U.S. stocks and equity-based exchange traded funds have enjoyed a phenomenal rally. Valuations, though, are beginning to look a little bubbly, and investors may be better off diversifying with international exposure.

ETF Trends’ Tom Lydon sat down with Mebane T. Faber, Chief Investment Officer and Portfolio Manager at Cambria Investment Management, to discuss potential headwinds and opportunities in the equities market.

“One of the biggest challenges for a longer term perspective is U.S. stocks aren’t cheap,” Faber said. “Across almost any valuation metric, they are expensive.”

“One of our favorite 10-year price/earnings is the Shiller CAPE ratio,” Faber added. “Historically, that’s around 17. It’s around 24 right now. If you look at the global landscape, most markets get into bubble territory in the high 20s.”

On the other hand, foreign markets look cheap. Faber points out that some countries in Europe, Russia and Ireland are trading at single digit P/E ratios.

“If for investors, especially U.S. focused investor, [you]should be really careful about investing in U.S. stocks right now,” Faber said.

Watch the video below to see the full interview with Mebane Faber.

To view past video interviews, visit our videos section.