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Developing Nations Emerge From The Shadows As The Sun Sets On The West

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No doubt the nulabour no investment idea lot will lament the idea, but its time to admit it -

we are f***** and our Wealth is quickly being dissipated to the 'basket cases' in the East.....

Get with it or get poor....


Developing nations emerge from shadows as sun sets on the West

How bad was the last decade? Across the Western world, there's near universal agreement that 2000-2009 has been awful.

Liam Halligan

Published: 7:27PM GMT 02 Jan 2010

Comments 5 | Comment on this article

After all, the "Noughties" were plagued with financial instability and plunging asset values, beginning with the "dotcom" collapse and ending with "sub-prime".

Yet that's not the entire story. Not by a long way. You can only conclude the last decade has been disastrous by viewing the world through a narrow lens. Yes, the so-called "advanced economies" have performed terribly. But, then again, they have been subject to self-imposed policy blunders in terms of fiscal and monetary profligacy and the removal of key regulatory firewalls that will make future historians wince.

I honestly believe the likes of Alan Greenspan and Gordon Brown will be savaged when authoritative accounts of the past 10 years are written. Those who dubbed the former boss of America's Federal Reserve "the maestro" and lauded the current UK Prime Minister as "the Iron Chancellor" will look foolish in retrospect even more than they already do.

As we've repeatedly whacked the self-destruct button over the last 10 years, many other parts of the world have made enormous economic progress. Most mainstream global investors and media outlets are only now starting to realise this and at a glacial pace. Conventional wisdom in the West remains profoundly behind the curve when it comes to grasping the extent to which the centre of economic gravity is shifting to "the rest of the world".

Over the last few months, Western financiers have, instead, been in triumphalist mode, pointing to the "rebound" in share prices on Wall Street and in the City. It's true that during 2009, the S&P500 America's most watched stock index gained 23pc while the FTSE-100 went up 22pc. These are very strong annual gains.

This 2009 performance, though, represents only a partial recovery from the cataclysmic losses of 2008. Looking at the last decade as a whole places our recent share price gains in a somewhat less triumphalist light. Since the end of 1999, the S&P500 has actually fallen by no less than 24pc. This is the first decade-long drop since the index began in 1927.

The FTSE-100 is also 21pc lower than at the start of the Noughties. On top of that, a major reason the UK index has recovered at all this year is that quite a few large mining companies, based elsewhere in the world, are listed in London (for now).

It's not just the "Anglo-Saxon" economies which have suffered, either. The pan-European FTSE-Eurofirst 300 has lost 34pc over the last 10 years. These numbers represent the wiping-out of, quite literally, trillions of dollars of wealth. They are nominal figures, so the impact of falling currencies and inflation means the actual drop in real asset values is even more profound.

Such disastrous losses have, for the most part, been incurred not by rich "fat-cat" individuals, but by the pension-funds, insurance companies and other institutional investors upon whom tens of millions of ordinary Western households depend or thought they could depend.

The dire performance of Western assets markets over the last decade is unprecedented. It severely challenges the long-standing view that holders of equity, if they're patient, will do well. If pondered upon, and assessed honestly, it also unsettles the assumption, hard-wired into our political and cultural mindset, that our part of the world will keep getting richer.

Contrast this sorry tale of wealth-loss with the fate of the large emerging markets over the last decade. Off the back of a manufacturing miracle, China's Shanghai Composite Index of leading shares gained no less than 140pc over the last 10 years. India's Sensex 30, the main index on the Bombay stock exchange, is up 249pc - the result of the country's IT and outsourcing skills.

Despite being dismissed as "basket cases", the commodity-rich emerging markets have done even better. Brazil's Bovespa index of leading shares is up 301pc over the last decade, with President Lula da Silva, lampooned by many as a "Marxist", pursuing business-friendly, pro-stability policies that have put most Western governments to shame.

Russia's Micex index, too, has surged a massive 802pc since the end of 1999. Yes, the country's well known oil, gas and metals companies have done well, but they've been easily outperformed by the best names across the non-commodity sectors.

These markets are far from perfect. They have been volatile and are not for the fainthearted. Corporate governance dangers exist and will continue to do so for years to come. On the other, while they still oscillate a great deal, the Eastern indices have done so around a trend which, for the last 10 years, has been unequivocally up.

There are many reasons, despite short-term squalls and profit-taking, to assume that trend will continue.

During the Noughties, while the emerging markets grew more sporadically than the West, their average growth rate was much higher. The developed world grew by 2.1 pc a year over the last 10 years, while the emerging markets expanded 4.2pc. In 2010, those numbers will be 1.3pc and 5.1pc, according to the International Monetary Fund, with the same "West-to-East" trend extending deep into this new decade.

Between 2011 and 2014, the developed world's economies will grow 2.5pc a year on average, says the IMF, while the emerging markets will expand 6.4pc. Consider also, that the Fund has a long track record of overstating future Western performance, while underestimating the rate at which the emerging markets grow.

