Often Wrong, But Never In Doubt

Posted On: Wed, Oct 10, 2007

Author: Monty Guild & Tony Danaher

Fall is here but the living is easy. Contrary to many past September to October time frames, this past September and the first few days of October have been very pleasant for investors.

Several markets that we follow are at new highs, including Hong Kong, China, Brazil, India, Singapore and others. Gold is at a multi-year high, oil is doing very well, as are base metals. Clearly, things are salutary for global investorsa?|unless you are in mortgage debt and other related problem areas. It seems obvious that, as predicted, investors have sought solace in global fast growing markets like those mentioned above.

Of course, one reason that all of these markets are doing well is that the U.S. dollar is doing so poorly. When the dollar falls, many investors seek to protect themselves from a declining dollar by investing abroad or in commodities.

It can be fun to laugh at the foibles of others, but ita??s not so much fun to be confronted by our own foibles. Although we have had a good run of luck on our predictions for the last few years, I am sure we will someday miss a big one. Thus, I offer the following with the assurance that we can be wrong.

OFTEN WRONG, BUT NEVER IN DOUBT

A lot of western politicians are convinced that the emerging economies are all driven by exports, and this belief has found its way into the public perception of the world in the U.S. and Europe.

The fact that this is incorrect has little to do with its public acceptance. In our opinion, this misconception is potentially very dangerous ("nothing exists, except believing makes it so") as it can cause problems worldwide. If anti-free trade legislation is pushed and more free trade legislation is ignored, we run the danger of deeply damaging the world trade system, reducing economic growth, and damaging the rising standards of living globally.

Here are a few facts that people seem to either ignore or are ignorant of:
1. Chinaa??s growth is not coming from exports, it is mostly coming from domestic demand for goods, services and infrastructure (85% of their economic growth is domestic).
2. Indiaa??s imports exceed their exports.
3. The low and falling U.S. dollar will soon start to impact U.S. exports (by increasing them) and U.S. imports (by diminishing them).