The New World (Trading) Order

Wanderer
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Jpatokal, CC BY-SA 3.0 https://creativecommons.org/licenses/by-sa/3.0, via Wikimedia Commons

Before we begin, let me just say that the world has been watching with horror at the events unfolding in Minneapolis. The killing of Alex Pretti and Renee Good by federal agents was terrifying to watch, and I never thought I’d see anything like it happen in a developed country, let alone the United States.

But amazingly, far from being cowed into submission, the people have organized, especially in Minneapolis, with volunteers and everyday citizens taking to the streets to document the activities of ICE agents, blowing whistles to warn their fellow residents of approaching danger, and helping to support each other by delivering groceries and supplies to residents afraid to be outside during this time.

It’s been inspiring to see, especially now, knowing what could happen to them. I don’t know how this ends, but I think this week is when many Americans really started to see their government in a very different light.

Which kind of dovetails into what this article is actually about, which is how increasing American aggression is reshaping how the world sees it, and how it’s starting to change the world economy.

This month included the World Economic Forum in Davos, Switzerland, a gathering of world leaders that included the US president threatening to invade Greenland, despite Greenland being an ally. And when the rest of NATO objected, President Trump threatened Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands and Finland with tariffs in retaliation.

Europe’s reaction to those threats was initially disbelief, shock, and indignation. Feelings that Canadians have gotten to know quite intimately over the last year.

But now, Europeans are joining us in boycotting US products, avoiding US travel, and even threatening to skip the World Cup. They’re also realizing something that we figured out a year ago: Even if you sign a trade deal, like both Canada and the EU did, there’s nothing stopping the US from reneging on the deal and imposing tariffs on you anyway. There’s literally no point in negotiating.

So now the world is waking up to the fact that decoupling their economies from the US is now not just a matter of economic diversification, but a matter of national security. Dependence on the US might make your economy grow in the short term, but eventually, that dependence can and will be used against you.

So as Canada’s Prime Minister Mark Carney so eloquently argued in Davos, the solution isn’t to cozy up to the US and hope for the best (we tried that, it doesn’t work), but rather, band together and trade with each other.

Let’s Make a Deal

This economic diversification has already started, and has only accelerated since the events of Davos.

First, there was the announcement of a new trade deal between Canada and China, in which Canada would allow a limited number of Chinese EV’s to be imported in exchange for China opening up trade on Canadian canola products.

Prime Minister Mark Carney recently unveiled a big shift in Canada’s trade policy. He visited Beijing to firm up a “strategic partnership” with China that included a dramatic change to tariffs on electric vehicles (EVs), as the federal government seeks to diversify trade options. The shift in strategy was prompted by an increasingly fraught relationship with the Trump administration.

Canada’s new trade agreement with China — what it means for Canadians looking to buy an EV, Yahoo Finance

Then a surprise announcement that Canada and South Korea would cooperate on bringing South Korean auto manufacturing into Canada.

Canada, facing U.S. tariffs that threaten its auto industry, announced on Thursday an agreement with South Korea to explore bringing Korean automotive manufacturing to the country.

Canada Signs Auto Deal With South Korea, Moving Further From the U.S., NY Times

The UK appears to be following Canada’s lead, with their PM Keir Starmer travelling to Beijing to start trade talks of their own.

The leaders of Britain and China on Thursday called for a “strategic partnership” to deepen ties between their nations at a time of growing global turbulence as they sought to thaw relations after years of chill. Neither Prime Minister Keir Starmer nor President Xi Jinping publicly mentioned Donald Trump, but the U.S. president’s challenge to the global order was clearly on their minds.

British PM Starmer says ‘really good progress’ made in China talks on trade, travel issues, CBC

And then there’s the EU. Almost immediately after coming back from Davos, the EU signed a free trade agreement with MERCOSUR, a South American trading bloc consisting of Argentina, Brazil, Paraguay, and Uruguay.

The European Union and the Mercosur bloc of South American countries formally signed a long-sought landmark free trade agreement on Saturday, capping more than a quarter-century of torturous negotiations to strengthen commercial ties in the face of rising protectionism and trade tensions around the world.\

European Union, South America’s Mercosur bloc sign landmark free-trade agreement, CBC

And then there’s the massive free trade deal that got announced between the EU and India, known as the “Mother of All Deals”

On Tuesday, the president of the European Commission Ursula von der Leyen, president of the European Council António Costa and India’s prime minister, Narendra Modi, announced the “mother of all deals”, which promises to bring together about 2 billion consumers and a quarter of the world’s GDP.

