i) To get out of their USD position but do not want to harm the USD, many big USD holders are converting their cash/treasuries position into U.S. equities. Evidence of this can be seen from how the USD has been in inverse relationship with S&P 500 index since the U.S.-China Strategic and Economic Dialogue over the summer 2009.
ii) After being the "out of favor" region for years now, many of those are relatively undervalued at least in P/E valuations. (Yes, I know P/E is not perfect but at least it is an easy and well followed tool.)
iii) Well, U.S. equities, especially those from the Dow are mostly not really primarily exposed to the U.S. economy anyways. As the global economy slowly recovers, big MNCs from U.S. with international exposure stand to benefit from it.
iv) Other options become less rosy.
iv.i)Namely, the fixed incomes become less attractive due to the fact that credit will be tightening (please see my previous post credit nuclear winter) so the spread will probably widens for corporate bonds as the world is trying to avoid a hyperinflation scenario.
iv.ii)Real estate has grossly been overvalued from all the "propping up" from all the governments around the world.
iv.iii)Government bonds are either not yielding anything or have yields going up (due to the near zero levels from central banks around the world)
iv.iv) International equities are not "cheap" at all, in most cases, anyways.
iv.vi) International fixed income yields are either at low levels or will have yields going up for the same reasons as iv.i)
iv.vii) International real estate: expensive and overly leveraged (see iv.i again)
v) Big blue chips have special advantage at getting access to credit/financing over almost everyone else except the government themselves.
Christmas at Guam was spectacular. Happy Year 2010 in case I didn't post again before the 31st.
