Investing Outside the U.S. - Page 2 of 10

Investing Outside the U.S.

to happen in the fourth quarter of 2004 and the first quarter 2005? It’s not good, in my opinion, because of debt, debt, and more debt.

Bush’s tax cut seemed to have rebounded the economy somewhat. But if you cut the revenues from the government, you have to cut the expenses too if you want to have a balanced budget. Instead, expenses have risen dramatically, far beyond what anyone expected here in the U.S. So, the government debt situation scares me. Regardless of who gets elected to the White House, they’re going to have to grapple with this over the next couple of years, and I could anticipate higher taxes for the entire country. Then there are long-term issues, like Social Security and healthcare funding for Medicare, that a lot of people seem to be putting off.

The consumer debt picture is also something that really scares me. Stats for home equity lines of credit that were about $100 billion back in 1999 recently came out for 2003 at $340 billion. When you’re taking that amount of positive equity and transferring it into debt, that can be dangerous—especially at a time when interest rates are going up.

Another issue for the fourth quarter is that we really have no idea what’s going to happen regarding terrorism. Who knows what’s going to happen in Korea? The markets don’t like uncertainties. You get the feeling that something is going to happen, maybe something bad. I hope not.

THOMAS MIMS: It appears to me that we’re in an overvalued bear market. That means that there’s going to be some descending in order for the bear market to resolve itself. The economists I’ve spoken to are saying that they don’t believe the gains that have been experienced in this country in the last six months or so can be sustained.

HOLT: There are some positive things out there. We don’t invest in markets, we invest in companies, and there are still companies out there that are growing their profits quite rapidly. There has been a lot of restructuring, so you don’t have the type of corporate debt that you used to have in this country. Companies are starting to spend again on equipment, technology, and other areas. Many of these companies are investing outside of the U.S. and can take advantage of what’s happening overseas as well.

BE: So how should investors approach this market? Should they look for a stock picker, or do they need to stay more indexed, in terms of their investing?

HOLT: I’m a believer in stock picking. If you can find someone who’s been able to demonstrate that they can outperform the market, and the process they use has a historical track record, then you should go with an active manager.

I’d also say that all of the negatives we’ve talked about—the falling dollar, rising interest rates, and the twin deficits—could actually create a positive environment outside of the U.S. Every investor should have some portion of their portfolio invested outside of the U.S.

RAMOS: I think