Posted on 02/06/2003 5:24:18 PM PST by arete
Vocabulary is a power builder. Every time I use the word "concomitant" in a conversation I see my listener's eyebrows go up as if to say, "what does this guy know that I don't?" Then again, maybe they're just signaling that I'm full of more than just baked beans. I suspect the latter, but either way it creates an impression. I sensed the power of the almighty word late in my teens as I was preparing for my SAT tests as a foreign exchange student in Germany. Missing the normal study manuals available in the U.S., I turned to my Funk & Wagnalls and began with "abhor," working my way through the Gs before test-time called "time out." Later, serving "midwatch" in the Navy off Vietnam in 1969, I continued the game in reverse, starting with "zymurgy" and regressing to "kinetics" by the time we sailed home to San Diego. There had been lots of midwatches, but not enough it seems to cover all 26 letters; I was missing H I J.
This deficiency never seemed to affect my career much until the last few months when I began reading in The New York Times and The Wall Street Journal about U.S. "hegemony" in connection with post 9/11 maneuverings in Afghanistan, Iraq, and North Korea. This was an "H" word I had read before but never really bothered to think about. Well a "hegemony" it seems, is the dominance of one country over others not only militarily but economically as well, and as fitting a word as any of my A through Gs and Zs to Ks to describe the world's current state of affairs. There can be little doubt that we have an American hegemony. But while the United States rules the waves as well as turf and sky, I'm not so sure that we are, or perhaps will be the economic powerhouse we once were. Three years of stock market declines, a 20% devaluation of the dollar over 10 months, and an inability to serve as the global economy's locomotive despite massive monetary and fiscal stimulation suggests America's "shining city on a hill" may have lost some of its sheen of late. The US of A it seems is becoming less wealthy by the minute as foreign investment is withheld and in some cases redirected to Chinese and other more attractive ports of call. Economically, we may have begun a process of hegemonic decay and if true, at some point we will have to put that in our Funk & Wagnalls and smoke it. Let's see why.
The initiation of U.S. hegemonic decline can't be blamed on any single source. Excessive build up of private debt, which in part led to an investment and stock market bubble, has been a primary culprit. Our overvalued dollar and a near historic trade deficit are in the running for the hegemonic Oscar as well. But if all of these be ingredients, there is no doubt that 9/11 was the significant catalyst, despite its coming more than a year after several of these economic and financial trends experienced their peaks. In the aftermath of 9/11 it became apparent to George Bush and the Washington defense establishment that future conflict would perhaps be not only near perpetual, but of a nature quite different from Desert Storm over a decade ago. While the eradication of Iraq from Kuwait was a single purpose conflict, today's potential invasion of Iraq is but one of a multitude of steps that hopefully leads to terrorist containment as opposed to the eradication of Islamic extremism. Bush has in no uncertain terms said that our future struggle will be a never-ending story as opposed to a single shot kill. If so, investors must know that perpetual containment entails costs - not just monetary but those involving potential policy reversals that have formed the backbone of America's economic hegemony for nearly seven decades.
That such a hegemony has been based upon (1) America's military domination and (2) America's superior economy as reflected by the dollar's ascension to the top of the pile as the world's reserve currency - is undeniable. All hegemonies including Britannia's (since the fall of Napoleon to the end of WWI), have shared similar characteristics. As current leader of the pack, America has been able to implement policies (free trade, open capital markets, and a strong currency) which have not only reflected its political heritage and philosophy but have added dollars and cents to its citizens' pocket books, as well as SUVs to their driveways. But the U.S., unlike the British Empire rests on a fragile foundation built upon consumer spending and trade deficits as opposed to mercantilism and trade surpluses, which characterized Britannia's rule. These deficits, coming at a time of American military expansion in pursuit of terrorist containment, threaten to reverse our hegemonic benefits and end our economic domination. Our SUVs, as well as our top cat near-monopoly of the good times are at risk.
