4) Why we’re turning Japanese … and why Bernanke will hold rates lower even longer
Since 1948, there hasn’t been another recession/economic deterioration anywhere close to the scale of what we are dealing with now, either in terms of depth or the length of time it will take to dig out. On an economic scale, that’s just pabulum. But in human terms, the cost is very real and very devastating.
My Take: Low job creation and an even lower job participation rate create a Fed that’s scared of its own shadow. Every 1% rise in interest rates is an additional $150 billion in interest payments to U.S. bondholders. Total debt including household, corporate and government obligations is already 279% of GDP. This is Japan’s problem, only their total indebtedness is 512% of GDP. Today, Japan can’t raise rates and avoid financial suicide…and we are rapidly approaching the same point of no return with each new, misguided stimulative effort. We are turning Japanese – a suggestion that I initially voiced in late 1999 to open scorn, derision and outright ridicule. Nobody’s laughing now–including me.
5) What it takes to grow through a downturn
I hear it all the time…investors are desperately trying to convince themselves that there’s no growth to be had and, therefore, there are no investments worth making.
My Take: This is a total copout. If you look at earnings, many of the world’s best companies have not only pulled farther ahead during the financial crisis, but many continue to grow despite the fact that the world appears ready to go off a cliff.
I know the bar is low and I understand that CEOs are managing expectations, growth is slowing, etc.
But would you rather place your bet with a bunch of politicians who have no clue how real money works or a bunch of CEOs who have navigated international waters for decades?
Excluding the banks, I’m with the CEOs any day.
There are obviously a lot of variables when you look under the hood but generally speaking the kinds of companies that interest me have four things in common:
- They operate in highly localized markets like China and Brazil where their globally recognized brands can be brought to bear on a new generation of consumers hungry for them.
- They create products in industries they can dominate.
- Most are growing at 5% or more a year and are repositioning their operations in places like Oman, Vietnam, Bangladesh, Panama, Brazil and more. Never mind the BRICS of the past…the new markets…some call them frontier markets…have the potential to be even more profitable in the next 10 years than the formerly emerging markets were from 2000-2010 – no small change considering the latter turned 250% over that time frame, more according to CSS Zurich.
- All are involved in “needs” based industries at the moment like water, food and tech, for example. Until this crisis transitions, these are going to be the best places to protect wealth while also preemptively positioning for growth that will come on the other side eventually.
Anyway, that’s today’s missive in terms of what I see when I look over the horizon.
Now where did I put my French dictionary?
I am pretty sure I heard Germany’s Chancellor Merkel say “merde” when Francois Hollande got elected…