Thanks for the reply. You bring up some interesting points, but I think that the very fact that we have to bring up the nuance means that, for most people, it wouldn't be wise to "set-it-and-forget-it."

That's only really true in emerging markets, IMO. Recently, the US Dollar has seen worse inflation than the Euro, Canadian Dollar, and GBP. I don't want to get political, but the US has not been doing very well from a political/regulatory or central bank standpoint the past year.

From a long-term perspective, I don't think the recent spike in inflation should be a factor in making investment decisions at all. And as far as Fed policy goes, as you hinted at, it's debatable. Regardless, I don't think the Fed is able to raise interest rates very high. The 10-year is yielding around 1.7% right now, far lower than what has been seen in the past. The Fed-funds rate will probably reach a ceiling around 2% and certainly not more than 3%, and I'd be surprised if they increase it anywhere near 2% in the first place.

The Fed is not going to blatantly invert the yield curve by their own doing. There is just too much political pressure against it, no matter what the pundits say (most of whom, I should add, have lived most of their lives during times when interest rates were far higher than today).

Overall, I still contend the Fed is a more mature institution than other central banks. The strongest piece of evidence is their correct handling of the 2007 financial crisis. Perhaps their dragging their feet right now may be a mistake, but the magnitude of this decision pales in comparison to the mistakes made during the Depression.

But the difference between investing in Japan during the NIKKEI bubble and investing in Europe today is valuation.

Valuation plays a role, but I think its role has steadily diminished over the decades, in part due to US tech companies consistently bucking the trend. As an abstract quantity, valuations have never been the end-all-be-all for me in the first place. When such metrics as P/E ratios end up ballooning to "ridiculous" numbers, and yet investors are rewarded with high returns anyway (Tesla), it asks questions about the reliability and relevancy of these metrics. And of course, if valuations were the whole story, it would've already been priced in.

One example that someone else a while ago tried to point out to me is the Schiller P/E ratio, at historical highs, far higher than the median, and therefore he says, US stocks are way overvalued, even in a bubble...but the fact that it fails to account for interest rates nullifies much of his argument. When rates are accounted for, US stocks are still decently expensive, but nowhere near the red-flag levels he was warning about. My point is, the metrics themselves don't mean anything in isolation. Neither does the market need to conform to such intuitive concepts as mean-reversion. The mean itself is changing and economic conditions today are far different than in decades past.

As far as Japan goes, I'd argue that valuations are again far from the whole story. I agree that it was a bubble, and this was reflected in the valuations (and probably in the modified Schiller P/E discussed above, since interest rates were high at the time). But on a more fundamental standpoint, the Japanese are more risk-averse than the Americans. East Asians tend to save more than they spend and invest. The cultural significance of honor and shame play very important roles, for it manifests in their weak bankruptcy laws. Hence the ballooning of their debt by keeping zombie companies alive - it was, and still is, far harder to stomach a Japanese company going down, whereas an American company in a similar position would have more options. Worker productivity today is lower than in other developed countries, perhaps another consequence of their culture.

So while the Nikkei trades around 15x earnings right now, what I take from that isn't that Japanese stocks are cheap. What I take from that is, it doesn't mean much, because upon closer inspection, there are just so many other headwinds going against the Japanese market, many of these unable to be quantified into a simple number.

And of course, like Europe and basically every other developed market, Japan suffers from a dismal population pyramid. Their 30-50 cohort is much larger than their 10-30 cohort. I can't emphasize how important that is for their economy. Demographics drive growth. And there are basically only two countries out there that aren't heading into a crisis in the coming decades: India and the US. So when you say:

So for the US to outperform international stocks over the long term, the US will need to either grow earnings faster, or the gap in valuations will need to widen.

It is entirely possible for the US to grow their earnings faster, to increase their aggregate wealth at a faster rate, simply because the makeup of their population allows for it in a way that most other countries do not.