U.S. vs. The World

For this post I pull out one of the points from the last post: I believe the natural rate of return of the U.S. economy has declined due to aggressive monetary policies over the past few decades. This raises the question: Is it more attractive to invest outside the U.S.?

Of course investing outside the U.S. involves greater risks, including currency and political risks. However, if the natural rate of returns are more attractive in other countries, they should in theory provide more attractive investment opportunities. I've been pondering both this question and how to execute such a strategy.

Ideally, an investor wants a politically stable country with a deep and broad and healthy economy, offering efficient capital markets. Additionally, the outlook should also include appreciation of the local currency relative to the U.S. and the local economy is not significantly correlated to the U.S. economy.

One can narrow the list down fairly quickly by excluding countries with relatively high debt loads that may cause distress and countries whose economies are not large enough to offer a reasonable breadth of opportunities without undue risks and costs. While I haven't arrived at specific list of countries or investments, at this point I am planning on putting a fairly large percentage of my portfolio in a mix of international equities and debt.

At this point my timing is based on the following steps unfolding in the near-term are:
(1) Stock markets pull back around the world due to slowing U.S. economy with possible deflation, European debt market gyrations, and risks for an Asian slowdown. I am looking for a cathartic move, but not sure we'll get it. When this happens the U.S. dollar likely rises as investors run to perceived safe havens.
(2) U.S. government reacts aggressively with both fiscal and non-traditional monetary policies, which may include direct efforts to raise inflation expectations. The U.S. dollar weakens due to rising debt, uncertain U.S. growth, and inflation risks.
(3) Stock markets rebound somewhat with investors expecting a recovery in private spending that enables at least one year of an improving outlook.

So I'm looking to time my re-entry around a cathartic move in the markets, which may happen in the next five months. I also expect a fairly volatile period with many unexpected events significantly impacting the markets, so the outlook likely evolves as we move through the summer.