Although I may have absorbed part of the dictionary, I by no means am a policy wonk from some Washington think tank. Perhaps I've confused either you or myself in the last few paragraphs by reference to containment and hegemony based on military power and economic efficiency. Let me get a little more basic - exchange my Funk & Wagnalls for the abridged office edition of the American Heritage dictionary. Because of 9/11 and our necessity to fight a new kind of war, America is losing its peace dividend at a time when - because of our high debt, over-consumption, and reflective trade deficit - we cannot afford to. Guns and butter will soon extend our global credit card to its limit. Our foreign lenders are beginning to make some increasingly urgent phone calls to pay up or else and they are enforcing their demands by selling the dollar and buying almost any other currency that represents the economic philosophy of Ben Franklin as opposed to George Bush.
The end to the strong dollar is but the most visible reversal of U.S. hegemonic policies in recent months. Our promotion of free trade and open capital markets is suffering as well. Last year's U.S. steel and lumber tariffs are being supplemented by an embargo of Chinese containers in Hong Kong and Shanghai due to their possible hiding of terrorist weapons and armaments. Mexican trucks are being halted at the Texas border on the age-old allegation of vehicle safety violations. We are becoming a trade repressor as opposed to trade advocate and other countries no doubt will fight back.
In addition, our advocacy of open capital markets is falling increasingly by the wayside. Global financial controls are now seen as a bonafide weapon in the war against terrorism. Prominent economists such as Paul Krugman and Joseph Stiglitz are wondering whether or not - in the example of Malaysian Prime Minister Mahathir Mohamad during 1998's Asian crisis - there might not be a stronger case for controlling international capital flows. And if these policy reversals don't sound warning alarms, how about Fed Governor Bernanke threatening to support any asset market decline that threatens to reinforce deflation. Come to think of it, Fed Chairman Greenspan by encouraging the belief in a Greenspan "put" has been interfering in our and other countries' stock markets for several years now. Open markets? The door appears to be closing fast.
The reversal of these policies which in the past have promoted U.S. economic hegemony are a natural reaction by foreign creditors and the U.S. debtor nation alike to its future new emphasis on terrorist containment and the costs thereof. Foreigners have and will continue to sell the dollar and U.S. investments in fear of guns and butter bills to come. America will attempt to preserve its hegemony by biasing, and in some cases reversing, free trade and open financial market policies that do not favor the U.S. All of this implies that our peace dividend, not only in the terms of lower defense expenditures, but U.S. domination of (and benefits from) free capital markets and free trade, are nearing an end. We will experience a somewhat vicious cycle of policy reversal instead of the virtuous circle of recent decades, which led to higher profits and lower inflation. In the reversal's wake will come subdued profits, higher inflation, a lower dollar and anemic financial returns.
While that may not qualify as a trip to the poor house, I have no doubt that such events signify to at least some Americans a trip to a poorer house. Many of us will have to adjust, either in the form of higher unemployment, an increased price for imported goods, or heavier indirect taxes in the form of higher inflation and interest rates. Investment strategies, both bond and equity, should put these secular reversals at the top of their A list when considering opportunities to make relative and absolute returns. Hegemonic decay will impose costs unimagined just 16 months ago during the innocent hours of September 10th, 2001.
William H. Gross
Richard W.
Perhaps is "cunning linguist" talents leave something for you to desire, but he is the manager of the largest bond portfolio in the world. BTW he got there by being right about the economy more often than wrong.
In a sense, is that already happening? The percentage of immigrants doing these service jobs must be quite high. Would that qualify as "going negative" since a portion of those salaries are going overseas and that "cheap" labor is being subsidized by government handouts?
On another note, I read A COUNTRY MADE BY WAR by Geoffrey Perret back in 1990. The hypothesis is that every war the US had been involved in has led to expansion and economic growth. Could the "IIC" (my own abbreviation, ask by private mail if your want to know what I'm saying) think that a war is just what the economy needs? If so, that would seem to be totally silly thinking as so many countries and small groups have the capability to annihilate things.
You are spending too much time looking for "liberals" in everything. Your own political bias is clouding your thinking and judgement. IMO
Richard W.
