I have to support Mvic on this. Tempt people to break their ethics for 10 bucks, and you'll get some takers. Tempt `em with 10 million and you'll get a lot more. In other words, since the scale of foreign capital is (potentially) considerably larger than internal third world capital (by orders of magnitude, I would expect), the actual corruption is greater, although the potential corruption remains the same.
macro thoughts
- Thread starter darkhorse
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I have to support Mvic on this. Tempt people to break their ethics for 10 bucks, and you'll get some takers. Tempt `em with 10 million and you'll get a lot more. In other words, since the scale of foreign capital is (potentially) considerably larger than internal third world capital (by orders of magnitude, I would expect), the actual corruption is greater, although the potential corruption remains the same.
But it's the still same issue- a lack of transparency and rule of law. Greater temptation does not negate responsibility. I also think many third world citizens are offended at the notion that they would become instant criminals with no way to solve corruption issues themselves if large capital flows came their way. Yes there are issues, but the issues can be solved over time given the chance to experiment, screw up, and learn from mistakes.
And what is the answer to the corruption problem otherwise? Certainly not governments- foreign aid to africa, distributed and regulated by governments, has been an absolute and unmitigated disaster. It's hard to imagine how the corporate world could have done worse if they tried. There are also studies suggesting that companies who try to work with NGO's frequently end up worse off because the NGO's smell blood and attack their exposure points all the more rather than engaging in cooperation.
At least with capitalism there is real and direct incentive for the system to improve itself over time. And what is the alternative? Again, while I agree that capitalism cannot be trusted blindly, I fear that overweening government and NGO solutions can be trusted even less.
The bureaucratic instinct for self preservation and expansion + the common NGO instinct that profits and capitalism are an evil to be restrained rather than a good to be supported, make the regulation solution worse than the problem. Coddling simply doesn't work. The answer is found on the road to democracy and general prosperity, and you don't walk that road without getting bumped and bruised by the mistakes that many want to protect the developed world from making.
relates to anyone's P&L (I don't how many macro traders are there really are on ET, a handful at best) I will limit my comments but the point about the corruption prevalent after the introduction of foreign capital is that the checks and balances that are present in a system that while corrupt does not have one party disproportionately in control of the spigot of capitol flow are gone (in the absence of a democratically engaged middle class). Darkhorse, as you seem to have more than a passing interest in this subject, suggest you read some Gilpin at the very least and desoto too if you want to go deeper. In the field of PE/IR it is pretty widely accepted that the type of corruption that unregulated foreign capitol brings is far more devastating to the country's development than the garden variety corruption that existed prior. The WB did a long discussion on this very topic last year in their knowledge forums that is probably still available if you are interested in hearing from people who actually have to deal with this stuff on a daily basis.
Great thread. Here are some large macro questions on my mind:
The Dollar is the huge question entering into the 21st century. There is no way around it. The whole world is leaning towards the US dollar as the reserve currency of the world. Remember the pound sterling use to occupy this position in the early 20th century. Then what happened? Britian lost its empire, experienced a brain drain, lost its status as a world power, and just kind of melted away.
The Dollar won't collapse all of a sudden. There is still no viable alternative. Although in 10-20 years, its a virtual certainty that it will be replaced by either the euro, the yuan, gold or some combination of all three. Those are the only real alternatives.
No one in the US is prepared for a dollar collapse. Not a single person on the street. They couldn't even spell yuan. Thats the sad part. When the dollar stops being the worlds reserve currency, suddenly Uncle Al won't be able to print his way out of a financial crisis. Savings will have to go up. The consumer spending orgy of the 90's and 00's will end horribly. Anyone in retail will get crushed. There will be huge capacity (all those shiny new stores opened) and incredible price pressure (thanks to China, WTO, and other foreign markets). Wal Mart will not dominate the world after all. People will have quite a hangover after spending so much money on stuff.
Other thoughts:
China will run circles around us. They already are in some respects. They will come to dominate the 21st century IMO.
Organized labor in the US will continue to wither away. Look at what is happening to california supermarket workers. How much longer can they make $17 an hour, when you have nonunionized stores like Costco and Walmart to compete with. Ditto for manufacturing. Ditto for the major car companies that will increasingly lose market share.
California and the southwest will morph into a quasi mexico/US territory in 20-30 years if immigration holds up. Huge ramifications.
Commodities will boom. I like Jim Rogers thoughts on this one. Makes alot of sense.
Even if Japan gets their fiscal house in order, demographics and a xenophobic/protectionist mindset will continue to hurt their growth potential. They've past their peak.