Back in 1990, the "advanced" nations effectively Europe, the US and Japan controlled around 64pc of the global economy, as measured by gross domestic product. They now control 52pc a huge loss of economic influence in a very short period of time. Most of that shift happened during the last 10 years. As Economic Agenda has argued repeatedly since the "credit crunch" began in mid-2007, this sub-prime fiasco, and the related loss of faith in Western markets and institutions, can only accelerate and accentuate that mega-trend with sophisticated global investors increasingly investing not in "safe" Western nations, but in the far-flung economies of the East.

Over the coming decade, this shift will have a massive impact not just on the shape of global commerce, but international relations more broadly. Anyone will still doubts the extent to which the world has changed should look at the distribution of the world's foreign exchange reserves.

Not so long ago, the US was the world's biggest creditor. It is now, by a long way, the biggest debtor. Other big Western economies have followed America, spending the last 10 years borrowing money from the Eastern economies to fuel irresponsible increases in public spending.

As a result, the big-four emerging markets, known as the BRICS, now hold no less than 42pc of the world's total reserves. The G7 countries, in contrast, hold only 17pc. Take away Japan, the only substantive creditor nation among that group, and the "club" of advanced countries including the US, UK and France holds only 4pc of the world's reserves in their respective central banks.

Over the last decade, while the big emerging markets have amassed reserves, we've spent ours. Responding to sub-prime, we've taken on even more debts. Yet, in a world-stalked by systemic instability, reserves amount to power allowing nations to defend their currencies, support their banking systems and boost their economies without borrowing even more.

During the Noughties, the West slipped up badly, with the baton of global growth passing to the rest of the world. Over the coming decade, and it pains me to write this, we could lose what remains of our battered reputation for financial stability too.

Edited by ringledman
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I'm quite sure it's all been intentional. The 'people' at the top of the tree, the ones that decide which gumments get in and what their policies will be, decided long ago that geographical borders are not the logical way to divide people.

The boundaries are now financial, with a super 'elite' that will measure their individual wealth in billions, or trillions, then a supervisory class which is much reduced in numbers, and then the rest of us, who will toil much harder just to stay alive.

The 'elite' will not have to suffer the rules and regulations or the artificial boundaries that the rest of us will need to endure. We'll be as cattle, existing only to feed the rich.

Unless something good happens...... :rolleyes:

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One of the underreported stories of the year is how big decoupling is. The third world is growing economically nearly as though nothing has changed.. A far cry from what people thought that they were 'export based' economies who would be hammered if US demand came down. They have shown they are not just resialiant but are generating their own momentum and economic growth.

I follow the revenue breakdown of a lot of big name companies, and its obvious the world is not just becoming multi-polar economically but already is in some industries. Like for Intel, only something like 20% of their revenue now comes from the USA market.

Edited by aa3
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They have shown they are not just resialiant but are generating their own momentum and economic growth.


With fixed asset investment passing 50% in some of those economies they're just as dependant on foreign direct investment flows as they've always been.

Imagine, if you will, the managers of the entire planet's savings crammed into one little UK slave box.

Now imagine that someone - let's call them "Bernanke" for this example (but any name would do, it's just the label assigned a given particle acting the way one such must in the stochastic craze) - drywalls the door.

Now imagine that someone else in the room yells "fire" (and boy is that guy going to be hated, I wouldn't want to be his family).

Roughly speaking that's what's going to happen when funds who's nominal values are quite simply (and hence quite beautifully) a mathematical expression of seven decade's worth of desire to put ten down and recieve ninety back (over the next three) - when they decide they need to actualise the income their investments theoretically represent.

See that's the heart of this (and I was going to hive off a new thread, because I suspect I'm nearing the end of what I've still got left to say, but this'll do instead)...

If we cast our collective mind back and look at some of the social memes we've seen since the ad-men took control we'd list them thus :-

1/ Pensions

1.1/ National

1.2/ Public sector

1.3/ Private sector

2/ Expansion of Credit

2.1/ Corporate

2.2/ Private

3/ Rise of Consumption

... and if we looked at the corresponding effects of them upon the relevant markets we'd see...

1/ The Nifty Fifty

2/ Commodities and Labour Prices

3/ Junk Bonds

4/ Japan

5/ Dot Com

6/ Housing and Mortgage Backed Securities

But, and this is the key part (and in a true Faustian fashion, fair warning - once you read and understand what I'm about to say, you'll wish you hadn't)...

Where we are right now these vats of improbably valued collective saving (remember me saying something about ten down and ninety back?) have captured so much of the global economy that there's literally no-one left to sell it to (it's also as a sidebar the underlying reason why we each collectively feel our pips have been squeaked - there's no way any individual's bid in the market can be greater than the collective bid, and if you recall your junior school price-volume sits somewhere between "highest bid wins" and "supply and demand").

Which is largely speaking why markets the world over have just had the first of many Minsky moments.

Ten down, ninety back - it's a marvellous contraption, and it's as unworkable as Madoff's ledger (poor chap, he was only the spirit of the age, but he'll be vilified as one of its causes).

And it's going to set trends in economic theory from this point forward.

Why is any of this relevant to this thread?

The BRIC nations have been turbocharged by FDI - in various ways, and through differing mechanisms they have supped deep from these global liquidity pools (the returns on such investments to this point have been truly Pavlovian).

