Marc Faber Blog: The Lifestyle In The West Won`t Improve Meaningfully

Marc Faber Blog: The Lifestyle In The West Won`t Improve Meaningfully

Where can the west go from here? With a GDP per capita in the region of USD 35,000, how is the life of the midle class going to change in the next 20 years?
Besides, Asian emerging countries with GDPs ranging from 1,000 to 3,000, where will they be in 20 years?

The argument is clear that in a global economy, emerging countries will catch up and benefit from the goods and services that are available in the world. Assuming the finance instruments to allow the consumption are there to support it of course.

But the assumption that the life of the standard western citizen is not going to improve dramatically is too short minded. Who coul dhave predicted what happened in the west in the last 30-40 years? From the development of the information technology and it's impact in all areas of economic activity, improved productivities, telecommunication, health, transportation,...What lies ahead of us in terms of innovation?

There is of course a big difference in the growth of developed countries versus developing countries. The latter just need to emulate and copy the innovation that others create. The former need to continue innovating in order to keep the growth. This is the most important task for governments in the west: ensure we have a framework and an incentive structure that keeps innovation alife so it can bring the growth and job creation that is needed.

Barack Obama and the Nobel peace prize: Even greater expectations | The Economist

Barack Obama and the Nobel peace prize: Even greater expectations The Economist

A prize that recognised intentions, not achievements. This is bad for Mr Obama. It's bad for him because the expectation is now defying gravity. No matter what he achieves, there will likely be disappointment. Besides, I guess it will make it difficult for the US to use it's military power in the future, even in circumstances that justify it. Is this not an incentive that can ignite Iran or terrorists from around the world to attack the US? More so, in a weak economic circumstance that will make it more difficult to react.

Global government for a global crisis

One of the topics I frequently discuss regarding the current crisis, is that we do have a global financial system, but we do not have a global government model. The implications are profound. The impact of the capital markets in everyday life are huge, and indeed they are not going to diminish.
However, there is an obvious need to define global coordinated actions. Yes, we do have G20, IMF and the like, which are adapting their governance models to a more balanced world, with bigger roles to superpowers like Brasil and China. But, I always struggle with one issue:
Q:what's in the agenda of a politician? 
A.The next election.
Q: is this the best motivation to solve global and enduring issues like the global financial crisis?
A: obviously not.
Q: then, what are they going to do to solve the issues?
A: focus on what can give them an easy headline for domestic political consumption, i.e., limit bonuses of bankers, impose regulation to imports,...
You see what I mean.
I would like to see a bunch of technocrats designing a global solution and the politicians adhering to it, rather than the other way around. We could transfer legitimate power to a group of 10 that could design a solution, without immediate election results in mindset. Is that possible? Yes. Are we ready to do it. I guess not.

BBC NEWS | Special Reports | Global recession

BBC NEWS Special Reports Global recession

In an interesting debate on BBC held in Istanbul after the IMF meeting, the two most important questions that remained with an unclear answer where:
- Are we going to see growth soon, and what type of growth will that be?
- Are we going to create jobs again soon, and what type of jobs?

Clearly, both questions are related. The conclusion was that in order for growth to resume and jobs to be created again, it needs to be driven by private sector. But, with unemployment on the rise and not a clear sign of when it's going to start declining as Greenspan said yesterday, expect consumption to be weak for a while.

This is the recipe for continued stimulus packages. Although most of the first package has not been utilized, some voices like Paul Krugman, start advocating for more stimulus. Clearly, we've not seen it all in terms of fiscal deficit.

The G20 and Why Export Dependency And Global Imbalances Matter | afoe | A Fistful of Euros | European Opinion

The G20 and Why Export Dependency And Global Imbalances Matter afoe A Fistful of Euros European Opinion

In a previous post I mentioned that the post-crisis macromindset is going to be a very different one and that this is going be a multi year process. Now, here is an article that explains why the imbalances we've seen in the past need to change 180º before we see a recovery in the world economy that is not driven by the fiscal stimulus. In other words, only a coordinated more balanced economic growth in the future where surplus economies like China, Germany raise their domestic demand, and deficit countries like US reduce their budget and trade deficits.

The difficulty to execute this, is related to the lifecycle of savings. Countries with young adult median ages have a strong deficit fueled by domestic consumption and lending booms (US, Spain, Ireland, Eastern Europe,...). Countries with a mature median age have surpluses and their tendency to exports grows as the population ages (Germany, Japan, China,...).

This is the trick: how are we going to get surplus countries with ageing populations (in other words lower fertility rates) to increase their domestic demand? Anyone approaching retirement age in Germany is not going to start spending like crazy now. And for sure, they are not going to give birth to another kid.

What is the way out? Getting the young countries, with high fertility rates and high domestic demands to consume more. The name is Emerging Economies. The interesting challenge is how are we going to channel the lending funds that those countries need to absorb all the exports from the mature countries? Nice puzzle in the current re-regulation of the financial markets.

FT.com / In depth - Return of the old ways of thinking threatens recovery

FT.com / In depth - Return of the old ways of thinking threatens recovery

This article from Mohamed El-Erian, really nails it. Are we seriously adapting our models to the new reality? Or does everybody think that this is over and we can carry on as before?

All evidence suggests that current growth is mainly driven by stimulus packages, rather than real demand. This graph shows the evolution up until April of corporate earnings. It shows how earnings have declined much faster in this recession than in previous ones.

Worldwide, the biggest transformation needed has not yet occured and it doesn't seem to be ocurring any time soon: the swap from excesive leverage and excesive consumption in the US, to a higher consumption and lower saving in China. The news coming from China about their excess capacity being built there are not sending the signals that this is happening as of yet.

This is a multiyear transformation process and the market pricing in a short term recovery is unrealistic.

The new normal - The McKinsey Quarterly - The new normal - Strategy - Strategic Thinking

The new normal - The McKinsey Quarterly - The new normal - Strategy - Strategic Thinking

This is the return to normal capitalism, where productivity gains, technological innovations and creation of new markets have been the traditional sources of value creation.

The period where value creation was achieved by financial innovations and extremely high leverage (eg. 30-1 in some hedge funds) is over. The price of risk is going to be higher from now on.

Is this so difficult to understand and assume? I find this is back to normal. For management teams, it means refocusing on long term value creation through the creation and maintenance of unique capabilities. And defocusing from tyring to make up next quarter results.

Again, back to normal.

The Responsiveness Scorecard - Umair Haque - HarvardBusiness.org

The Responsiveness Scorecard - Umair Haque - HarvardBusiness.org

I liked the idea of this post by Umair Haque in Harvard Business Publishing. This cosmic crisis is showing us the difficulties that financial institutions are experiencing. It's difficult to understand how have we been living for such a long time in such a mess, but that's a different topic.

The interest of Umair's post is that he highlights an important concept. It's not only banks that have been completely lost in recent years. It's also other industries.

Look at car makers: they have been for a long time loosing money (the US ones that is) and continued manufacturing the products that were not needed (who needs another SUV?). Or look at media, where a myriad of newspapers are struggling to define a viable business model that keeps them alive.

So, are banks just another example of a bigger trend that affects many other industries, one that shows their inability to adapt and respond to market changes? In other words, are we lacking a systematic method to question the validity of our strategy? Rather than asking how can we improve yet another % point of efficiency, are we asking the question of what will the consumers of tomorrow want and how is our industry being affected by the evolution of the market?

Pretty simple questions, but deep organizational challenge underlying. This is not an issue that leaders alone can solve. This is about creating a culture of constant challenging and reinvention that many executives in century old corporations would not like to start.