Benzinga - by Shanthi Rexaline, Benzinga Editor.
SPAC king Chamath Palihapitiya on Tuesday said the U.S. companies are relatively attractive versus the rest of the world and delved into what it would take to produce an “economic miracle” in the country.
What Happened: Sharing three charts from the Financial Times, Palihapitiya said the rest of the world is falling behind the U.S. companies. The percentage share of the U.S. companies in the MSCI World Index, a proxy for global growth, has been on the rise, with U.S. companies now accounting for over 60% of the total. The proportion of U.S. companies has been increasing steadily since 2010.
The fund manager also noted that non-U.S. companies trade at a discount to their U.S. peers. The second chart showed that the relative valuation of MSCI All-Country, excluding the U.S., versus the S&P 500 Index, has been in negative terrain since 2010.
“You'd much rather own an American business doing X vs an equivalent company abroad doing the same thing,” Palihapitiya said. The premium at which the U.S. companies are trading is a measure of trust and reliability of the U.S. company, country, and economy over their counterparts abroad, he added.
Thirdly, Palihapitiya said that a considerable percentage of American exceptionalism is concentrated within the top ten companies, which may limit room for significant new buyers. He anticipated that investors might shift their focus among these companies following earnings releases.
America Is Healthy: The U.S. economy has remained resilient amid the string of Fed funds rate hikes implemented by the Fed in the current tightening cycle. The labor market indicators have remained fairly strong, with the economy adding jobs at a robust clip month after month and the unemployment rate levels have also remained low.
Consumer spending, which fuels the bulk of economic activity, has been fairly immune to the surrounding uncertainties. The retail sales report for September released last week vouches for the fact.
Palihapitiya noted that America is not only doing well on a standalone basis but has fared much better than the rest of the world on a relative basis. “This is the basis of most of my economic rationale – keep the relative picture in mind!” he said.
Now to create an economic miracle from here, the venture capitalist said the U.S. should strive to keep its deficits down and stay out of participating and funding foreign wars.
The U.S. debt pile is now at a staggering $33 trillion, and the budget deficit is around 7% of the GDP and it is expected is rise further. Piling on further debt will result in unsustainable debt servicing costs. The recent surge in bond yields would mean the Treasury may have to incur steeply high costs for raising debts.
The iShares MSCI USA Quality Factor ETF (CBOE: QUAL), an exchange-traded fund that tracks the performance of U.S. large- and mid-cap stocks with quality characteristics, rose 0.73% to $132.36 on Tuesday. The SPDR S&P 500 ETF Trust (NYSE:SPY), the ETF that tracks the broader S&P 500 Index, ended 0.75% higher at $423.63, according to Benzinga Pro data.
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