The Big Picture For The Week of June 12, 2005

I do not have a such a gloomy perspective in general about anything. But if you can buy into the notion that this century will belong to either China or India then you should also be prepared for some dislocations in the US.

The most obvious one to me starts with the dollar. I have written several times that I think there is visibility for the dollar to lose some of its world reserve currency status. The next step might be that the US dollar share that role with the Euro or perhaps some yet to be created pan-Asian currency.

For as much debt as the US has, and is likely to continue to have, currency competition would likely result in much higher interest rates like we had in the late 1980's. This would not be an economic death blow by any means, but would create a couple of systemic changes.

Another point to consider is the one that Jeremy Siegel has been making recently. Essentially he believes that American baby boomers will begin to sell stocks but that an investor class that is emerging in foreign countries will be buyers for our equities. He is very encouraged by this prospect. If the first half of his theory is right it is not clear to me why the second half would be. As the world economy continues to globalize it will create more stock markets that will attract investment capital (think all of those eastern European countries with tiny hard to access markets).

I think a likely result is just that the US won't be the magnet that it is today. We have great companies that will continue to attract investment from all over but the playing field will even out some. This is not so much a scary or bad thing but one possible outcome of an economic evolution.

I have no idea if what I have written holds any water or not but I urge everyone to learn as much as they can about foreign markets and to continue trying to learn as time goes on.