Even our star child has drunk her fill - but it won't show on these metrics, you need to look at growth in equity and asset values instead (it's much of a muchness, those rising numbers represent three years worth of delayed consumption - delayed over the course of seven decades - buying an entitlement to three decades worth of unworked-for consumption to someone, somewhere just as surely as a Chinese matress stuffed with a surfeit of Treasuries might).

The point being these funds are inorexibly tipping into distribution - they need to liquidate, to start making good on all those wages collectively bargained into oblivion (whilst we feverishly manufactured the volume of landfill itself implied by the prices set by our very own nonsensical growth in nominal balances).

Further, the rate of growth in balances has been lanced upon the twin points of demography, and the collective switch from defined benefit to defined contribution (the former builds a far grander sandcastle suspended far further up in the air in terms of the effect upon nominal asset valuation hence bidding strength).

So regardless of borrowing data - the BRIC nations have borrowed.

They owe the hump in the curve, and they owe it big.

And they stand about as much chance of paying up as poor old Uncle Sam.

There's only one way we (and I include the entire planet in this) can make good on this sorry mess.

If we managed to find about another five billion new savers or so, and we managed to bring them into this devil's Amway as new inductees - ten down, ninety back - then our numbers will grow, and our advanced fee will be redeemed (somewhat fraudulantly) just as prophesied.

But there's precious little chance of that - if it were easy, the machine would've already digested them (ever wondered why the Roaring Twenties ran out of gas?) (ever wondered why articles like the one linked appear in the press at times like this?).

Status quo now, as then, is the ten, bewildered, scratching their collective head - and wondering how to repay the ninety.

As any Albanian will tell you (or perhaps your own Grandparents would, if they're alive), the answer is both obvious, and unpleasant.

2500 on the Dow.

Edited by ParticleMan
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I take a practical view of all this. The West has become over regulated in almost every sphere of life and we cannot afford it. I looked at the u-tube documentary about 1970's New York which nearly went bankrupt because of socialist policies. Their new Mayor, Koch, laid down the simple rule that you cannot have what you cannot pay for.

This seemingly blindingly obvious statement had by-passed previous Mayors.

It's the same in Britain.

Look at all those light bulbs sent out to beat some Carbon tax. A complete waste. Can we afford it? NO

Time and time again, politicians, particularly Labour ones, come up with some uncosted pipe dream and wish it upon us. Can we actually afford Health and Safety legislation, Equal opportunities etc. No-one knows. Plenty will defend the need for these laws, even when they find themselves in the dole queue as a resul of them. "Of course you are entitled to parternity leave. The country can afford it." they say, but can it? Why do we have free bus passes, I know millionaires who live near me who use them. But Rhodri Morgan, Wales's First Minister, proudly defended them for all over 60's, even those who used them to go to work.

Why do we have free prescriptions with all the huge waste that they entail. Its because some pinko politician was able to string honeyed words together in such a way as to persuade people that he was right. They all fell for it and loved him, never mind that we cannot afford it and the really seriously ill such as cancer patients who do need expensive drugs etc. cannot have them. yet huge quantities of prescribed medicines etc. go into the dustbin.

When my geriatric father came home after his hip replacement, he was freely provided with a wheel chair, blocks for the sitting chair, toilet frame,shower chair, inflatable cushions, bed raisers, bed lever, a device for reaching known as 'helping hand'. Nobody asked if he could pay for these, they were free and stupidly we are proud of that fact. As it was, my father could have easily paid for them as he was a wealthy man.

Its all waste in the name of fairness.

Meanwhile, Mrs X, dying of cancer, cannot have the enormously expensive drug that will prolong her life.

But of course we don't want to know this do we?

Margaret Thatcher, the last PM to actually do something about it was greatly reviled. Even posters on here tell us how awful it was growing up under Thatcher, most of them are too young to understand what it would have been like if she had not become PM. Runaway expenditure, over powerful unions whose leaders wanted a Marxist state, followed by the willing army of useful idiots. HUge increases in the rates to pay for 'services', never mind that people could not afford them "Soak the rich" was the mantra, even though in many areas, there were no really rich people. Who remembers Clay Cross? real bunch o pillock councillors if evere there was one.

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Why does the Telegraph think the West has the right to be the richest part of the world forever? It's only a matter of time before wealth across the world more or less evens out. It's something to celebrate IMO. China's undervalued currency is largely to blame for global creditor imbalances.

When my geriatric father came home after his hip replacement, he was freely provided with a wheel chair, blocks for the sitting chair, toilet frame,shower chair, inflatable cushions, bed raisers, bed lever, a device for reaching known as 'helping hand'. Nobody asked if he could pay for these, they were free and stupidly we are proud of that fact. As it was, my father could have easily paid for them as he was a wealthy man.

Its all waste in the name of fairness.

I couldn't agree with you less Byron. If your father had paid a proper rate of tax then he would be more than justified in receiving this service back from the taxpayer. Your comment has made me proud just how much we do for cancer patients.

Means-testing, which you propose, takes a huge amount of administration and is where the real waste occurs.

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