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Posted On:Monday, August, 09, 2010INDIA IS BOOMING Author's: Monty Guild, Tony Danaher India’s GDP is growing rapidly and is expected to rival China’s GDP growth for the next few years. Prime Minister Manmohan Singh’s government has done an exceptional job. His administration has been able to gradually decrease the bureaucratic overreach into parts of the economy and he has been able to deliver economic assistance to the people in rural areas in a more efficient manner.
Historically, government spending intended for the rural areas has in large part been misappropriated by corrupt politicians and by civil servants who accept pay but do not show up for work. In recent months technology has increased the communication between the government and villagers in the countryside. Rural populations can now report misbehavior by government employees in their regions. The technological developments have led to increased attendance at work by government employees including teachers, nurses, etc. Villagers are beginning to believe that their concerns are being heard. Handheld phones and village computer terminals have given farmers an unprecedented opportunity to sell their crops directly and avoid middlemen.
Villagers’ incomes and consumption are on the rise, and the Indian economy is expanding more rapidly due to the fact that rural as well as urban citizens are enjoying the growth. We expect Indian GDP growth in the 8%-10% range for the next two or three years, which is well above the historical pattern; a very impressive outlook.
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EMERGING MARKET GDP GROWTH: THE PAST TWO DECADES, AND OUR PROJECTIONS FOR THE NEXT DECADE
According to the IMF, World Bank, and the United Nations’ historical data, GDP growth rates have varied widely for emerging markets over the last fifty years. We will focus on the past twenty years from 1990 to the present so that we may draw conclusions to help us project future growth in the developing world. Once we are able to make an educated guess of the GDP growth, we will be able to compare it to the more thoroughly analyzed and widely predicted growth expected for the developed world.
In the 1990’s, we saw a secular decline in demand for oil and commodity prices that caused oil-producing developing nations to slow their growth. For example, Russia fell from 12% of total emerging market GDP in 1990 to only 3.3% in 2000 (source: Jonathan Anderson chief emerging market economist at UBS - see chart below). By the year 2000, the best GDP growth was found in China, Brazil, Mexico, India, Korea, Taiwan, Argentina, Hong Kong and Indonesia. China, after two difficult decades, had once again returned to the top of the rankings.
Between the year 2000 and the present, emerging markets were dominated by the fast growth of China, which greatly increased its share of emerging market GDP from 15% to 24%. India, Indonesia, Brazil, Turkey, Russia, and Korea grew nicely, although at a slower rate.
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U.S. POLITICS AND BANK REFORM LEGISLATION
It was widely reported this past weekend; Goldman Sachs, the most profitable investment bank is being sued for fraud by the U.S. Securities and Exchange Commission. The U.K. and other countries are joining the fray to try and re-coup some of their losses on derivatives.
We do not know if the facts, which will be presented in court months or years from now will exonerate Goldman Sachs or find them guilty, but we do know that the SEC’s suit will have two immediate effects.
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WE HAVE BEEN ASKED OVER AND OVER ABOUT THE RISKS IN CHINA…AND OUR ANSWER IS THE SAME: WE EXPECT CHINA TO REMAIN STRONG!
The press always carries questions about China’s perceived risk, thus they are on peoples’ minds. Though we have addressed many of these questions and concerns in previous letters, we are happy to explain our fundamental optimism about China.
We hear three main questions:Click here to read full article... |
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INTEREST RATE INCREASES ARE BEGINNING IN STRONG GROWTH COUNTRIES
India raised interest rates in a surprise move on Friday, March 19, 2010. This followed recent interest rate increases by Australia and Malaysia, all three countries are experiencing strong economic growth and rising fears of inflation.
There are of course consequences of rate increases, especially as they spread to more countries, some time in the future rising interest rates will lead to the moderation of the strong economic growth that Asia is currently experiencing.
In our opinion, this will not happen until Asia has dragged the world out of much of its current malaise.Click here to read full article... |
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Like many people and governments, China does not like to be told what to do. If the U.S. Government wants to succeed in getting the China to up-value the Yuan, it should refrain from pressuring the Chinese Government, and certainly not resort to threats.
If you read China’s pronouncements, it is clear that the Government is sending out repeated signals that it is willing to raise the value of its currency, yet will delay doing so if the U.S. or any other major nation threatens or pressures it to take action. China, like all nations wants to keep its dignity intact, and if European and U.S. politicians have any common sense they will not aggravate China. If the outside pressure ends, the Yuan will rise by 7 to 10 percent in 2010.
As soon as China can raise the value of the Yuan without losing face and looking as if they are taking advice from Western politicians, we believe that they will do it. We hold Chinese Yuan expecting them to rise in value, and if Western politicians can keep their mouths shut, we will buy more.
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THE GLOBAL BANKING CRISIS CONTINUES
STAGE 2: EUROPEAN SOVEREIGN DEBT UNDER ATTACK
Taken together, the Icelandic and Greek financial crises can be seen as the second stage of the larger global banking crisis. The first stage of the global banking crisis, which began in late 2007, was centered in the European and U.S. mortgage and mortgage derivative market. The second stage began with Iceland’s monetary and fiscal crisis in 2009 and continues with the current Greek crisis, and is centered in European sovereign debt.
The global crisis banking crisis is a multi-phase global economic crisis caused by years of over-borrowing followed by the current deleveraging. This deleveraging was, of course, set in place by all those who gambled with their own and other people’s money. As time passes, more and more of these gamblers will be unmasked and there will be more countries, companies, industries, and individuals who will lose face and capital in coming months and years. We anticipate that these problems will continue as various sectors delever over the next six to eight years.
Many believe that the other European nations will act to bail out Greece, and then perhaps Spain or other over-levered nations in Europe who experience debt problems. We disagree. In our opinion, the International Monetary Fund (IMF) is the lender who will bail out the damaged European nations. In our opinion, it is too hard for European nations to go to their taxpayers and tell them that they are directly or indirectly guaranteeing the debt of a foreign country.
As is their custom, the IMF will extract a high price in terms of the deep cuts in expenditures and increases in taxes demanded of the borrower. In our opinion, the period of easy borrowing is over for the Greeks, and probably for several other European nations whose debt will come under attack in coming months and years.
The current chaos is creating substantial demand for gold and other precious metals. Holders of Euros are seeking to acquire more gold, and holders of other currencies such as the Japanese Yen and U.S. dollar are undoubtedly thinking of following suit. Buying gold to hedge against the probability that the Yen and U.S. Dollar will be under attack in the not too distant future is not unwise.
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IS CONGRESS REALLY CAPABLE OF MANAGING THE AFFAIRS AND LEGISLATION OF OUR FAST-PACED, HIGH-TECH, COMMUNICATION BASED SOCIETY?
The U.S. Congress is a slow moving, deliberative body. It is beholden to special interests groups, and is one of the root causes of many of the great defects in the current U.S. financial crisis.
Their track record is appalling. As our society progresses and the pace of life increases, Congress continues to fall further behind. By the time they get around to examining a problem, it has already run its course, and the changes they make after the fact often exacerbate the problems they set out to solve. Often, they are unable to make the changes necessary because they are owned by special interests and most of their constituents are focused on one or two personal issues-not on the best interest of the country as a whole.
Most congressional members are in the business of manipulating facts to suit their re-election. Moral hazard is big in finance, but huge in Congress. Now, more than ever, Congress has proven itself to be part of the problem, not part of the solution.
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