Later this week, President Obama and Treasury Secretary Timothy Geithner join other world leaders in a G-20 meeting in Seoul, South Korea.to address an agenda (http://tinyurl.com/24odlxl ) that includes "build on this less-than-robust recovery and further enhance international cooperation to generate strong, sustainable and balanced growth." The world for some time now has grown in an unblanced way, with emerging countries like China enjoying above average savings and investment but below average consumption, while developed countries like the U.S. had high levels of consumption and low levels of savings and investment.
Certainly, a rebalancing must occur. However if that rebalancing occurs too rapidly, the effects of reducing consumption in the U.S. could cause significant global economic problems including another dip into recession in the U.S. Each country sees the manner and timing of this global rebalancing differently.
China and the U.S. are the 2 most important players in this rebalancing. In China consumption represents approximately 36% of GDP, while savings and investment is about 50% of GDP. Consider the U.S. where consumer spending is about 70% of GDP while the savings rate is around 5%. There is a neat diagram of components of GDP at http://www.moneychimp.com/articles/econ/gdp_diagram.htm.
It will take a long time to rebalance China and the U.S. to something significantly different than their present components of GDP. Also, the rebalance will periodically happen in sudden and unsettling fashion. As governments take different approaches to the rebalance we should all be hopeful that G-20 and other vehicles can help the world avoid problems as much as possible.
Showing posts with label Emerging markets. Show all posts
Showing posts with label Emerging markets. Show all posts
Monday, November 8, 2010
Thursday, April 29, 2010
Washington D.C. vs. Brasilia, Brazil
The Federal Reserve Open Market Committee met in Washington D.C. this week and issued their statement yesterday saying conditions "warrant exceptionally low levels of the federal funds rate for an extended period." Those exceptionally low rates are 0% to .25%. The full statement of the FOMC can be seen at http://tiny.cc/tqs22.
The Central Bank of Brazil Monetary Policy Committee (COPOM) also met this week, in Brasilia, and given the strength of their economy and their concern over inflation increased their rate target to 9.5%. The full statement of the COPOM can be seen at http://tiny.cc/ex27j.
Our conclusion: Brazil has a lot of strength in their economy as compared to the U.S. Investors should consider the above comparisons when determining where to allocate their investment monies. In this new era, emerging economies such as Brazil have much to offer.
The Central Bank of Brazil Monetary Policy Committee (COPOM) also met this week, in Brasilia, and given the strength of their economy and their concern over inflation increased their rate target to 9.5%. The full statement of the COPOM can be seen at http://tiny.cc/ex27j.
Our conclusion: Brazil has a lot of strength in their economy as compared to the U.S. Investors should consider the above comparisons when determining where to allocate their investment monies. In this new era, emerging economies such as Brazil have much to offer.
Sunday, November 29, 2009
Dubai debt concerns
On Wednesday, November 25th there was an announcement by Nakheel, the Dubai World property development arm, of a planned default on a $3.5 billion payment due on December 14, 2009. Nakheel proposed a 6-month extension of the payment. Stock and bond markets around the world declined in response to this, led down by shares in banks.
To put this in some perspective, the entire public debt of Dubai is estimated to be $80 billion (about the same size as their GDP), with about $60 billion of that issued by Nakheel and other Dubai World affiliates (much of it for property development). For comparison, the US government has over $100 billion invested in Citibank alone.
Everyone knows property development in Dubai has been hugely overdone (they are presently working to finish world's tallest skyscraper) and they made questionable investments near the peak of the bubble in other worldwide real estate investments (i.e. ill fated CityCenter in Las Vegas http://tiny.cc/HnAdc ).
The size of this upcoming $3.5 billion default and even the size of all of Dubai's debt itself is not material. Instead this is important only as a reminder that there are still problems out there. Banks worldwide are thought to still be short of needed capital, and any possible losses such as Dubai just brings this back to mind.
Sometimes it is good to be reminded that investments offer both risk and return. Maybe that way we can avoid immediately going back to the bubbles that helped to cause the economic crisis in the first place.
To put this in some perspective, the entire public debt of Dubai is estimated to be $80 billion (about the same size as their GDP), with about $60 billion of that issued by Nakheel and other Dubai World affiliates (much of it for property development). For comparison, the US government has over $100 billion invested in Citibank alone.
Everyone knows property development in Dubai has been hugely overdone (they are presently working to finish world's tallest skyscraper) and they made questionable investments near the peak of the bubble in other worldwide real estate investments (i.e. ill fated CityCenter in Las Vegas http://tiny.cc/HnAdc ).
The size of this upcoming $3.5 billion default and even the size of all of Dubai's debt itself is not material. Instead this is important only as a reminder that there are still problems out there. Banks worldwide are thought to still be short of needed capital, and any possible losses such as Dubai just brings this back to mind.
Sometimes it is good to be reminded that investments offer both risk and return. Maybe that way we can avoid immediately going back to the bubbles that helped to cause the economic crisis in the first place.
Friday, November 13, 2009
China
Investors and policymakers worldwide recognize that China continues to increase in importance to all. With a centralized government and a strong balance sheet, China was able to quickly provide stimulus last year. An important part of the stimulus was huge increases in lending (from government controlled banks) starting 4th quarter 2008. At its peak in the 2nd quarter of 2009, Chinese credit growth for a 3 month moving average (annualized) was about 60%. This has since been brought back to about 20% as the Chinese authorities worked to avoid bubbles in their real estate and stock markets.
Even though the Chinese “manage” their economic releases through central government filters, there is certainly significant growth in their economy. This week they released data showing property development and investment for January to October increased by 18.9%. This doesn’t appear to be too speculative as the number for same period of 2008 was 24.6%. The World Bank believes Chinese household incomes are rising faster than prices and therefore affordability is increasing.
Chinese authorities have not raised interest rates, and observers think they will not until first half of 2010 at the earliest. In the meantime it will pay all investors worldwide to give close attention to economic and market news from China to make sure this key growth engine continues to power everyone’s returns.
Even though the Chinese “manage” their economic releases through central government filters, there is certainly significant growth in their economy. This week they released data showing property development and investment for January to October increased by 18.9%. This doesn’t appear to be too speculative as the number for same period of 2008 was 24.6%. The World Bank believes Chinese household incomes are rising faster than prices and therefore affordability is increasing.
Chinese authorities have not raised interest rates, and observers think they will not until first half of 2010 at the earliest. In the meantime it will pay all investors worldwide to give close attention to economic and market news from China to make sure this key growth engine continues to power everyone’s returns.
Tuesday, September 29, 2009
Emerging markets
An article in the September 28, 2009 issue of the London Financial Times caught our eye http://tiny.cc/lNKSn . The writer, Marko Dimitrijevic of Everest Capital was discussing the significant role that so-called "emerging markets" play in the world economy. He notes that emerging markets represent 30 percent of the world's stock market value and 50% of the world's economy. More telling was his calculation that for the period 2003 to 2009 while sales of the developed world grew at a growth rate of 5% annually, emerging markets grew at 11% annually.
Investors tend to look at the emerging markets as the volatile little brother to the more stable and much larger developed world big brother. Those roles may well be changing.
Investors tend to look at the emerging markets as the volatile little brother to the more stable and much larger developed world big brother. Those roles may well be changing.
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