The U.S. market is trading at a 34% premium to its 20 year median forward P/E by far the highest among major economies. This isn’t just a signal of overvaluation; it’s a symptom of deep capital concentration driven by global dysfunction. Behind the numbers is a story of capital flight, not from risk assets, but from broken systems. This valuation gap reflects how fragile the global landscape has become, and how reliant it is on the U.S. as the last remaining vessel of perceived stability. This divergence isn’t just about exuberant earnings expectations, it reflects a structural global imbalance.
As @SantiagoAuFund Dollar Milkshake Theory suggests, in a world of rising sovereign risk, broken credit transmission (see China), and demographic decline, global capital flows aren’t evenly distributed they concentrate. The U.S., with its unrivaled legal infrastructure, deep capital markets, and reserve currency status, becomes the forced buyer of last resort for global capital. The premium on U.S. equities, then, is not just about growth it’s about jurisdictional safety, liquidity, and institutional continuity. The paradox is the higher this premium stretches, the more reflexive and unstable it becomes. Passive flows chase past returns. Margin expansion bets compound narrative distortions. The AI bubble inflates confidence while masking fragility. And when the global milkshake reverses via fiscal dominance, foreign selling, or a confidence shock this concentrated exposure becomes systemic risk.
The valuation distortion becomes less a bet on future prosperity and more a symptom of the world’s inability to function without U.S. financial dominance. In short this isn’t just about the U.S. being expensive. It’s about the rest of the world being structurally uninvestable. And that, ironically, is what keeps the dollar game alive until it doesn’t.
Asian retail investors dumped US stocks last month:
Korean individual investors sold over $1 billion in US stocks in May.
Japanese retail investors offloaded ~$166 million of US equities last month.
This was the biggest exposure reduction since April 2023.