The Dollar is the huge question entering into the 21st century. There is no way around it. The whole world is leaning towards the US dollar as the reserve currency of the world. Remember the pound sterling use to occupy this position in the early 20th century. Then what happened? Britian lost its empire, experienced a brain drain, lost its status as a world power, and just kind of melted away.
The Dollar won't collapse all of a sudden. There is still no viable alternative. Although in 10-20 years, its a virtual certainty that it will be replaced by either the euro, the yuan, gold or some combination of all three. Those are the only real alternatives.
No one in the US is prepared for a dollar collapse. Not a single person on the street. They couldn't even spell yuan. Thats the sad part. When the dollar stops being the worlds reserve currency, suddenly Uncle Al won't be able to print his way out of a financial crisis. Savings will have to go up. The consumer spending orgy of the 90's and 00's will end horribly. Anyone in retail will get crushed. There will be huge capacity (all those shiny new stores opened) and incredible price pressure (thanks to China, WTO, and other foreign markets). Wal Mart will not dominate the world after all. People will have quite a hangover after spending so much money on stuff.
Other thoughts:
China will run circles around us. They already are in some respects. They will come to dominate the 21st century IMO.
Organized labor in the US will continue to wither away. Look at what is happening to california supermarket workers. How much longer can they make $17 an hour, when you have nonunionized stores like Costco and Walmart to compete with. Ditto for manufacturing. Ditto for the major car companies that will increasingly lose market share.
California and the southwest will morph into a quasi mexico/US territory in 20-30 years if immigration holds up. Huge ramifications.
Commodities will boom. I like Jim Rogers thoughts on this one. Makes alot of sense.
Even if Japan gets their fiscal house in order, demographics and a xenophobic/protectionist mindset will continue to hurt their growth potential. They've past their peak.
You made some perhaps good points. And I can see it potentially happening. But the only problem with such long term forecast is that it can't anticipated the UNKNOWN. At the beginning of the 20th century, no one knew that the microchip would come along and change everything. Created Silicon Valley. Millions of jobs. The PC. The internet. 10-20yrs is a LONG LONG time. Radical innovations happen out of the blue! Some smart kid in their garages or smart researchers laboring through the wee hours of the night might come up with new innovations that will spurn an ENTIRE NEW INDUSTRY!
That being said, I think the US could still come to see some rather big surprises IF it doesn't change its behaviour. This party can't last forever. Historically, all great empires ended because of excesses. That's how the Greeks, the Romans, British, etc. all fell. I don't see how the US hegemony will not end the same way. But that could be so many decades away that's impossible to trade off.
The other thing that's keeping this country vital and Europe stagnant for so many decades was immigration. Europe has negative birthrates for decades. That's why they are now allowing massive immigrations from Africa and Middle East. Japan is very worrisome with its negative birthrates and it does not encourage immigration. The Japanese could become extinct in a few generations if this persist..
Well in the US, we have talented people from all the world come here to work, study, and keep the talent pool vital. But improved economic changes in China and India and Russia might change things around. These people might decide to stay back and develop their own burgeoning software and technical industries. China alone graduate something like 140,000 engineers a YEAR! Same for India. The US the figures is probably significantly less.
And now that their economies are booming they don't need to go to the US. They can sit at home and make a good living. And soon they will set up their own research labs. And the brain drain will stop. And that's the worrisome thing. The US has always strived on innovations. That's what made us so great. Alexander Graham Bell. Einstein. Ford. This country was built on people with vision, hardwork, and innovative ideas willing to take risk!
But if our entire culture degrade to where the average person on the street just want to see who will be the next Joe Millionaire or if you can conquer your Fear Factor and win $50,000 over 3 days challenges, then we are headed for trouble. The Roman citizens start to not care anything but the high lifestyle partying that were accustomed to enjoying. Then the barbarians came and took over their entire empire. The same with the British Empire. The Sun did set over the British empire before they even knew it. It's just the evolution of civilization. There will always be someone HUNGRIER, MORE AMBITIOUS, and READY to take over your position as a superpower.
It's just a matter of when not If...
But are you sure that's such a bad thing?
one event that i've been studying closer is the relation to baby boomers (reaching their late 40's/early 50's) and the stock market. stats show that individuals in the 49-52 age range tend to spend the most money than any other age group. this cycle of baby boomers will last till about 2008. will this bode well for the US markets? history does repeat itself.
So we have an economics forum now? Sweet.
It seems there are really two separate and equally interesting questions in pondering "what's next" - what will the transition ugliness look like (and how long will it last), and what will the new horizon look like after that.