The post-US world is already taking shape – look at the massive EU-India trade deal, The Guardian

You get the idea. The world is eager to get back to business, and if that means working around the US, then so be it.

An Emerging Opportunity

So why am I telling you all this?

Because it could mean something very interesting for emerging markets.

I’ve owned Emerging Market ETFs in the past, and the reason I got rid of them was that I wanted to simplify my portfolio to include only large-cap developed countries.

But now, as the world turns to making deals with each other, guess which countries keep popping up in the news?

I’ll give you a hint: The 5 biggest countries in the Vanguard FTSE Emerging Market ETF (VWO) are:

  1. China
  2. Taiwan
  3. South Korea
  4. India
  5. Brazil

All those trade deals I mentioned above include someone from this list.

And interestingly, if we overlay VWO’s performance on top of the US index, VTI, we can see that YTD, VWO is outperforming VTI by quite a bit.

Now, this is once again, a speculative investment decision on my part, which is a fancy way of saying I’m making a guess. An educated guess, but a guess nonetheless. So I’m going to keep my guess limited to 5% of my portfolio, just in case I get it totally wrong.

But come on! Look at that list of countries. China, Taiwan, South Korea, India, Brazil. If you’re any other developed country besides the US, and you want to make a free trade deal with someone, you’re going to be doing it with one of these countries.

What do you think? Do you think emerging markets is poised from some alpha? Or are you still all in on the USA? Let’s hear it in the comments below!


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66 thoughts on “The New World (Trading) Order”

  1. > the world has been watching with horror at the events unfolding in Minneapolis

    LOL absolutely not. Go discuss the Epstein files if you want something political to kvetch about. I’ve read your blog since 2015. Today I unsubscribed. God bless our ICE officers.

        1. Indeed. The racism IS the point of MAGA and it always has been.They are now just screaming that part out loud.
          I am an American patriot standing with Minneapolis and the Constitution.
          It will take us a decade or more to repair the horrific damage with our allies.
          I am trying very, very hard to figure out how to protect my assets from the coming US financial crash.
          Would love to hear what other Americans are doing.

          Thank you for taking the time to recognize all of us who are manning the barricades. I know you will see a cost.

          1. Agree with you!!! I swapped from VTI to VT because I don’t like the US concentration in my portfolio now 🤷‍♀️

          2. It’s funny that as soon as there was a multi billion dollar Somali daycare fraudulent scam uncovered including the Governor in Minnesota they took to the streets to protest the ICE agents, hmmm nice deflection, plus the WEF is a gathering not of world leaders but global elites with their own global agenda…Mark Carney was elected on the premise “he was the only one who could get a deal done with DJT”…He has failed miserably at that so what does he do ??? He runs to a communist dictator in China (who just less than a year ago, said they were a serious threat to our National Security) who has his arms out waiting for this little man and then his next stop is in Qatar !! This man is laughable and so are your posts lately…Y’all gotta get off CNN and CBC

            1. Amen to all of that!

              I DO have serious questions about ICE tactics. However, I cannot fathom how it’s just become ok to move to another country illegally. I think a reread of the book “Animal Farm” by George Orwell is in order. It’s all about how the elites play with language to manipulate the populace.

              I see this with the illegal immigration issue. Over the course of 50 years, the term has morphed from: illegal alien>>illegal immigrant>>undocumented>>to just “immigrant” as if doing things legally doesn’t matter. By the way, Orwell was a democratic socialist, which just goes to show how far to the left most Western countries have drifted.

            2. Not as soon, Graham. I live in Minneapolis. The first arrest in the fraud was in January, 2022. Sixty people have been convicted; 30 more were in the pipeline. I don’t know why it suddenly became national news after 4 years, but we’ve all known about it for quite a while. We took to the streets to protest ICE because they were untrained thugs who were sent here to cow a blue city for not kowtowing properly to government. If anything, it was an Epstein diversion, not a Somali fraud diversion. (BTW, the ICE surge has stopped the fraud prosecution in its tracks. A good chunk of US Attorney’s office, including the lead fraud prosecutor, resigned in protest of the DHS’s refusal to transparently investigate the Good and Pretti shootings. The attorneys left are spending all their time buried under the avalanche of wrong detainment and constitutional violation lawsuits caused by ICE. Take a quick read of some of the judges’ rulings in MN – particularly Patrick Schlitz’s, a judge of sterling conservative credentials, who has delineated the violation of 96 court orders just since January.

