|
So the question we are discussing today is - in
terms of the road to economic recovery, “Are we
there yet?”
As it’s turned out, while the average Australian’s
wealth is not yet back at the highs of before the
Global Financial Crisis, the threat of imminent
financial disaster has passed for most, the wealthy
are back to spending extra, and surely we’re all
back on the way to a comfortable retirement, in this
lucky country?
In terms of Bloomberg’s Global Misery Index (below) Australian’s were less miserable
last year than in 2008 (as were New Zealanders!).
For the record, Malaysians are the least miserable,
Americans and Brits feel worse than they did a year
ago, as do all of the G8. Of course, we didn’t even
have to experience a recession.
Yes, the 2009 gains should be viewed in the light of
2008 losses...
... but, surely, we can stamp the end of the first decade
of the new millennium as better than it looked like
it was going to be?
I wonder whether the good fortune we have at being
in Australia means that we not only missed a
recession, but we also missed the chance to think
deeply about the importance of different aspects of
economy that we are a part of?
Harvard Professor Michael Sandel, political
philosopher, commented on the GFC aftermath by
saying...
[One of the lessons I’d like us to learn is that]
"Some of the good things in life are corrupted or
degraded if turned into commodities, so to decide
when to use markets, it’s not enough to think about
efficiency; we have also to decide how to value the
goods in question. Health, education, national
defence, criminal justice, environmental protection
and so on - these are moral and political questions,
not merely economic ones. To decide them
democratically, we have to debate case by case the
moral meaning of these goods in the proper way of
valuing. This is the debate we didn’t have during
the age of market triumphalism. As a result, without
quite realising it, without ever deciding to do so,
we drifted from having a market economy to being a
market society. The hope for moral and civic renewal
depends on having that debate now. It is not a
debate that is likely to produce quick or easy
agreement. To argue about the right way of valuing
goods is to bring moral and even spiritual questions
into public discourse."
The Reith Lectures
Markets and morals >
Morality in politics >
Genetics and morality >
A new politics >
So, is it true that compared with the hope, optimism
and potential that greeted the new century, just ten
years ago, we have largely had a decade that wasted
the potential? My dad used to say... "the
graveyard’s full of people who had potential."
As a consequence of the enormous costs to the global
economy of the irrational exuberance which resulted
in the Tech Wreck, and of the War on Terror, (now
seemingly more like Borat's "War of Terror") - both
pretty much at the beginning of the decade - and the
GFC at the end of the decade, and everything else in
between, it seems like much of the potential we all
had ten years ago has been squandered. Pretty well
all the global stockmarkets other than a few
emerging markets, had a dismal decade. Money that
could and should have been deployed to beating world
hunger, beating world health problems,
reinvigorating world infrastructure, and dealing to
climate change issues was spent irretrievably on
wars on terror and on preventing total financial
meltdown.
Or, can we be satisfied with a past decade of
success? Take a look at the last decade from a
business point of view.
What kind of decade was it?
Business >
(Save the file to your
computer, unzip it and view in Windows Media
Player.)
When I look back on the past decade, it seems to me
that we have been unwitting travellers through an
historical inflection point of modern history... one
that has coincidentally coincided with the first
decade of the new millennium.
Central to the inflection point of the last decade
has been the now widespread recognition of the
dominant and interconnected roles of China and
America in the performance of global markets. One of
the key themes raised by Niall Fergusson during our
2009 PortfolioConstruction Conference, was Chimerica.
As we focus on the outlook for the markets, it's
relevant that we update ourselves on where we're at
with Chimerica.
Nouriel Roubini, the US NYU economics professor who
reliably predicted the sub-prime crisis in 2006,
says that the 2010 outlook and beyond for the US is
precarious to say the least. His view is that the US
economy "stands a 20 to 25% chance" of slipping back
into recession in the next 12 to 18 months - that
is, a double dip - but his more likely scenario is
that the US economy will wallow through the downturn
as demonstrated by several years of below trend
growth.
