Capturing a Major Macro Theme of Our Time

In a video on Bloomberg Stephen Roach said that no country has ever devalued its way to prosperity, and the U.S. won't be the first.

A few times since the tech bubble burst I've heard or read people pointing back to some very specific indicators/factoids from when the bubble was inflating with the tone that an extreme bursting was "obviously" going to happen.

Sometimes I get the feeling that we are now confronting phenomena that, come the middle of the next decade, people will look back and say things like "with an $8 trillion dollar deficit of course the market..." and then fill in with whatever does in fact happen. Another one perhaps: "well, the dollar cut in half in just ten years, so of course..."

My stance on this line of thought has been the same for a while: There is visibility for lower, but still positive, stock market returns, higher interest rates than we've had for most of this decade (like maybe ten year treasuries in the sixes or sevens) and the slow realization that the U.S. will not be the most important economy in the world in the 21st century.

If it is not clear: I do not believe the U.S. will be some sort of post-apocalyptic outpost where we barter with gasoline or whiskey. I even wonder whether many of us will even notice. In fact, if this turns out to be correct, I suspect history would say this shift started in the late 20th century - maybe with the Plaza Accord?

Something that should be obvious toward this point is that capital has clearly flowed into other countries. Look at the five largest companies in the world and the U.S. does not dominate as it used to; Gazprom is there along with a couple of Chinese companies.

A skeptic might note that part of the problem with the tech bubble was all the companies that were larger than $100 billion. I don't think $100 billion is the key number anymore - maybe it's $200 billion or $250 billion, but maybe this is an issue. Gazprom made a high on Friday in dollar terms and has a $347 billion market cap. Or maybe it isn't - Petro China (PTR) is down 47% and according to Yahoo Finance has a market cap of $253 billion.

The market cap issue is something to be aware of. Petrobras (PBR) is up to $283 billion, China Mobile (CHL) (client holding) is down to $334 billion. The more important thing is that significant capital has rotated into these countries during this decade and I doubt any of us are surprised. At the same time the U.S. market has had a big round trip to nowhere.

The ascendancy of these countries, possibly at the expense of the U.S., is a big, big macro theme and however you are capturing it now, you may need to capture more of it. Don't take that as bigger bets - maybe the path is more, smaller bets. Instead of owning three or five other countries, maybe you need seven or eight.

I write about this a lot, but I think it is becoming more obvious that this will be important for our financial futures.

Comments

[icandoitdon:]

this has ramafications beyond our economy.

i believe that the u.s. is reaching an inflection point. we are not going to be the biggest kid on the block any more and we must come to terms with the fact that our power...previously thought to be unmatched and unmatchable...is not just limited but diminishing. the foreign policy ramifications of this dwarf the economic.

2008 May 11 11:50 AM

[Alphameister:]

Anyone seeking rapid growth at a reasonable price cannot help but be drawn into international markets, whether directly or through U.S. companies that offer very substantial participation in foreign economies. While the U.S. continues efforts to put the Promethean free market in chains, other countries are discovering the blessings of liberating their own markets and are attracting the capital that always seeks opportunity.

The other great macro opportunity extending many years into the future is the search for energy, both carbon-based and, more importantly, cleaner alternative energy sources (especially solar). No other sectors offer such clear visibility of growth so far into the future.

2008 May 12 09:10 AM

[D. Smith:]

The US is about 5% of the worlds pop...at some point a larger pop country will have a larger economy.

The population and productivity growth numbers in China make it easy to believe that it will be the largest economy in the world. But from the social side...that path is not clear. I would not trade the social problems that the US has for the social problems that China has and will have.

The large spread between those that have...and those that don't have....

And how do you solve the problem of having so many more boys than girls?

The Pie is getting bigger...for others to win does not mean that the US is harmed.

2008 May 12 10:20 AM

[icandoitdon:]

"for others to win does not mean that the US is harmed. "

this does not mean the u.s. is not at grave risk. we have harmed ourselves by our unwillingness to properly manage our fiscal affairs. it wasn't the u.s. that harmed the old soviet empire...it was the soviet empire that harmed itself through overreaching militarily and ignoring pressing domestic issues. sound familiar?

2008 May 12 02:05 PM

[Michael Eis...:]

typically, empires last 200-300 years. The US is no exception i guess

2008 May 12 03:28 PM