    1. Quite impressive to find someone literate enough to read this blog since 2015 but still manage to stay in the maga bubble.

      1. Comments like these are why you lost the election and MAGA is in office. The arrogance of the left to think that everyone on the other side are illiterate idiots.

          1. Thank you for your blog and your take on this moment from an American. I deeply appreciate your grounded and thoughtful perspective. – Long time reader

    2. Bye Felecia! Funny how the tough MAGA crowd runs from anything they don’t like to hear, like the truth. Just know not all Americans are clowns, Lucy ;).

      In regards to your article, your reasoning is SPOT on. The rest of the world crushed US markets last year, and that is only going to continue as long as we continue to let our country be run by orange shaded con-artist.

      I will share your blog today on a few social media sights in light of the snowflakes melting down and quitting over anything that goes against their liar in chief :).

    3. You are a disgusting excuse for an American. I am glad you unsubscribed. Clearly you would have supported Hilter too – we do not need you here.

      1. lol Hitler was a hero and everything you’ve learned about ww2 is a lie. Ask General George Patton. Every wonder why Ghislaine Maxwell’s father owed McGraw Hill – the company that print all the textbooks our children read?

        271,000 max – mostly of Typhus

    4. I don’t think they will miss you. As an American and a native Minnesotan I can tell you Minnesotans don’t want them and the vast majority of Americans abhor the tactics that ICE has used.

  2. I think South Korea going to move to the developed country index soon. The country has already completed making reforms to classifies on the FTSE Russell as an developed country and currently working on reforms for the MSCI inclusions (Vanguard uses the MSCI indexes), so it’s highly likely South Korea will be upgraded and included in the international indexes soon.

  3. We need to kick him out of the WH before the damage is irreparable. Mid terms is our chance to undo the big mistake we made. Let’s do people. Even sleepy Joe would do a better job as not destroying the world

    1. > Let’s do people

      Canada has been invaded by Indians for the last 5 years while satanic pedophiles are doing their damndest to destroy western Civilization. But be sure to tune into the superbowl this weekend, Goyim.

  4. Hi Wanderer! Thanks for the great post! You mentioned you guys a have portfolio B. What do you invest inside it? Thanks!

  5. Hi Wanderer! Thanks for the great post! You mentioned you guys a have portfolio B. What do you invest inside it? Any gold or mostly ETFs? Thanks!

    1. I don’t think there has ever been a better time to invest in emerging markets. S&P is heavy in tech so it might be a good place to take a little from and move to. Where would you take from to increase your emerging markets ?

  6. I think it’s worth having exposure to emerging markets. What do you think of the Canadian equivalent XEC to avoid currency conversion?

  7. I just want to thank you for taking a stand here. As an American, this is terrifying and infuriating. Silence is complicity and I appreciate you addressing it within your lane.

  8. Here’s another ‘thank you’ for covering what’s unfolding in real time and taking a firm stance. This is no longer about left vs. right, but humanity vs. kakistocracy. The MAGA cult has done untold damage to our world and is making it less safe.

    As for investments: I’m not regretting keeping 25% of my investments in VWO! The one positive thing about all this is that regional international ETFs may become less correlated to each other as capital flows away from the US. This would mean greater diversification benefits for investing globally.

  9. I’d strongly advise any investment strategy that isn’t anchored in USA equities. And I’d specifically note that dealing with China more extensively is not likely to help any mature economy that isn’t Chinese. Europe is in a tough spot and Canada bad beyond belief.

    Canada’s trade is 75% related to the USA and that cannot be replaced with first world jobs very easily and certainly not in any reasonable time. There is no Canadian manufactured product that can’t be done cheaper in Mexico or even the USA. Canadian resource sales are a very substantial part of exports and both oil and potash are easily substituted by products from Venezuela and Belarus. And existing trade deals expire this summer. There is no scenario that turns this into a positive for the Canadian stock market this decade or maybe even the next.

