Thought for the day
"Arrogance on the part of the meritorious is even more
offensive to us than the arrogance of those without merit: for merit itself is
offensive."
-Friedrich Nietzsche (German, 1844-1900)
Word for the day
Chiliad (n)
A group of 1000.
(Source: Dictionary.com)
Malice towards none
Raj Thackeray says "Salman is man without
brains"!
Hmmm....lets discuss something else.
China begins the endgame
I am increasingly inclined to believe that perhaps the paradigm is
shifting in global markets. I have written this thing earlier also, but
considering the pertinence of the idea, I do not mind it repeating it - It is
no different this time; in fact it is more likely to be 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 critical to evaluate the ongoing transition in the
global market paradigm from this angle also.
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. China has joined the competition by letting CNY
decline. While US has almost won the war to retain the supremacy of dollar, but
not without exacerbating the disinflationary pressure in the global economy.
The commodity producers worldwide are under severe financial stress and the
relative currencies like AUD, RUB, CAD, BRL have depreciated materially in past
one year.
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 is happening when most emerging markets are saddled with
huge dollar denominated debts; energy and other mineral prices are down as
Chinese extraordinary investment cycle is coming to an end; OPEC cartel and
Russian mafia is on the verge of breaking due to a variety of reasons; global
inflation and wage hike cycle are not visible on the horizon; food prices are
at multiyear low and availability high; geo-political tensions are palpable
especially in view of the threat of IS.
The catch phrases of past decade (GEMs, BRICS, Frontier Market
etc.) may be forgotten in few years. In the new paradigm, it will be US,
Germany, China, India (?) and few tiny economies like Myanmar. Good times!
(Next post on Monday, 17 August 2015)
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