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Why investors should keep their money in the United States

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David Nelson, Belpointe Chief Strategist, joins Yahoo Finance to discuss the outlook on the market ahead of the Fed’s Jackson Hole meeting, emerging markets, and cybersecurity realted stocks.

Video Transcript

ALEXIS CHRISTOFOROUS: Let's check in with David Nelson now who is chief strategist at Belpointe. So David, it seems like everybody is looking ahead to that Federal Reserve Jackson Hole symposium, which is kicking off tomorrow. It's a virtual event again. Fed Chief Powell is going to speak virtually on Friday. What do you think this market has already baked in when it comes to interest rate hikes and the bond tapering from the fed?

DAVID NELSON: I think right now, what the market is priced in is a likely announcement in November of a taper. But I don't know if we're going to get an inkling on that at Jackson Hole. I think Jay is going to play it very cagey. He's going to try to give us as little information as possible. And he wants to keep his options open. But it's important for the following reasons. In the end, it comes down to the risk free rate. Valuations are based off the risk free rate. And asset classes compete for your dollar just like everything else. And in comparison to other asset classes, stocks are still the better game.

In a vacuum, stocks are obviously pretty expensive. But with, I'm looking right now, the 10 year at 1.32%. And outside the United States, even negative rates in Germany, there's a reason why so much capital comes into the United States. Eventually it finds its way into the capital markets.

ALEXIS CHRISTOFOROUS: Yeah I was going to ask you about outside the US when it comes to valuations. Are you seeing other equity markets around the world a little more attractive right now? And should investors be looking at it versus the US?

DAVID NELSON: I get that question often, and especially from advisors. They look to the emerging markets. And it's cheap. It's cheap for a reason. I call it the emerging market lie. And so much of that is really dominated by China. China makes up a big portion of some of the popular ETFs like EEM. In some cases, 40% and some other ETFs. But China is an adversary in every sense of the word. And I never know when I'm going to wake up in an emerging market investment and find that the currency has been devalued, and industry nationalized.

Don't underestimate the rule of law. There's a reason why capital does so well in the United States. We have the rule of law. And that's important. And actually, Jared was just talking about the Chinese stocks. A big reason why these Chinese stocks are down is because of the rule of law. People here in the United States have these Chinese US listed companies. And they think they've tapped into the Chinese consumer and the China market and the secular growth. Essentially, they own nothing. They own investments in Alibaba, and Baidu, and others. That's an investment in a Cayman Islands offshore holding company that has a slice of the economic interest of these companies.

But who knows what could happen with China if push comes to shove. Keep your money here in the United States.

ALEXIS CHRISTOFOROUS: No surprise to find that a lot of stocks that are related to cybersecurity are rallying today. I was just checking out a tenable Z scaler cyber arc, all higher. Do you have any position in that sector right now?

DAVID NELSON: Unfortunately I do not. I let go of my CrowdStrike probably too soon. It was a great trade for us. And we'll probably have to find another entry point. I was encouraged to see that at least on the administration level that this is going to be an approach towards public private partnerships because government can't do it all on its own. The president is correct. It's got to be in partnership with some of these very formidable entities. And to the point regarding some of the attacks that we've had, today it's a pipeline. What if it's the electric grid or a military complex or something worse? Forget about it.

The implications for our economy are enormous. This has to be a focus not just for the administration, but corporations as well. And frankly, every major US corporation should have a formidable cybersecurity element to it.

ALEXIS CHRISTOFOROUS: All right. We're going to have to leave it there. David Nelson of Belpointe. Thanks so much for being with us. We appreciate it.

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