    Europe has an active war ongoing with a country that has a standing army that exceeds what Europe has (right now). Energy follies have made energy so expensive that chemical based production and related manufacturing are moving to the southern USA ASAP. BMW USA, VW USA and other manufacturers of vehicles are far more economically competitive than any European company except Tesla. AI and technology leadership in Europe barely exists and none at scale. I won’t even bother to mention the bad social structures, birth rates and the cost of the social system. Europe is not the index to buy.

    And it is going to get far worse. AI, robots and mass technology adoption in the USA is showing signs of rising fast on a parabolic curve. The result is going to be massive worldwide unemployment. The USA will be able to afford UBI but almost no other country of size will be able to. For ROW, it will be bad.

    I’m not writing about whose is politically right or wrong. Nor about the unfairness of the hegemon exercising power. Just trying to describe the world as it is and where it is inevitably going. There is no case for investing in broad Canadian indexes or European indexes. China is already a dumpster fire and the rest of SE Asia has structural weakness. Japan and S Korea seem to have potential for economic stability but the markets seem very opaque when looking at index structures and the levels of cross ownership.

    Finally, national currencies are at risk. Tether (USDT) is the canary in the coal mine. It allows non USA citizens in any country with internet to move from local currency to a US Dollar equivalent. It already has sucked hundreds of billions out of countries. It’s growing fast and more of these are on the way. It is very bad for national economies if they cannot harvest USD from their exporters.

    please be careful where you put your money.

    1. Extremely careful where I put my money, hence why I’ve been reducing my allocation in the US. Not political, just look at the CAPE and forward returns, it’s ripe for a correction (or worse). Unless by a miracle earnings keep the current pace, there is no way the next 10 years give any meaningful return for US Equities.

    2. Yes, the world has problems, but so does the USA. Chasing growth and innovation is a sound approach, but how about the exploding public debt? The declining currency value? The irrationally high valuation of equities?
      Something’s gotta give.
      I believe in gravity.

      1. Riccardo, all good and fair points. The USA situation is a bit different.

        Depending on how you look at it, $6 to $10 trillion of the debt is owed to the US government or affiliated entities. Unlike most countries, all the USA debt is in USD so money printing assures payment. So it might cause inflation but it won’t ever bankrupt the country. Inflation is structural in USA monetary policy with a minimum of 2% or so as a floor by policy. Based on history, even in stable times the economic value of the debt declines by 1/3 to 1/2 every 20 years (or less like recently). The best way to get a feel for this is to look at the value of the S&P 500 compared to USA Debt. They move in sync.

        Equities are below historical PE values if you exclude the Fab 7 highest PEs from the usual tech names. Always worth a worry but maybe not right now.

        I’m a fan of declining currency value because it lowers the price of USA exports and reduces imports. More exports mean more USA jobs. Less imports means more USA jobs because local goods will be in demand to replace now less affordable imports. Declining value of USD won’t work long term because of the size of the USA economy and the use of USD as a reserve currency would ‘force’ other countries to reduce the value of their currencies below USD to recover export competitiveness.

        1. Yes, inflation reduces the debt-to-GDP ratio. But since the ratio is exploding, we infer that inflation is not high enough. Or alternatively, that someone in the future will have to print dollars like there’s no tomorrow. Worrisome, allow me to say.

          Yes, a declining currency is good for the economy. Tariffs should synergize in that direction, and also give a positive contribution to inflation. However, a year of this innovative approach has brought very poor results. Aren’t you worried too?

          And finally, sure, the magnificent 7 have a high valuation, and that’s what deserved them the name. But did you give a look at the list of companies with a P/E higher than, say, 100? There are quite a few of them. Plus, companies posting losses and sent to high heaven and above.

          It’s hard to find perfection. For the moment, all we can only say is that the US as an investment environment is interesting, but perfectible.

          1. Riccardo, I too dislike ever rising debt. No economic plan ever meets my expectations and politics always creates flaws via compromise. I’m just pointing out that with inflation and reflected in the total value of the economy, current USA inflation is tolerable and not quite a crisis. Bad trend but no crisis yet.

