FYI | May 03 2006
The world is changing and when it does it is always a fascinating experience.
I am obviously viewing the whole process from a different perspective than most of you who read my weekly musings and analyses. After all, I am a journalist. Nevertheless, I hope you all are not completely missing the beauty of a changing global landscape.
Many are, however. I see them writing reports for Wall Street giants, columns on Bloomberg, stories in newspapers, and enough books to fill a whole library with. It is at times like these that I realise how easy it is to be worried.
Last week I wrote I wasn’t among them.
I feel lucky I wrote my previous editorial before I read Stephen Roach’s global economy analysis after returning from his second trip to Asia. Most of you will have read by now that the local experience turned one of the world’s best known bears into a mild, hopeful optimist.
If you didn’t read the story I wrote about Mr Roach this week, you’re bound to have picked it up elsewhere. Stephen Roach turning less bearish, that is news! And that’s exactly the conclusion journalists elsewhere have drawn as well.
That doesn’t mean we should now all put our glasses into one of our hip pockets and cast all our worries aside. Both Investors and journalists should never allow their focus to slip into their hip pockets.
The US equities market is still moving through a long lasting bear market. That’s not my personal opinion, but one that is endorsed by quite a few experts in financial analysis. Looking at the US share market’s performance over the past few years, I find their arguments reasonably compelling, to say the least.
Luckily, for Australia, the world is changing. It used to be that when Wall Street sneezes the rest of the world would catch a cold. Australian equities have clearly outperformed those on Wall Street over the past few years. Has something fundamentally changed? Yes, China has become part of the global economy – and of the 21st century’s development.
Wall Street, however, is still the global barometer for financial wealth. The US is still the world’s largest economy. The US Fed leads in interest rates and the US dollar remains the global currency.
But one would have to be blind to not see the changes happening. As it goes in macro-finance, changes occur slowly and gradually. And many people doubt they actually take place.
Three years ago, when writing for a monthly financial magazine (The New Investor, it didn’t remain long enough on newspaper agent’s shelves to stick in too many people’s memory), I wrote what I thought was a highly amusing column. It was titled "Goodbye to the greenback?"
I pointed out that Iraq was the first major oil producer who had swapped the US dollar for the euro. I jokingly suggested this was the real reason why the US had made up the existence of weapons of mass destruction and invaded the country.
I drew a comparison between Saddam Hussein and Hugo Chavez Frias, as rumours had appeared in the Venezuelan press the president was considering "swapping George Washington for those funny looking, colourful euros".
Chavez shares a few striking resemblances with Hussein, I wrote, as he leads a major oil producing nation and Washington would like to see him replaced. "And Chavez would like to fry George W Bush’s bum on a Saturday evening’s BBQ while smoking a handmade Cuban."
Actually, that last sentence was taken out before publication. (Self-censorship is more often than not a greater evil than the real thing).
At times when everybody is convinced the US dollar has only one way to go and that is south, when central banks are starting to look into diversifying away from the greenback and gold is back at centre stage, the obvious question that comes to mind is: are we experiencing the beginning of the end of an era?
In macro-finance things don’t happen overnight. But that doesn’t stop things from happening.
It’s going to be a slow process though. A very slow process.
Don’t wait for it to happen.
Till next week!
Your patient editor,
Rudi Filapek-Vandyck
(Supported by the Magnificent Three)