And, yes, if you look at the tags on your shirt and pants, your DVD and CD player, and most probably your TV set, it’s likely they have been made overseas. It’s one of the reasons that you can buy a shirt for $5, a CD player for under $100 and $200 will get you a really nice TV set.
But your much vaunted “collapse of US manufacturing” is probably news to GM and Ford, as well as the Japanese auto plants springing up like mushrooms after a rain in places like Tennessee.
And regarding the collapse of the service market: the Chinese still haven’t figured out how to serve me a meal made in Taiwan and delivered by a Korean direct from the Far East.
And that power plant in India I was referring to is not a hypothetical example. Yes, I suppose it could be built without American participation, but with the dominant US market share in power generation equipment and financing, it’s likely to involve us.
The decline of the British Empire was not the result of a “Great Depression” at the end of the 19th century. It is the almost inevitable result of the growth of other world powers, most prominently the US, with its larger population, land mass and natural resources. It was also the result of World War I, which cost old Europe not only a generation of young men but also its treasure. And, as the aftermath of WW I, the British, who were on the winning side, suffered a crisis of confidence. And without self-confidence, you cannot hold an empire. It is this lack of confidence among a minor, but growing segment of the American public, that is debilitating to the future of the country.
Finally, you are simply wrong about the British becoming “more imperialistic” (your exact words) in the late 19th century. The jewels in Britain’s imperial crown were India and North America, which it won well before that time. They lost – of course – the US (sometime in the 18th century if memory serves me) but continued their hold on Canada and India. Their African colonies were a sideshow. However, Africa was not a sideshow to Germany, which had only recently become a unified nation. The last Kaiser demanded his nation’s place in the sun, especially because of his relationship to the British royal family and the fact that it was a European great power. It’s one of the things that led to World War I.
Finally, with regard to Bill Gross. He is a fine fixed income manager, one of the best. Given the fact that we have had a bull market in bonds since about 1980, all bond managers have good track records, especially if compared to equity managers during the last 3 years. (Someone once said that you should never confuse brains and a bull market. How true.) However, like a Hollywood star, Bill has allowed his success go to his head. He will now share his opinions of the stock market, politics and the rise and fall of empires with anyone who will listen. I will let Bill manage some of my fixed income money, but I will take his pronouncements on areas in which he has not demonstrated his expertise with a large grain of salt.
Question: if interest rates, which are at 50 year lows, start to rise, how will Bill make money in bonds?
Love and peace.
If you told the U.S. economic leaders 100 years ago that less than 5% of the population would be involved in agriculture in the future, they would have predicted famine and economic collapse. Instead, through technology, that 5% not only meets most of the needs of our country, but feeds a good chunk of the rest of the world as well.
As far as the trade balance issue goes, if this is such a bid deal, I must be in terrible personal financial trouble. Ya' see, I shop at my local grocery store a couple of times a week for food. I give them currency for the food. I sell nothing to the grocery store. My trade imbalance with them is horrendous! I must file for bankruptcy tomorrow!
If I have to listen to one more doom-sayer predict the economic end of the U.S., I think I'll barf.
By the way, what was that Chinese-based fast food place I ate at last week? Oh, yeah, there are no Chinese based fast food restaurants. What about that great Mexican blockbuster movie? How about that Indian company producing the operating system that runs on over 90% of the world's computers?
I'm not saying that there aren't countries that do things better than us, but I am saying that the U.S. has an impressive track record in leading the world in innovation that keeps us a world leader. I would say that bio-tech, nano-tech, alternative fuels, exotic materials, and anything Dean Kaman is working on are potential earth shakers.
Let's hear it for continued American Hegemony!
Exactly. I have an article on my desk from September 2002 in which he predicts a Dow of 5000. I'm not saying it won't happen. Even a stopped clock is right twice a day. But let's keep in mind how money flows between stock and bond funds enrich the managers of these funds. With the 30 year treasury bond at 4.8%, are we going to see 4%? 3%? 2%? Are you going to be paying the treasury interest just to hold on to their bonds?