            I’ve been retired for 25 years and a stock investor for about 50 years. I tend to buy individual stocks. A few are high growth in tech (an area I know well). Most of my holdings are dividend oriented and they seem to do well across cycles. With dividend orientation, volatility is markedly less and higher dividend companies tend to have market average PEs, nothing wild. I hold small positions (usually 1 or 2 percent of portfolio value so single stock risk is quite low. I think the market is best viewed for retirees with an index or, like my case, with the extreme edges of the distribution eliminated.

            I think the USA economy is going ‘gangbusters’. I see manufacturing and distribution construction everywhere. Skilled trades unemployment is virtually zero in the southern states I travel in. White collar clerical and near clerical is starting to have a tough time and government workers are starting to be reduced. The USA economy will be affected by AI, robotics and general technology. But less, far less than ROW. There is localized blue state disinvestment but most seems to be moving and a true close, so problems in CA, NY and IL might not be national or world economics related.

            I’m very optimistic over the USA economy. Probably not this enthusiastic since 2004. Regards, /Bob

  10. From my perspective, decoupling from the U.S. isn’t about ideology—it’s a rational response to repeated policy volatility and weaponized trade, especially as the slope of geopolitical risk continues to rise. Canada’s push toward diversified partnerships feels less like a gamble and more like overdue risk management in a changing global order.

    1. Emily, I think Canada is in deep trouble and nothing happening in Canada today is going to fix it’s problems. These two videos might better explain some of the issues facing Canada. And their are other issues as well. Many years ago a Canadian company bought my software company and I worked for the company in Ottawa for a few years. I have great respect and warm feelings for Canadians based on my experience. I fear for the very fine people of Canada who are being crushed by a failed Canadian system. Take a look at the videos.

      The Polite Ponzi Scheme Why Canada is Becoming a Feudal State: https://youtu.be/an3h8u7okLY?
      and
      The Broken Barrel: What Happens To Canada’s Energy Dream (After Venezuela’s Reset):
      https://youtu.be/kUPCvl3KpaE?

  11. Instead of making any guesses or listening to any of the well meaning comments (and some not so well meaning) here and elsewhere. Why not just invest in VEQT, still 44% US exposure ad 5-7% emerging markets.

    Expert and non-expert prognosticators have a terrible track record so all of the above “predictions” are pretty much useless. This would be for Canadian investors, similar funds could be found for US investors.

    1. Peter, Canada has a GDP growth problem that needs to be solved. Until it does, the Canadian market will not perform well. The link below will take you to a chart of Real GDP per Capita that shows a relatively flat Canadian economy for the last 25 years.

      https://thehub.ca/2024/09/05/trevor-tombe-the-great-divergence-canadas-economic-gap-with-the-u-s-reaches-a-new-record/

      These values reflect what are called purchasing power parity (PPP) adjusted levels of real GDP per capita in both countries. This accounts for price levels differences between the two countries.

      1. Thanks for that Robert. For the record I was not referring to you when I mentioned not so well meaning comments 🙂

        I would not disagree that we have problems here. Although a quick search and Canada’s GDP per capita while behind the US is 3rd amongst G7 nations. What does that mean and how will it affect our investments? Personally I have no idea, I simply believe from experience that you can’t predict what sectors, geographies or trends are going to be the “best” in the near future. So for me using an index fund that covers all the bases is fine. It may not yield the best results. But it will yield what the market gives and it will keep me from making mistakes trying to time and predict outcomes.

    2. This ^ . VEQT or XEQT

      XEQT is designed to target roughly: Canada 25%, U.S. 45%, developed ex‑North America 25%, emerging markets 5%.

  12. fascinating how Maga is such an extreme and violent ideology, its the result of Psychological Warfare on the masses. Not going to end well.

    But maybe there needs to me a new ETF called:
    NWO, New World Order

  13. I’m here for the comments today! Watching the show from an Internet cafe in Taipei, Taiwan, while enjoying coffee, dumplings, and eggs for lunch.

    Dan V

    1. I don’t see it that way, PNMP.
      Investors do not live in a planet of their own, surrounded only by money.
      Politics dictates whether and where AI will develop, for example. It decides how much is spent on health care, and how that funding is retrieved. In the past, politics has decided that the Internet was going to change the future.
      As investors, we are called to look into the signs of the times, and make personal judgments of what the future is going to bring.

