NEW YORK (CNN/Money) - The war with Iraq left no doubts in the world's mind about U.S. military might. The supremacy of U.S. assets, on the other hand, remains very much in question.
Used to be that in times of trouble, global investors came flooding to America's fair shores. The dollar would hop higher and Treasury bonds would fly.
But the war with Iraq has been different. Whenever things got uncertain, or downright hot, the greenback dropped and Treasurys, though rising, wouldn't do quite as well as their overseas counterparts. Over the past month U.S. stocks have risen, yes, but stocks in London, Frankfurt and Paris have risen more.
Much of this shift is naturally about the specifics of the Iraq situation -- the United States had far more to lose than any other country and the risk was reflected in U.S. assets.
But it's not just Iraq. Global investor discontent with the United States has been on the rise throughout the long bear market. It accelerated during last year's flurry of accounting scandals, which called into question the notion that U.S. stocks deserved a premium over other countries' because company disclosure in the United States is so much better.
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Also pushing investors away from the United States: the low yield on Treasurys. The U.S. 10-year note yields about 3.9 percent currently. In contrast, the German 10-year bund throws off a 4.2 percent yield and the U.K. 10-year gilt gives you 4.5 percent. For investors anxious to eke out some sort of return in a low-return world, these differences matter. Central banks appear to be getting into the act as well, shifting some of their reserves toward the euro.
Now that the war is winding down, market chatter about cash moving away from U.S. assets is heating up, according to HSBC currency strategist Marc Chandler.
"I think it's been grossly exaggerated, but that's what people are thinking," he said
Such talk in itself can be dangerous, because it can make overseas investors who hold U.S. assets jumpy. The U.S. current account deficit -- the net amount of U.S. assets in foreign hands -- hit six percent this year. The potential for a domino effect, where overseas selling begets more selling, is always there.
There are also fears that investors from the Arab world could let their money do the talking, shifting funds away from the United States in response not just to the war in Iraq, but the tough line the White House appears to be forming about Syria.
What Middle Eastern investors are doing with their money, and whether they are motivated by anything other than the desire for high returns that motivates other investors, has always been unclear. In his book "Liar's Poker," Michael Lewis writes about how, as a Salomon trader in the 1980s, he'd make up a story about how "several Arabs" were selling whenever the dollar dropped and he didn't know why.
Just because something may not be true doesn't mean the market can't get worried about it.
-- Justin Lahart is a senior writer at CNN/Money covering markets and investing.
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