Consequently, China is stuck with its major debtor
having arguably suspect quality assets backing what
China has loaned over a trillion dollars in public
debt against - and yet, it is in the bizarre
situation of needing to purchase even more US
dollars and bonds to preserve the value of its
existing holdings. And of course, the US (and
Australia for that matter), is largely dependent on
the continuation of Chinese growth.
Only a generation ago, China had an insignificant
influence on the global economy and little influence
outside its borders. Today it’s economic and
geopolitical influence is almost ubiquitous. No
government, business or individual is immune from
China’s manufacturing, financing, investing and
politicising. Now, in the year of the tiger, China
is already the second largest economy in the world.
We can further consider whether China will
eventually replace the US as the global economy’s
rule-setter. In a new book "When China rules the
world", British scholar and author Martin Jacques
stats that if we think that China will be integrated
smoothly into a liberal, capitalist and democratic
world system, we are in for a big surprise. He warns
that China will construct a world order that will
look and be very different from what we have had so
far. Americans, Europeans and, indeed, Australians,
blithely assume that China will become more like us
as its economy develops and its population gets
richer. This is a mirage, Jacques argues.
The Chinese and their government are wedded to a
different concept of society and polity:
community-based rather than individualist, state
centric rather than liberal, authoritarian rather
than democratic. China has 2,000 years of history as
a distinct civilisation from which to draw strength.
It will not simply fold under Western values and
institutions, Jacques argues. For example, consider
the Copenhagen Climate Summit - China showed the
rest of the world that what it wants, it gets. It
did not want to curb human-caused carbon emissions
where the economic and political cost was too high
for its liking. Hence, China’s insistence on
"sovereignty" and "consensus" in the so-called
negotiations, and the Copenhagen Accord giving China
everything it wanted. The Chinese leader who started
the middle kingdom on its last 30 years of
unimaginable economic and political growth, Den
Xiaoping, set forth a so-called 24-character plan
for re-securing China’s place in the world. "Hide
our capacities and bide our time; be good at
maintaining a low profile; and never claim
leadership," the former Chinese leader said nearly
twenty years ago. Yet 2009 can be remembered
as the year China was central to helping the rest of
the world in the management of the GFC, tidied up
from hosting the Olympics, held its 60th
anniversary, prepared for the world expo, and
ensured that the Copenhagen accord went its way. In
other words, China displayed international political
clout to match its economic clout.
What we all need to do is to understand - and not
necessarily fear - is what it means for Australia to
be trading and living with a powerful China. (And
while China seems to be getting all the attention,
don’t think that India’s crucial role should be
overlooked! Or Brazil’s for that matter.)
So, with the backdrop of the consequence of the last
decade, and the current position of China and
America, let’s start thinking about the global
economies and the global debt and equities markets
more specifically.
To introduce the PortfolioConstruction Markets
Summit 2010, I refer you to a number of background
preparation resources:
1. The global economic outlook
-
1. What lies ahead in 2010, a Pain Report
special, presented by Jonathan Pain.
Paper >
-
A BBC World interview, conducted late December
2009, with three eminent economists, reviewing
2009 and looking forward to 2010.
Podcast >
-
"3 Perspectives on the 2007-2009 Global
Financial Crisis; Minskian, Austrian and New
Keynesian", a thesis by Nicholas Markowitz.
Paper >
2. Global risks - World Economic Forum Global Risks
2010
-
World Economic Forum Global Risks 2010
Video >
(Save the file to your
computer, unzip it and view in Windows Media
Player.)
-
World Economic Forum Global Risks 2010
Paper >
-
World Economic Forum Global Risks 2010
Interactive tool
>
3. The global equities market outlook
-
The outlook for equities in 2010 -
Longview Economics - recorded in late December
2009, by our colleague Chris Watling of Longview
Economics in London, this follows up from Chris'
presentation at PortfolioConstruction
Conference 2009.
Video >
-
Selloff or something more sinister? -
Since Longview presented its 2010 outlookfor
equities, the market
has in fact pulled back and moved into the
beginning of Phase II of this cyclical bull
market, as predicted.
Paper >
And of course, don't overlook the plethora of
presentations, podcasts and papers in the other four
areas of this Resources Kit!
|