      Whatever they tell you, exercizing critical thinking is not a bad thing.

  14. I now live in Japan and I have a visa to allow me to do so. I know you travel a lot and am sure you have a visa while doing so. If you overstay your visa or are in a country without one that country has the right and obligation to kick you out. Why do you think the US should be the exception?
    Also, all Carney has done is sign MOUs not trade deals. South Korea is also only dangling auto production to Canada in order to get Canada to buy submarines.
    Investment is still flowing into the US while capital is shunning Canada.

    1. Hmmm, this is interesting.
      What is the Japanese equivalent of the ICE?
      How many Japanese citizens have they shot in cold blood while performing their indispensable duties?

    2. Jeff, while Hyundai may be dangling a new plant for Canada, in 2025 Hyundai opened a new plant in the Savanah Georgia area. 3,000 acres and a $7.6 billion dollar cost. A truly massive facility. This is the second major auto facility built by Hyundai in Georgia. Canada does not have an internal market large enough to justify this type of facility. Canada would likely be an assembly point for car ‘kits’ numbering maybe a hundred thousand a year or so for internal Canadian demand. Not nothing but not a game chager.

  15. Thank you for speaking out against the terror we’re experiencing in the U.S. It helps to know we’re not alone, and that people around the world are paying attention. I’ve also added VWO to my portfolio and am keeping it at a 5% allocation for now.

  16. Great post! Last year in August I got a little bonus and decided to invest it in everything except the US, just out of curiosity, and also to reduce my exposure. It has done exceptionally well, with the ETF to developing countries going up 18%, the Canadian one 15% and Eurozone 13%. It is possible to have a healthy allocation without relying on US markets.

  17. I won’t comment on the financial implications. I just want to say thank you for speaking on what is happening. I live just outside Minneapolis, but my kids go to Minneapolis Public Schools. Just this morning I had to band together with other parents and neighbors to chase ICE away from my kids’ bus stop with, as Springsteen said, “our blood and bones/ and these whistles and phones.” What is happening here is the imperial boomerang. The American empire is in decline, so the empire eats itself from within. The methods we applied elsewhere, whether Chile or Vietnam or Iraq are now being applied at home because that corrosive power needs somewhere to go. It is an old story that has happened many times. They are attacking Minneapolis as a test. Minneapolis is one of the most civicly engaged cities in America, so whatever they can get away with here, they can definitely get away with elsewhere. So it goes, so it goes.

  18. I for the first time in my life have been making a consious effort to not buy american. Power in the purse!
    So does this mean that you are not holding the previous 5% in gold?

  19. I, for the first time in my life have been making a conscious effort to not buy American. Power in the purse! I do buy from our local vendors though.
    So does this mean that you are not holding the previous 5% in gold?

  20. In my opinion, America is run by business and currently some very rich and influential businesspeople are suffering financially due to the tariffs and unrest. Eventually, to save their profits, their combined applied pressure will force the government to return back to normal operations. But depending on the time it takes and possibly a change of government, most countries would have already created deals with each other and dependence on American business would be less and take years to rectify (If ever). In the short run the world order would change but I think without a strong stable country to replace American market dominance, the world order would revert to normal in the long term. I have held VWO since 2020 when I started with ETFs and VWO was experiencing a dip. Since than with careful portfolio rebalancing during dips and rises, it has been profitable for my portfolio overall.

  21. As someone living in the Minneapolis metro area I am horrified by the actions of our governor and mayor of St Paul. These people can justify anything no matter how immoral. They also staunchly believe the ends justify the means. These are idealogicallly possessed people, the most dangerous kind.

  22. The VXUS ETF’s composition includes companies that belong to the Emerging Markets (27%), Europe (38%) and the pacific region (25%). It has enough exposure to all the non-US companies around in the globe. I have owned this for a while now and have raised its allocation by an additional 25% in my portfolio after the ‘rupture’ !

  23. Interesting perspective on how global systems and trade structures shape financial independence. It’s always insightful to see how macro-level changes influence personal wealth strategies. Access to reliable real estate insights like Property Tax Records can also help individuals make more informed long-term financial decisions. Understanding valuation trends and ownership data often plays a quiet but important role in building stable assets over time. Topics like this really highlight how interconnected economic awareness and asset research have become.

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