How to Prepare for a New 'Economic Order'

Editor's note: For decades, the U.S. has been the world's top destination for global capital. But that's starting to change. In this issue – adapted from the April issue of Income Intelligence – Dr. David "Doc" Eifrig, CEO of our parent company MarketWise, explains why international markets are turning away from the U.S... and how to position yourself as a result.

Money flows to where it's treated best...

Since the start of the global trading system, that has been the United States.

Our robust financial system has made our nation the best place for businesses to launch, innovate, and grow. That has attracted trillions in capital to our shores – especially in recent years.

After the global financial crisis, many countries took austerity measures to balance their budgets... slowing their economic recoveries. But the U.S. continued to spend and grow. And by shoring up the financial sector with new banking regulations, the U.S. government made the dollar safer than ever.

This led foreign investors to snap up American assets much faster than we bought theirs.

But with President Donald Trump's tariff war, the U.S. stands to lose its place at the center of the global trading system. And it's now time for investors to change course – and consider international stocks...

The chart below shows the U.S.'s net international investment position. This is a sort of "balance sheet" that compares the foreign assets that U.S. investors own with the U.S. assets that foreign investors own.

Since 2006, foreign investments in U.S. assets have outpaced our investments in foreign assets by about $26 trillion...

As recently as 2023, the U.S. received nearly $2 trillion per year in foreign capital inflows. That's a lot of money, considering that gross domestic product ("GDP") is roughly $30 trillion.

Foreign countries own about 25% of our outstanding government bonds. That has helped drive U.S. interest rates lower...

Foreign investors also like to buy U.S. stocks. That's why the U.S. stock market (as measured by the MSCI U.S. Index) has earned a premium valuation to the rest of the world (as measured by the MSCI ACWI ex U.S. Index).

As you can see, U.S. stocks trade at a price-to-earnings (P/E) ratio of 25 times, while non-U.S. stocks trade at a P/E ratio of about 16 times...

All of this has propped up U.S. stocks and bonds – keeping our economy humming along and our interest rates low.

Again, money flows to where it's treated best.

But with the changes in the world economy, that may no longer mean the U.S...

If tariffs stifle the economy, tax revenues will decline, our debt will become less sustainable, and our creditworthiness will suffer.

The simple chaos and confusion of Trump's policies make international markets view the U.S. as a nation that's less reliable now than it has been for the past 100 years. And we stand to lose dozens of friendly trading partners as well.

Trump's tariffs will change the way the global order works. Believers think it will lead to growth over the long term. Markets, so far, disagree.

But while it will take years – if not decades – for production and trade to settle into a new equilibrium, global capital can move right now.

And it already is...

Investors have been dumping U.S. assets in favor of foreign assets ever since January.

The chart below shows the ratio of U.S. stocks to all foreign stocks. When the ratio rises, it means U.S. stocks are outperforming the rest of the world. When it falls, it means foreign stocks are outperforming.

You can see that for nearly two decades, U.S. stocks have had an amazing run. But that has radically reversed since the start of the year...

Normally in a market crash, investors will move out of stocks and into super-safe Treasury bonds, driving their prices up and interest rates down. And if they're too scared to invest in bonds, they move into the dollar.

But that's not what we're seeing. Today, capital is flying out of America's door...

Investors are moving out of U.S. bonds. And they're moving out of the U.S. dollar.

When you look at fast-moving data, you have to figure out whether it's just a bit of noise or the start of a long-term trend. The nature of this shift suggests it's the latter.

These aren't the flighty moves of small-time investors. These international investors are big institutions with careful investment committees.

The size of the move matters, too. Look at just how sharply the ratio of U.S. to global stocks reversed at the start of the year. That's not a rebalance. That's a regime change.

Put simply, investors aren't just focused on the U.S. anymore.

And that means we should put some money into that trend.

With America's financial empire fading, there's a compelling strategic reason to add international stocks to your portfolio today...

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

Editor's note: Doc says we're in a dangerous moment for investors...

In his first letter to readers as the CEO of MarketWise, he explains why America's financial foundation is quietly eroding – and how it's setting up three massive retirement traps. More importantly, he outlines why now is your last chance to use his time-tested approach to protect your wealth.