I don't think America is going to "lose" to China in the long run- traditional roles are simply going to change. America will eventually give up its role as engine of growth to the world, and will fall behind in terms of pure growth. But that doesn't have to be a negative. When we step back and look at what's happening from a detached perspective, it's easier to see that events and situations we are familiar with- and thus have a bias towards sustaining- are really just blips on a massive timeline.
I think rich world countries will still have high profit niches that prove to be outsized revenue sources in relation to their size. Cures for disease, technological breakthroughs, cutting edge research in developments and processes- all are still likely to be the strength of mature countries. The mantle is being passed in terms of lower order processes- basic manufacturing first, then more complicated processes, and so forth. In this sense, countries on the cutting edge of development almost have to get smaller and more concentrated in their areas of expertise by default.
The downside of this natural progression- developed countries moving higher up the specialized knowledge food chain and shedding processes as they go- will be the increase of social upheaval. As manufacturing flees American shores, factory workers in the rust belt are left in the lurch. If America as a whole is being forced to redevelop itself as a knowledge based and high end service based economy, those Americans who can't handle this transition are going to be out in the cold.
I recently heard an excellent lecture from Dr. Ken Ford, director and founder of the Institute for Interdisciplinary Study of Human and Machine Cognition (ihmc.us), that highlights some aspects of this transition.
He started out talking about the transition to human centered technology- i.e. adapting technology to enhance our natural processes, rather than people using their adaptability skills to make use of technology. His analogy of adaptive technology was a pair of eyeglasses- they are customized to fit your face and your eyes exclusively, enhancing your natural ability to see.
If eyeglasses were like current day computers, there would only be one or two prescriptions, one size would fit all, and if they didn't work you would have to modify your eyes or your head! Thus the next step in technological development is learning how to make technology more useful, more ubiquitous and less obtrusive all at the same time by figuring out how to efficiently enhance human capabilities. He also pointed out that in just about every case it is not the technology that is remarkable- but rather, the innate potential within the human being himself (or herself)- further testimony that man is and always will be the greatest miracle of creation, regardless of what man's ingenuity creates over time.
The projects Dr. Ford discussed were extremely interesting: aviator cockpits designed to provide information in a way that gives access to the spatial orientation and reflex centers of the brain, as opposed to the linear information processing that goes on with standard dials and gauges. Personal satellite assistants- spherical robots that will follow astronauts around the space shuttle, taking orders and providing information like a miniature secretary. New web browser interfaces with information ordered in a completely diferent way to better match the natural categorization and connection tendencies of the brain. Light sensing devices that translate the geography of a room into pressure points in the mouth, literally allowing blind people to see with their tongues. Exoskeletons that will eventually allow a special ops soldier to jog up a mountain or swim a hundred miles without tiring.
But the second half of the presentation was more interesting than the first, at least to me anyway. He talked about how the business world is changing drastically, and that the new landscape will be oriented around the ability to attract and retain talent. Because he needs to recruit the best minds in the world who can essentially "park their atoms anywhere" (his phrase), it is up to IHMC to get these 'free agents' to sign. This means building a community where work life and social life are integrated, with all the elements that highly mobile individuals want in their environment: coffee houses, rare book libraries, arts and culture, rock climbing walls, beaches, trails, interesting architecture, etc. etc. etc.
In viewing the coming decades as a competition for attracting talent, there are going to be a handful of winners and a large swathe of losers. Geographical regions where it all comes together will rise to the top, while unattractive areas will head into economic doldrums or even become wastelands. Obviously this is only going to exacerbate the social upheaval aspects of rich world countries in the 21st century. (And it will sure make for some interesting real estate plays.)
He had some good advice that applies to traders too: "don't shoot behind the rabbit." Meaning, don't focus all your efforts on modeling the success of someone else without recognizing that even if it looks great now, the opportunity may have moved on by the time you are ready to harvest it. If a process or method appears immensely successful, it may be in its heyday- and the next big thing may be somewhere else entirely. He chuckled over all the different states that said they wanted to be the next silicon valley, beach, bayou, gulch etc. without recognizing the folly of trying to recreate the past in changing times.
It seems there are really two separate and equally interesting questions in pondering "what's next" - what will the transition ugliness look like (and how long will it last), and what will the new horizon look like after that.
I don't think America is going to "lose" to China in the long run- traditional roles are simply going to change. America will eventually give up its role as engine of growth to the world, and will fall behind in terms of pure growth. But that doesn't have to be a negative. When we step back and look at what's happening from a detached perspective, it's easier to see that events and situations we are familiar with- and thus have a bias towards sustaining- are really just blips on a massive timeline.
