The super rich are the most boring people in the world. What do I mean by that? They all look, smell, and feel exactly the same. They all vacation in St. Barts, wear and try and get their kids into US Ivy League schools. And you could put 10 of them in a room and they literally look like the same people. Whether it's a billionaire from Buenos Aires or an industrial magnate from Hamburg, Germany, they're remarkably similar. Once you get into the middle class, different food, different clothes, different taste, much more heterogeneous. Anyways, they all want to live in the same goddamn places: Dubai, London, New York, Palm Beach, or Aspen. And now I think Dubai's fallen off the list because of the war with Iran. It's just so ironic. We thought that putting US bases in the Gulf would be a security blanket, and it ended up being a bullseye. Anyways, welcome to Office Hours with Prof G, where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. Today's episode includes questions from our time in Austin, specifically South by Southwest, which I really enjoy. These are questions presented to us from our listeners back in March at South by Southwest. Question number one:
So, every year we make a series of predictions, and the one I'm most proud of is that last year we predicted that for the first time in what, 17 years, there'd be a rotation out of US stocks into emerging market stocks, and emerging markets would outperform US stocks. And we got a ton of shit for this. Never bet against the US. US is the home of AI. And look what's happened. If you watched our most recent Prof G pod or listened with Josh Brown, who's one of our kind of fan favorites and a friend of the pod, here's some data from that episode. On a rolling one-year basis, developed markets outside of the US are up 48%.
Emerging markets up 55%, and the S&P 500 is up 34%. Year-to-date in 2026, emerging markets are up 5%, and developed markets ex-US are up 2.4%, and the S&P is down 3%. There's just no arguing here. International is winning even despite the Iran shock. And it doesn't matter which style you pick or asset class. Every version of international is beating the US equivalent year-to-date. International growth stocks are up 5.5% versus US down 2. International momentum is up 9.2 versus US at 1.3. International quality is up 7.1 versus US at 1.8. And as Josh put it, it almost doesn't matter what stocks you buy. If you have any global allocation, your portfolio looks amazing right now. Emerging markets are at about 11.5 forward earnings versus developed markets at 20. I think the US or the S&P is now at 19. And the S&P was at about 23 and has come down to 19. As I said, that gap is unusually wide. Even by financial standards, even with the international markets coming up and US markets coming down, there's still a pretty big delta here. EM forward P/E is also well below its own trailing P/E of 18.8, meaning analysts are already pricing in a big earnings surge in 2026 to justify current prices. JP Morgan is forecasting 40% earnings per share growth in emerging markets this year. So, what do you have? Cheap stocks plus strong earnings growth means you capture both multiple expansion and earnings expansion simultaneously. Multiple expansion is something most investors don't understand. And if you invested in Latin America the last 10 or 15 years, it didn't matter how well the underlying company was doing because you just can't outrun multiple contraction. At the same time, you look like a genius if there's multiple expansion. So the fear is in what you do is look at how concentrated you are, and if you're suffering from a bout of US concentration risk. The top 10 stocks now make up 40% of the S&P 500, more than double their 19% share in 2015 and the highest level since 1972. By contrast, the top 10 make up just 13% of the international equivalent, the MSCI. Most mega cap stocks peaked in November 2025. The S&P's forward P/E has already compressed from 23, as we referenced earlier, to 19 this year. So in sum, if you think if you're on SPY, if you think you're in the S&P that you're diversified, you're not. About 40% of your assets are in just 10 stocks, and you're in a market that is still expensive on a relative basis. Let's talk a little bit about the dollar. The DXY fell nearly 10% in 2025. That's the worst performance in over a decade, driven by fiscal concerns, policy uncertainty, and eroding confidence in US exceptionalism. Morgan Stanley warned in March of 2026 that the dollar's Iran war rally is short-lived and expects further weakening as US-Europe rate differentials shrink and the war curbs economic growth. A weaker dollar is a direct mechanical tailwind for US-based international investors. Currency effects drove nearly half of international returns in 2025, and some are out of control. Deficit spending, fiscal irresponsibility, sclerotic foreign policy, head-up-your-ass decisions in terms of our allies mean that the dollar is weakening, as is confidence in the United States. Also, I think that some of the kind of autocratic, cronyist approach to companies taking golden shares in Intel and in US Steel, and punishing certain companies that don't support this administration, has weakened one of the underpinnings of why we trade at a premium in terms of a P/E multiple, and that is rule of law. And I think that is being eroded, and people are rotating out of US stocks into other stocks. So, I still think this trade has juice left, if you will. In sum, and I've been doing this, I bought a British aerospace company. I'm actually looking at my Latin American stock, and my biggest investment is in a fund that finds special situations outside of the US. This is the prediction from a financial standpoint I'm most proud of because it was definitely contrarian. It has played out, and I still think it has legs.
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Question number two.
