It’s pretty simple. Thanks to worldwide stimulus spending, there’s too much cash floating around right now. A few years ago, excess money chased stocks, houses, and oil. A few years before that, it chased high-tech Internet companies.

Many of the global gushers of the last decade have dried up. It’s a new decade and a new ball game.

Jim Grant, editor of Grant’s Interest Rate Observer, agrees. He says that the object of money’s desire varies from cycle to cycle.

So what will it be chasing in the coming years?

You gotta look at the clues. Global bailout and spending packages total more than $12 trillion.

Where is it going? Which economies/markets/assets is it propping up? Where do we already see incipient shortages? And what is investor sentiment telling us?

Let’s take a closer look at this last question about investment sentiment.

The Next Favored Markets

Bloomberg did a survey in early December asking investors which stock markets would produce the best returns over the next year. The foreign investors surveyed said (in order) China, India, and Brazil. The U.S. came in fourth. Among American investors, the U.S. stock market came in first.

But 40% of the Americans surveyed also said they were planning to increase their exposure to international stocks over the next five years.

Last year, only 22% were planning to do that.

And keep in mind that this Bloomberg survey came right after the Dubai debt scare in late November. Investors are ignoring risk because they can’t take their eyes off the prize. The MSCI Emerging Markets index increased 73% last year (compared with a 25% jump in the S&P 500).

It’s a safe bet that we’re going to see some overseas markets gushing in the next year or two. Sentiment is already becoming over-optimistic.

But it’s more than that. The managers who head U.S. mutual (and other) funds have been pretty much ignoring emerging markets. They invest in a lot of stuff – from U.S. stocks and bonds to commodities and other hard assets. But they put only 3% of their investments into emerging markets.

It’s high time for some corrective action. Especially when you consider that emerging markets will account for 70%-75% of global output growth beginning NOW.

More than one gusher is definitely brewing overseas.

Invest Safely,

Andrew Gordon

http://www.investorsdailyedge.com/