I think rich world countries will still have high profit niches that prove to be outsized revenue sources in relation to their size. Cures for disease, technological breakthroughs, cutting edge research in developments and processes- all are still likely to be the strength of mature countries. The mantle is being passed in terms of lower order processes- basic manufacturing first, then more complicated processes, and so forth. In this sense, countries on the cutting edge of development almost have to get smaller and more concentrated in their areas of expertise by default.
The downside of this natural progression- developed countries moving higher up the specialized knowledge food chain and shedding processes as they go- will be the increase of social upheaval. As manufacturing flees American shores, factory workers in the rust belt are left in the lurch. If America as a whole is being forced to redevelop itself as a knowledge based and high end service based economy, those Americans who can't handle this transition are going to be out in the cold.
I recently heard an excellent lecture from Dr. Ken Ford, director and founder of the Institute for Interdisciplinary Study of Human and Machine Cognition (ihmc.us), that highlights some aspects of this transition.
He started out talking about the transition to human centered technology- i.e. adapting technology to enhance our natural processes, rather than people using their adaptability skills to make use of technology. His analogy of adaptive technology was a pair of eyeglasses- they are customized to fit your face and your eyes exclusively, enhancing your natural ability to see.
If eyeglasses were like current day computers, there would only be one or two prescriptions, one size would fit all, and if they didn't work you would have to modify your eyes or your head! Thus the next step in technological development is learning how to make technology more useful, more ubiquitous and less obtrusive all at the same time by figuring out how to efficiently enhance human capabilities. He also pointed out that in just about every case it is not the technology that is remarkable- but rather, the innate potential within the human being himself (or herself)- further testimony that man is and always will be the greatest miracle of creation, regardless of what man's ingenuity creates over time.
The projects Dr. Ford discussed were extremely interesting: aviator cockpits designed to provide information in a way that gives access to the spatial orientation and reflex centers of the brain, as opposed to the linear information processing that goes on with standard dials and gauges. Personal satellite assistants- spherical robots that will follow astronauts around the space shuttle, taking orders and providing information like a miniature secretary. New web browser interfaces with information ordered in a completely diferent way to better match the natural categorization and connection tendencies of the brain. Light sensing devices that translate the geography of a room into pressure points in the mouth, literally allowing blind people to see with their tongues. Exoskeletons that will eventually allow a special ops soldier to jog up a mountain or swim a hundred miles without tiring.
But the second half of the presentation was more interesting than the first, at least to me anyway. He talked about how the business world is changing drastically, and that the new landscape will be oriented around the ability to attract and retain talent. Because he needs to recruit the best minds in the world who can essentially "park their atoms anywhere" (his phrase), it is up to IHMC to get these 'free agents' to sign. This means building a community where work life and social life are integrated, with all the elements that highly mobile individuals want in their environment: coffee houses, rare book libraries, arts and culture, rock climbing walls, beaches, trails, interesting architecture, etc. etc. etc.
In viewing the coming decades as a competition for attracting talent, there are going to be a handful of winners and a large swathe of losers. Geographical regions where it all comes together will rise to the top, while unattractive areas will head into economic doldrums or even become wastelands. Obviously this is only going to exacerbate the social upheaval aspects of rich world countries in the 21st century. (And it will sure make for some interesting real estate plays.)
He had some good advice that applies to traders too: "don't shoot behind the rabbit." Meaning, don't focus all your efforts on modeling the success of someone else without recognizing that even if it looks great now, the opportunity may have moved on by the time you are ready to harvest it. If a process or method appears immensely successful, it may be in its heyday- and the next big thing may be somewhere else entirely. He chuckled over all the different states that said they wanted to be the next silicon valley, beach, bayou, gulch etc. without recognizing the folly of trying to recreate the past in changing times.
I'm pessimistic about the SPX - there is a good chart that's in Schillers book where the inverse of PE at the beginning of each decade is plotted against next 10 yr returns. The plots from history all point towards a strong positive relationship - the higher a PE you start out with at the beginning of each decade, the lower the market returns.
Collapsing multiples will outpace rising corporate earnings from GDP growth played out over the rest of the decade. To use some easy math - if multiples collapse from say 20x to 15x over the next 10 years, earnings have to grow steadily at 5.25% JUST to keep the S&P flat at 1020 in the year 2014.
I am, however, optimistic about US GDP growth. I think we will look back in 2010 and everyone will have realized how much they underestimated the positive impact it had on productivity.
