jmkeynes

Emerging Markets Ready to Re-emerge - Barron's

Countries that have trade surpluses, high savings rates, and high GNP growth figures are in good shape.

If their trade surplus starts to go down (due to recession in developed countries, for example) they can stimulate their economies with fiscal policy. In some countries, the high savings rate is due to government policy, so they can reduce the savings rate and increase consumption by changing government policy.

The US is in bad shape because we've been running a huge trade deficit and borrowing money from abroad to invest in housing. Unfortunately, we can't use our houses to make goods and services to sell goods and services to foreigners.

To work off the US trade deficit, we need to invest in something (e.g. windmills) that will allow us to work off our trade deficit (e.g. reduce energy imports by reducing our dependence on oil).

So, developing counties will do fine if they are in a position to stimulate domestic consumer spending, and many are in this position.

Developed countries (the US in particular) will do better as soon as we come up with a viable industrial policy (e.g. we kick the housing habit and switch to building out our alternative energy infrastructure).

6 Themes Affecting the Global Economy

You may want to consider long bond interest rates, too. Up until the late 90's, whenever commodities went up long bond prices went down (since yields went up to account for inflation). But, since 2002 commodity prices have run away. Go to yahoo and try charting 10 or 20 year treasury interest rates (^TNX or ^TYX) against commodity prices (^DJC) starting in 1997. You'll see that in 2002 commodity prices have just soared.

Probably the Jim Rogers article talks about this. Anyway, eventually treasury yields will have to go up with inflation (and/or commodity prices have to go down with deflation).

My guess is that as china and other countries (e.g. Saudi Arabia) form sovereign wealth funds they'll start moving money out of treasuries and into other asset classes. So, all other things being equal, this would mean that long term treasury interest yields will be going up, and bond prices down.