The bond market today reminds me of the tech bubble in 1999. I cautioned my clients then and I caution my clients now as they pour money into bonds. There may be reasons to own them, but capital appreciation is not one of them.
These yields on treasuries are stupid.
I do own munis in my personal account, but am short treasuries in my trading accounts.
The jobs that can be exported are "information service" jobs. Service jobs with involve direct interaction with people, e.g. a nurse, or handling of materials, e.g. a waiter, do not fit. Nor do all jobs in the "service industries", e.g. an insurance salesman.
The information services jobs are ones which are essentially clerical in nature, such as sitting at a desk processing claims, providing help desk assistance to PC users in a company, an accounts payable clerk processing invoices in a manufacturing company and so forth. These jobs involve the flow of communications in and out of the position, the correlation of information, the consulatation of references, logical thinking, and other sedentary tasks.
I don't think these fit the types of jobs that immigrants currently perform, at least the low-paid, unskilled immigrants. These do the other types of hamburger-flipping services. This is not to say that there aren't a lot of highly paid H1B visa programmers and engineers around.
While outsourcing of IT work to the Far East is generating some objections, it is nothing compared with what will happen when the average department store shopper loses her desk job.
The colonies in North America and India were acquired in an earlier episode of imperialism during the 1700s. For example, French Canada and Ohio were acquired by Britain in the French and Indian War. British control of India was solidified by Lord Clive's victory over the French at the Battle of Plassey, although it was a couple decades later that complete control moved from the East India Company to the Crown. Both of these are during the Seven Year's War, prior to the general conflagration of the Napoleonic Wars.
From the Napoleonic Wars until about 1870, Britain acquired few new possessions. For example, even though Britain defeated Chinese forces in the Opium Wars, she acquired trading rights and the port of Hong Kong, rather than acquiring full political control over larger parts of China. But after 1870, the "scramble for Africa" was on, and Britain was the most successful contender. This is the second episode of Imperialism, in which leading figures like Cecil Rhodes play their part.
Germany was contender, but not so successful. My recollection is that it was limited to Cameroun, SouthWest Africa (Namibia), and Tanganyika (part of Tanzania).
The British Empire did not disolve following WW I. It took WW II to enervate Britain to the point were it fell apart. In this respect it is similar to the experience of Spain and Portugal, who were a battleground during the Napoleonic Wars, and who lost their Latin American possessions to independence shortly thereafter.
He didn't. His holdings had already taken a supply hit almost the equivalent of a downgrade. He simply raised hell about them financing the world with commercial paper (borrow short and lend long are ugly words to old timers). I personally think he was so p**d at them that he was plotting revenge. At the time it seemed obsessive.
Careful. It's hard to make money on a trade that everybody loves.
Yeah, you are right. I remember now -- it was the commercial paper.
Richard W.
Imperialism is a state of being, not an act. As you know better than most, the British Empire was acquired gradually and over centuries. And the imperial sway over each of its dominions was a gradual process, not accomplished in one fell swoop. The British, French, German, Italian, Belgian, etc. move into Africa was the last act of the move to expand empires by Europeans. For the British, I contend, it was a sideshow whose motivating force as a combination of greed (see Cecil Rhodes) and humanitarian concerns (see the abolition of slavery).
You may want to read some biographies of the last Kaiser to understand how much imperial dominions meant to him in his effort to catch up with the French and especially the British.
And, while I know that the British Empire did not dissolve until after World War II, it was in the process of doing so during the inter-war period. That is when the British lost their appetite for ruling foreign lands (and for much else) and were seeking a way of withdrawing gracefully. And despite Churchill’s remark that he did not become the Queen’s First Minister to preside over the dissolution of the British Empire, this was inevitable. It was in the inter-war years that Gandhi traveled widely, not just in India and Africa but also in Europe, being received by the “progressives” of that era as the face of the future.
We are of like minds.
Been short govts as a core postion for a while, and not happy that I've got lots of company now. :(
The nature of investing is such that you will not be allowed to buy securities cheaply without dreading the ownership of them nor selling them expensively without feeling you have left a fortune on the table.
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