Asia Rising
by Richard
After scanning year-to-date market averages, some major trends have become evident.
Despite the Dollar rallying somewhat from it’s sickening slide, foreign markets continue to best our domestic markets. Emerging markets continue to lead foreign developed markets. And Asian markets continue to outperform European markets.
I’m now over the halfway mark with Paul Kennedy’s epic The Rise and Fall of the Great Powers, and the premise is inescapable. No great power remains forever at the top of the heap. The book chronicles the dominance of Europe for most of the past five hundred years, and yet today these sclerotic economies are dedicated primarily to harnessing the power of the state to redistribute income and insulate their citizens from the vagaries of shifting markets.
Most of these countries have abrogated their role of military intervention and even homeland defense. Their standing armies are more akin to national police forces.
If it could happen to them, it could easily happen here as well. It’s mostly a matter of will and priorities.
But as investors, we can escape the downward spiral of an economy more geared towards redistribution than growth. There has never been a greater opportunity to re-direct your funds to where growth is paramount. Money always flows to where it is most welcomed.
This is not a placid panacea. There will be blowups and wipe-outs, as the BRIC (Brazil, Russia, India and China) markets continue their ascent. And some of the next tier of emerging countries, like Vietnam, will provide an even wilder ride - witness the recent decimation from their 2006 bubble high.
And here is one more nail in the coffin…
A Pan-Asian Currency?
The intellectual “father of the Euro” is Nobel prize winning economist Robert Mundell. In the May 14, 2008 WSJ Mundell posits that there may one day be a pan-Asian currency, modeled on the Euro. This has profound implications, including the creation of a reserve currency that could one day rival or exceed the dollar.
You will recall from my earlier post that the Euro itself may be on life support. Dissension arises when economies are in stasis or long term decline. Nothing is more vicious than fighting over shrinking spoils.
The contrasting ethos in Asia is one of increasing long-term growth and expansion. It’s much easier to reach agreement when dynamism is the linking value. The key obstacle that must be overcome is reaching policy agreement among the two largest Asian economies, China and Japan.
Japan is at a turning point. It could either ape the European model and slowly slide into the status of another second tier welfare democracy. Or it could be re-invigorated by the example of the colossus to its west.
I hope I am wrong about this country’s long term decline. Growth of 2-3% is respectable, but it will inevitably result in relative decline when contrasted with massive emerging markets growing two or three times as fast, no matter how much of a head start we now enjoy.
Besides, Edward Gibbon’s conclusion from his The Decline and Fall of the Roman Empire is that the sweet spot in any empire is in the early stages of decline. Societies are lulled into lassitude and hubris after the gains from hard fought expansion and military supremacy.
Yet decades or centuries may remain before the barbarians at the gate finally overrun the defenses.
