Dow 13,000, who cares?!
True, it IS a nice, round, unlucky, number, but 13,000 on the Dow means less and less to Australian investors, especially as the U.S. dollar declines. What you might get in share price gains from American firms, you’d lose on a declining currency. But perhaps America and its dollar mean less to Australia than they have in the past. Indeed, perhaps America and its dollar mean less to the world’s future than they ever have before.
Australia’s economy is linked more to China and America. Future Australian corporate earnings are therefore more a China story than an America story. The key link between Australia and America is not resources but the relative relationship between the currencies. And with the local interest rates likely headed up, the stronger local currency means more global money finding a home in Australia. Australia’s gain, America’s loss.
What in the world is going on? Are the poles reversing? Is it climate change? Are global investors finally fed up with America’s incredible mis- management of its own currency? “World Order in Transition,” readers a Reuter’s headline that explains the situation. “The United States dollar fell to a 26-year low against sterling and a two-year low against the euro last week, and institutional money managers say tectonic shifts are taking place in the global economy that will knock the dollar even lower.”
These are not minor changes you’re witnessing. They aren’t just hot trading opportunities either. It is what I called “The Money Migration” a few years ago. It’s a change in the global ecosystem if you will, with America being replaced by China as the apex producer and apex consumer.
In the Old World Order, America’s economy grew the fastest and its asset markets were wide and deep, liquid and lucrative beyond compare. Then came an era of corrupt and fictitious capitalism, where accumulating debt and liabilities replaced savings and investments. Global production of manufactured goods shifted east. Americans, paying rapt attention to the undergarments of emaciated starlets, hardly noticed.
There are still high-margin products and services made in North America and Europe. And there is still growth to be found in certain sectors. But the global growth story is now distinctly Asian, and this favors investors who are closer to that story and directly participating in it, and who can manage to turn off the television stories about what African country Angelina Jolie and Madonna may adopt.
Markets and Money