Subject: Re: Foreign exposure
While i agree with everyone about lack of innovation, regulation, corporate governance in foreign markets, wouldn’t you all consider that backward looking? While there isn’t a catalyst in the immediate future, going forward, the valuation spread (US is almost 2x more expensive that foreign) seems a bit extreme. The amount of articles i see about “American exceptionalism” and death of Europe makes me interested. ...

It probably depends on your time frame.

Sure, there is a price for everything. At the moment one could argue that it's a choice between fair companies at fair prices outside the US, and the home of some better companies at painful prices inside the US.

If you want to make a smart trade over a short to medium time frame (a cycle, say), then it could work well. All you need is confidence in this situation, and (critically) picking a passably good moment for the entry and exit so you catch the right part of the cyclical mean reversion. The current situation might end right away, or it might go on for years. It won't be an overnight thing, so one could probably jump on board the cycle after it has turned.

Conversely, if you want to hold things for a long time, you want absolutely the best quality companies you can get at a reasonable price. The US has lots of companies with wonderful economics, but it seems that the intersection set with "reasonable price" is pretty much the empty set at the moment.

Here is one of the metrics I track on how fully valued the US market is: the median price-to-sales ratio among the largest 400 non-financial firms in the S&P 500. Non-financial because "sales" is an ill defined concept for a bank, and median so it's tracking the boring middle-of-the-pack big firm rather than a few extraordinary outliers that people like to build narratives around. The average of that median P/S 1997 to ~2017 was 1.56, perhaps the "modern era normal". The current number, 3.625, is about 2.4 times as high as that normal, and almost exactly twice the highest value in the credit bubble peak.
The ratio was never over 2 at any time in US history before late 2013, but we're 86% above that line now. Prices are to most investors the way water is to a fish: it seems so normal it's not even noticed or questioned. But in investing, it has a meaning: is an annual dollar of sales at a boring middle-of-the-pack firm really worth that much more than it used to be? In present value terms, will one earn back what you pay for that boring stock before it goes bust? The answers are "no", and "probably not".

Jim