Tuesday, November 18, 2014

This set and game goes to US

Thought for the day
"Doubt is not a pleasant condition, but certainty is absurd."
-          Voltaire (French, 1694-1778)
Word for the day
Celerity (n)
Rapidity of motion or action; quickness; swiftness.
(Source: Dictionary.com)
Teaser for the day
Have we learned any lesson from KFA that could be applied to SpiceJet and Air India?

This set and game goes to US

Continuing from yesterday...
I am increasingly inclined to believe that perhaps the paradigm is shifting in global markets. I am certainly not suggesting "it is different this time". What I am saying is "it is the same as always".
The global market paradigms have shifted every few decades. The shifts have been caused by a variety of factors. Sometimes it has been led by shift in strategic and geo-political power (spread of European empires in 17th and 18th centuries and strength of US post second War). Sometimes technology innovation (industrial revolution in Europe and US, Japanese manufacturing renaissance post WWII and then internet revolution in US) caused the shift. Rise of oil economies post 1970's in middle east Asia and Chinese and Korean manufacturing revolutions have also caused material shift in global markets. Nature has also played vital role in causing tectonic shifts in global power equations and market balances. Decline of great Roman empire is case for study.
In most of these market transition phases, currencies have played a key role. Therefore it is pertinent to evaluate the current transition in global market paradigm from this angle also. And this is where I see a difference. In most earlier instances the emerging currency (including gold and silver in earlier instances) has changed its relative global value during the course of the shift. Sometimes strength in the currency or gold & silver stock played a critical role, as in case of British and Portuguese dominance in earlier centuries. In some cases weakness in currency supported the shift, as in case of the rise of Korean and Chinese manufacturers causing decline of Japanese dominance.
The present case appears no different. Japanese are trying to regain their lost market share in global manufactured goods market by depreciating their currency. Germans are struggling to retain their market share by forcing the Euro down. While US has almost won the war to retain the supremacy of dollar.
Considering that US fiscal deficit is shrinking fast, Current account is favorable and monetary stimulus has been withdrawn - the supply of USD to the global market is declining at a rapid pace. On the other hand, the demand for USD shall rise at even faster clip as Japanese, Chinese and European mints work overtime to print local currency.
This all will happen, when most emerging markets are saddled with huge dollar denominated debts; and commodity producers who sell in USD are facing serious erosion in demand.
I have written earlier (see here) also that Uncle Sam may have lost a few battles, but it is certainly on course to win the war. At this point in time no challenger is in sight.
However, we may see some resistance emerging in next decade. More on this tomorrow.

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