Friday, November 18, 2005

A Distinction Without A Difference | The Wall Street Examiner

A Distinction Without A Difference The Wall Street Examiner

A Distinction Without A Differenceby Anon Examiner, Sunday November 13 2005It's well-established that the U.S. is living high on the hog thanks to the "kindness of strangers"-- ever increasing purchases of US sovereign and private debt by foreign investors, and foreign central banks in particular. This will make for some very interesting geopolitics over the next 10-15 years or so, and the middle class in the US, which is most of us, is likely to pay the price. Analysis falls into two major camps.There's the Bernanke/Kudlow/GaveKal camp that says the U.S. is doing the developing world a big favor by sopping up all their excess savings and spending it on SUVs, plasma TVs, etc., thereby creating employment and business opportunities in the industrializing world.Then there's the Bonner/Noland/Austrian camp that says U.S. debt creation is unsustainable, fraught with peril and will end in tears.Maybe they're both correct, depending on your time frame and where you stand.From an intermediate perspective, I tend to come down on the side of Bernanke. Objects in motion tend to stay in motion. From a longer-term perspective, I think the Bonner-type folks are on to something.John Mauldin recently liberally quoted from the new GaveKal book "Our Brave New World." If the excerpts are any indication, it sures makes me think--contrary to their thesis--that the average Joe in the U.S. is going to get hammered one of these days.Their view is that the U.S. is the world's leader in financial and business creativity and will continue to outsource more and more of the low-margin grunt work. This will keep the coffers overflowing in the U.S.This is likely so.But, of course, this will benefit the captains of industry---creative or otherwise---at the expense of the broad swath of the American public whose jobs will be downsized or capsized.GaveKal agrees and doesn't see a problem with that: "Over time, the job market in developed economies (like the U.S.) will consist of a minority of very creative individuals who work for themselves, and a majority who work in the service industry for the creative minds and/or the tourists coming in from the industrial world."While GaveKal sees this as a shiny new paradise, it actually sounds a lot like the Armageddon-like predictions of a world where the top 1% are filthy, stinking rich (kind of like now), the top 10% are friends and family of the stinking rich sucking off the teat of the top 1%, and the rest of us are shining the shoes, manning the burger pits, detailing the Porsches and giving backrubs to hedge fund managers, global wildcat financiers and GOOG muckedymucks.In short, GaveKal's Distopian vision of the future of the U.S. sounds more similar to present-day Saudi Arabia, than to an updated version of what was once known as "the American Dream."The fact that our 1% is supposedly merit-based and comprised of brilliant, 'creative' financial engineers, as opposed to wealth-by-surname as in Saudi Arabia, seems like a distinction without a difference to me. The end result is the same: a society where a handful own and control nearly everything with the rest doing their bidding. In this way, GaveKal's vision of a grand, creative meritocracy looks suspiciously similar to every other society throughout history that has concentrated wealth and power into fewer and fewer hands.GaveKal also goes on to say that newly-created wealth from the 'industrial' world will continue to flood the 'creative' world (U.S.) because (take your pick): 1) we respect rule of law; 2) property rights are protected; 3) we are the 'fun world (?). So they believe U.S. assets will always be overvalued.Seems like classic 'home bias' to me. But they could be right for a while longer.I have no doubt that the world will go on. Global living standards have improved immeasurably since the caveman days despite wars, plague, pestilence, stock market crashes and fad diets. But there are still a few glitches to work out.The new engines of world growth, for example, have some crosses to bear. Oil-rich Saudi Arabia is still, last I checked, a dictatorship (benign or otherwise) owned lock, stock and barrel (pun intended) by one family who stole it fair and square from another family back in 1903. Now they are hoping to fight back Islamic Fundamentalists, the newest tribe on the block. I also read today that they are considering allowing women to drive cars...someday.China remains communist, has hundreds of millions living hand-to-mouth, and just last week passed new rules censoring instant cellphone messaging to crack down on dissent.India graduates more software engineers than any nation on earth. But half the women in the country are still illiterate. So we have a ways to go. Will we get there? I hope so. But the path we take may surprise us all, GaveKal and Bonner included.Of course, from a trader's perspective, if you keep positions manageable and time frames short, I'm not sure any of this matters. As JimmyScreamer might say, buy HAGWUS (HANS/AAPL/GOOG/WFMI/UNH/SNDK) for a year-end run.Anonymous Examiners are analysts, investors, and traders who have given the Wall Street Examiner permission to post their thoughts, but wish to protect their identities. The views expressed are those of the writer only, and not necessarily those of The Wall Street Examiner, its publisher, editors, or staff. The purpose of this article is for education and information only, and should under no circumstances be construed as an invitation to purchase or sell securities. Neither the writer nor The Wall Street Examiner undertake to update this article. Readers are urged to consult with a qualified financial professional before making any investment decision. The Wall Street Examiner welcomes all well reasoned points of view. If you would like to submit an article, whether with, or without your byline contact editor Lee Adler.

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