Thursday, March 16, 2017

We Cannot Escape Being Global


I think about this blog every day, culminating in my weekly “Monday Morning Musings.”  Very occasionally events occur during the week that I would like to share as soon as possible. 

One of the approaches I use in this Blog is to relate current information to historical context.  This post is an example.  

Our Needs are Global

Almost all of our own economic activities, much of the food we eat and many of our social attitudes are influenced beyond our national borders. The whole concept of ‘national states’ presumed that the bulk of the population had a large number of common interests which were sufficiently different than our neighboring national states that created a specific legal identity. We were different than our neighbors. We choose to have "us" govern our national state which in the past represented our world.

“One World”

This belief is no longer true and matter of fact has not been true regardless of our laws and taxes for a number of generations. When Franklin Delano Roosevelt defeated Wendell Willkie for US President in 1940, he did something that no other  President has ever done before or since. (My late Mother was a political aide to Mr. Willkie.)

FDR sent Willkie around the World to meet with foreign leaders including some that were not presently within their governments as a way to build the critical alliances needed to defeat the Axis. As an outgrowth of this wartime trip came Wendell Willkie's book, "One World" which to a large degree predicted the reality of today’s increasingly close dependency of one national state with others. Almost every major international trend since at least WWII has reinforced these dependencies.

President Xi’s Visit

This week, due to the snow storms in the Northeast US, Ruth's and my return from Florida meetings has been extended due to extensive flight cancellations. In a classic example as to the impact of the broader world on our personal lives, we are staying at a Palm Beach hotel within about a mile of Mar-A-Lago, the unofficial winter White House of President Trump. Traffic and other security measures are strict and will be tightened even further for the April 6 & 7 visit of the leader of China to the US President.

Perhaps by the following Monday the pundits will be declaring who won, lost, or achieved a draw.  My guess is that over time, the pundits’ judgments will be proven at least to be incomplete and probably wrong.  China and the US share many of the same problems: ISIS, aging population, bloated bureaucracies and the re-definition our global roles. At best the two leaders will identify their similarities and differences.  The meeting may be as  important as the meeting at Yalta.

Recognize our Co-Dependence with China

The meeting of the leaders of the two largest economies in the world reinforces to me our co-dependence. China is the world's largest consumer of many traded commodities. These commodities are traded globally with daily fluctuating prices. These prices often represent inflationary pressures that eventually impact producer and consumer price indices that the central banks use in setting their monetary policies. I am particularly conscious of the Chinese impact on technology as it assiduously protects the largest consumer marketplace in the world and is still a major exporter of technological product. The drive of the present government to increase the portion of its internal economy devoted to services has a direct impact on the US as the largest exporter of services.

Investing successfully in China is difficult whether through joint-ventures or publicly traded shares. We are exposed to both in investing international funds and multi-national companies. Luckily we have other exposures, as investing in China has not today produced much in the way of cash dividends and who knows in the way of earnings. Nevertheless, I believe that all investors and many people will be affected by what happens in China. Thus, we need to recognize our co-dependence in thinking about both our portfolios and our lives. 
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A. Michael Lipper, C.F.A.,
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