The amount of data about the US that is available out there on the net far far outstrips that of any other country. That makes every person in the US that much more knowledgable about the society and market they operate in, something that is tremendously valuable and will translate into GDP growth.
What does this mean for our P&L .... well nothing really if you a trader. But plenty if you are an investor
Actually, I think that if this scenario does play out, there will be some interesting structural changes to the investment world
1) Slow death of the cult of equity (money will move out of mutuals, just like they did in the 1970s. Interestingly the rest of the world calls mutual funds unit trusts. The US dropped the monicker unit trusts because the public got so disenchanted with them that they had to rebrand themselves)
2) Increase in asset allocation towards alternative investments & foreign mkts (asset bubble somewhere else? also, overcrowding of money into hedge funds will cause traditional strategies to dry up, such as convert arb, risk arb, stat arb etc)
Since mutual funds trade mainly end of day whereas the distribution of trading by hedge funds are not so clustered, trading volume might migrate from the closing hour to the rest of the day as assets shift away from mutuals and into hedge funds.
Well , that's what my crystal ball tells me. Would love to hear from others!
Collapsing multiples will outpace rising corporate earnings from GDP growth played out over the rest of the decade. To use some easy math - if multiples collapse from say 20x to 15x over the next 10 years, earnings have to grow steadily at 5.25% JUST to keep the S&P flat at 1020 in the year 2014.
I am, however, optimistic about US GDP growth. I think we will look back in 2010 and everyone will have realized how much they underestimated the positive impact it had on productivity.
The amount of data about the US that is available out there on the net far far outstrips that of any other country. That makes every person in the US that much more knowledgable about the society and market they operate in, something that is tremendously valuable and will translate into GDP growth.
What does this mean for our P&L .... well nothing really if you a trader. But plenty if you are an investor
Actually, I think that if this scenario does play out, there will be some interesting structural changes to the investment world
1) Slow death of the cult of equity (money will move out of mutuals, just like they did in the 1970s. Interestingly the rest of the world calls mutual funds unit trusts. The US dropped the monicker unit trusts because the public got so disenchanted with them that they had to rebrand themselves)
2) Increase in asset allocation towards alternative investments & foreign mkts (asset bubble somewhere else? also, overcrowding of money into hedge funds will cause traditional strategies to dry up, such as convert arb, risk arb, stat arb etc)
Since mutual funds trade mainly end of day whereas the distribution of trading by hedge funds are not so clustered, trading volume might migrate from the closing hour to the rest of the day as assets shift away from mutuals and into hedge funds.
Well , that's what my crystal ball tells me. Would love to hear from others!
There will be new unknowable innovations in the future. But those won't be of much help to a stagnant US economy and society. The US in the 20th century was simply better positioned than its rivals to become a world economic power. We borrowed huge sums of money in the 19th century and invested it wisely in railroads, factories, etc. Henry Ford didn't invent the automobile (I believe that was invented in germany), but we were better positioned to make money from the auto because of talent, immigration, stable govt, risk taking individuals, free thought, free speech, etc. What was germany doing in the 1920's? Going to hell. While the US continued to innovate and to take the lead from Britian as a world power.
The US doesn't have a monopoly on innovation however. I think we've already lost important ground to Asia (Japan has faster computers than we have, South Korea has more high speed internet, etc). We are still screwing up our mobile phone technology while other countries experience a huge boom in it. Our kids in school are not even close to their Asian peers in math and science. The handwriting is on the wall.
The ability to innovate comes from having a stable economy, productive spending on R&D, good laws and regulations, etc. If the dollar loses its position as the sole world reserve currency, then that would be a huge strike against future innovation. Our standard of living will go down. Our economy will be in a perma recession for many years. Who knows what kind of anti business laws will pop up during the time (look at what the FCC has done to cable, mobile phone technology, etc).
The US doesn't have a monopoly on innovation however. I think we've already lost important ground to Asia (Japan has faster computers than we have, South Korea has more high speed internet, etc). We are still screwing up our mobile phone technology while other countries experience a huge boom in it. Our kids in school are not even close to their Asian peers in math and science. The handwriting is on the wall.
The ability to innovate comes from having a stable economy, productive spending on R&D, good laws and regulations, etc. If the dollar loses its position as the sole world reserve currency, then that would be a huge strike against future innovation. Our standard of living will go down. Our economy will be in a perma recession for many years. Who knows what kind of anti business laws will pop up during the time (look at what the FCC has done to cable, mobile phone technology, etc).