The world is a big place with lots going on that affects markets. Much of it is easy to see and easier to understand. Some of the influences, however, require some effort to find and some effort to understand. For example, on the surface, the quote below seems not to tell us much, but when you look closer, it actually tells us a lot about 2013 and beyond.
- The world is definitely becoming more balanced,” says Jim O’Neill, chairman of Goldman Sachs Asset Management in London. This shift marks an adjustment by the global economy to the root causes of the financial crisis and recession …
The implication above is that the global economy is moving away from the causes of the great global downturn in 2008. The financial sector meltdown is the most obvious cause, but what matters to Jim O’Neill, as it should matter to any market player, is a less obvious underlying cause of the global economic collapse.
In 2008, the fundamental issue that caused all of the problems was an imbalance of money. Simply, too much debt on one side of the equation caused the melt down, but that debt was not just in the financial sector, in the housing sector, or with the global consumer. That debt also resided within the trade balances of countries.
- The U.S. current-account deficit, which measures trade balances, income from foreign investments and cash transfers, will be 3.1 percent of GDP in 2013, down from 6 percent in 2006, according to an International Monetary Fund forecast. China’s surplus will be 2.5 percent, shrunk from a 10.1 percent peak in 2007.
What the above tells us is that the US and China are becoming more balanced with their trade. Of all the indicators I have pointed to that suggest 2013 and beyond will be good economic times, this one is the least discussed within the world of financial punditry, yet it just might be one of the most telling indicators of all.
- Smaller imbalances, if they persist, would mean the world is shifting to new growth drivers. The U.S., whose consumers helped boost global demand, particularly in the years just prior to 2008, is pivoting toward manufacturing. China may be succeeding in efforts to foster domestic consumption. Some European countries are changing labor rules in ways that make their exports more competitive.
China’s transition is one discussed in this column and elsewhere and Europe’s transition is obvious, but the information about the US is interesting to market players. In fact, in the recent US election, the discussion centered on the loss of manufacturing in the US, not the transition back toward manufacturing.
“The U.S. is transitioning from non-tradables to tradables,” says Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., which manages the world’s biggest bond fund. “This is the healthy part of the rebalancing,”
And so it is … The world is recovering in all ways from the overleveraging in the years leading up to the Great Recession. So can we please dismiss the gloom and doom nonsense about another global economic collapse? Can we also look at the macro market picture in a different light, and that is that the last two pieces of the global economic recovery and the only thing left to keep the global market from a long bull run are the US and European debt problems? Can we also surmise that solving these problems is in the best interests of not just the countries themselves, but in the best interests of the big money in the world? I hope so because this would clear the mental path for getting your money to work now when the waters are still a bit muddy. Yes, invest now, whenever the markets dip, and if you trade, do as I have been doing – buy on the dips and sell on the peaks. And when the issue of the fiscal cliff gets resolved, get ready for a solid bull run, because it is coming.
A gauge of planned U.S. business spending increased in October by the most in five months, raising cautious optimism that the sharp cutbacks in capital investment during the summer are abating. Fears of deep reductions in government spending and big tax hikes early next year caused firms to hunker down. But orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 1.7 percent last month.
Trade in the day; Invest in your life …
