uncertainty, a transactional approach to alliances, renewed attacks on the Federal Reserve’s independence, persistent fiscal slippage, saber-rattling over Greenland’s sovereignty and repeated challenges to domestic institutional guardrails have increased uncertainty around American policymaking.
But rising political risk alone does not explain the rebalancing. The deeper drivers are the exhaustion, and in some cases reversal, of the forces that powered an era of exceptional US financial outperformance, and the hypersaturation of investor portfolios with American assets.
Fading US Tailwinds
Since the global financial crisis, US equities have delivered exceptionally strong returns, several times faster than real economic growth. That apparent defiance of gravity drove foreign investors to more than triple their exposure to US equities in the past decade, to more than $20 trillion, most of it unhedged. This drove rising valuations and a stronger dollar, which further amplified gains, particularly for international investors.But this era rested on a rare combination of factors, which have now run their course.
One was a four-decade secular decline in interest rates, which lifted asset valuations, especially for long-duration equities. A second was the near-halving of corporate tax rates, directly boosting post-tax profits. A third was quantitative easing, which inflated asset prices, particularly in the US. A fourth driver was the redistribution of income away from labor toward capital reflected in the rising share of profits in American GDP.
Research from the Federal Reserve suggests that lower interest rates and lower corporate taxes alone accounted for nearly half of US profit growth over the past three decades, and explained much of the expansion in valuation multiples.
As these tailwinds fade, profit growth and equity returns are likely to be materially lower than in the recent past, a point reinforced by the latest economic and investment outlooks.
At the same time, concentration risk has surged. In the last three years, just seven companies accounted for 55% of total S&P 500 returns. The top 10 stocks now make up 40% of the index, while the median US-listed company is now worth less than 2% of a large-cap peer. This is not broad-based growth, but a narrow and increasingly fragile bet.
The currency tailwind has also turned. A roughly 10% decline in the dollar has transformed what was once a powerful boost to returns for foreign investors into a growing drag.
As expected returns fall and risks rise, the logic of reallocation becomes irresistible for institutional investors bound by fiduciary duty to maximize risk-adjusted returns.
For decades, US Treasuries formed the bedrock of the global financial system, serving as the reference “risk-free” asset against which everything else was priced. That status allowed US governments and companies to borrow cheaply and at scale.
That assumption is now being reassessed....
....MUCH MORE
Regarding the U.S. economy's place in the world, been there done that.
The intro to and outro from December 2012's WSJ Essay: "Why Innovation Won't Save Us":
I am an optimist who takes a perverse pleasure from dystopian, depressing or downright Bates Motel scenarios.
See:
Rosenberg
Edwards
Evans-Pritchard
The last three Drs. Doom...
*****
...We only have one sample of U.S. market history, only one time the U.S. rose to economic dominance, only one period of invention like the one described above.
Anyone who uses past performance as anything more than past performance is either a mental defective or a charlatan.
Also:
"Industrial Revolution Comparisons Aren't Comforting"
First posted February 19, 2017.
Partly because of Eddington's Arrow of Time, at least in the mundane everyday experience, we only have one economic history dataset to work with. Because of this I used to argue with people who said this time will be like the last time but found that approach neither satisfying nor enlightening. I don't argue anymore, I just observe, like a kid watching a bug and wonder where the almost metaphysical certitude would be coming from, because, truth be told, nobody knows how this all works out.
Which I think is the point of this mini-essay....
Regarding the dollar, who knows where it should trade. April 2025:
Okay, You Tell Me: Should The Dollar Be Higher Or Lower? (DXY)
Here's the U.S. Dollar Index over the last 57 years (constituents changed with introduction of the euro):
DXY last I saw February 6, 2025: 97.68 up 0.05 (+0.05%)
And Professor Sony Kapoor via the WEF:
Sony Kapoor is an influential macroeconomist, investment expert, geopolitics adviser, sustainability enthusiast and development advocate with a 25-year track record of successfully tackling policy, geopolitical, investment, and sustainability challenges. His portfolio career uniquely spans investment banking, economic policymaking, strategy consulting, geopolitical advisory, interdisciplinary research, investment committees, C-Suite and Board roles, and the non-profit sector across five continents.
Currently, he is Chairman, World Benchmarking Alliance in the Netherlands, CEO, Nordic Institute for Finance, Technology and Sustainability in Norway, Trustee, Friends of Europe in Belgium, Commissioner for the Lancet Commission on Global Governance for Health in London, and was, until recently, the Interdisciplinary Professor of Climate, Finance, and Geoeconomics at the European University Institute in Italy. Mr Kapoor has also been a senior/strategy adviser to six G-20s, the EU, the UN, IMF, World Bank, many European & Emerging Market governments, large institutional investors and several corporates ranging from large MNCs to promising startups.
His successes in helping diffuse the Euro crisis, promoting global financial reform, accelerating climate action, and scaling up development finance have led to recognition as a Young Global Leader by the World Economic Forum, a European Young Leader by the Friends of Europe, a Fellow by the Royal Society of Arts and Commerce, and the awards of a Presidential Fellowship by the Open Society Foundations, and a Gold Medal for Outstanding Public Discourse by The HIST at Trinity College Dublin.
Mr Kapoor is known for his insightful keynote speeches, influential reports & incisive agenda-setting advisory work. He has been invited to write for publications including The Economist, Financial Times, the Wall Street Journal and Bloomberg and has been a frequent on Camera expert for the BBC, Bloomberg TV, France 24. His multifaceted advice on Geopolitics, Economics, Investment, Technology & Sustainability is in high demand by CEOs, corporate boards, government cabinets, investment committees and international organizations delivered through, advisory roles, high-level consultancies & invitations to deliver Keynotes & Seminars.
