As you know, I'm an avid researcher when it comes to my own annual forecast, which you saw a couple of weeks ago. One of my favorite resources is STRATFOR, a global intelligence company founded by my friend George Friedman. Their focus is geopolitics, which means they cover political, economic and military developments all around the world. They have an annual forecast of their own, and George has been gracious enough to allow me to share it with you. As long-time OTB readers may know, STRATFOR's annual forecast can be very provocative.
Here are some examples of this year's themes:
- The U.S. is unlikely to withdraw from Iraq as promised in 2011.
- The U.S. economy will grow.
- In Europe, more countries will need bailouts. (A couple of names might surprise you.)
- Russian-German relations will strengthen.
- Japan will rot, but it will rot in seclusion.
Some of you may have seen STRATFOR's forecast if you took advantage of the deal I sent a couple weeks ago. For those that haven't, George's book, The Next Decade, comes out next week, so there's still time to <<buy it here for $16>>, and get a free three-month subscription to STRATFOR. For those of you already enjoying a subscription and wondering about your book: they start shipping next Tuesday. So finish up whatever you're reading now and get ready for a great read.
One of my great and increasing pleasures is the Wall Street Journal Weekend Edition. I have grown to really look forward to reading Peggy Noonan, maybe my generation's most gifted essayist. That would be enough reason to pay the subscription price. To read her wordsmithery (is that a word?) is a sublime joy to this humble journeyman writer.
And the Review section in the WSJ has become a revelation over the last few years. The essays are getting better and better. And the book reviews make me weep, because there are so many great books and I will just not be able to get to them all. But at least I can read the reviews and remind myself of what I should have learned. I spend a few hours every weekend trying to get through the treasure in those pages – on the treadmill, at the coffee shop, or at brunch. I commend it to you. And getting the Journal online here on the ocean is cool. (www.wsj.com)
Today's Outside the Box is two essays, by Matt Ridley and Bill Gates, from the Review section of the WSJ. Ridley has written a book called The Rational Optimist, which I have downloaded into my iPad and will read on the Forbes cruise this week. Bill Gates writes a longer essay to say why he thinks Ridley has some things wrong, while overall giving the book high marks. This is one of the more thought-provoking exchanges I have read in a while.
I am on the Forbes cruise and we are at sea on the way to Cabo. Heard Steve talk this morning. I always feel better after listening to him speak. I just like the optimism. For whatever reason, my phone is working, as is the internet. You gotta love it. But I will get a little play-time in.
And I'm already working on this week's e-letter. This one may be somewhat controversial, but it will be fun. Have a great week. And now enjoy this week's Outside the Box.
Your ready to catch up on some reading analyst,
Really hear what I'm about to tell you. The center of gravity of the world economic system has moved from New York to Washington. Let me illustrate what I mean so you understand just how profound this is. Banks used to compete against banks. US carmakers competed against each other and the Japanese. And the New York financial markets told you how they're doing against each other.
Understand what's happening now. The US Treasury has become the only "customer" that matters. The Treasury is now the customerâ€”and investor -- with the $750+ billion checkbook. The Treasury is now the "investment banker" of last resort, arranging and financing mergers. Banks are competing against insurance companies for their slice of the bailout pie. Chrysler and GM (and the Michigan Congressional delegation) are looking to Washington, not Goldman or Merrill, to facilitate a merger. This is a seismic shift.
As investors, we have to start looking at the world in a completely different way, and getting our information from different sources. A company's 10-K is almost irrelevant if all it includes is financial statements and market outlooks. What matters now are the "exogenous" factors: government guarantees of the commercial paper market, currency interventions, direct capital infusions, etc. And how does a company describe in its Management Outlook that "Yes, our company is too big to fail."
In this environment, it's more important than ever to read unbiased geopolitical intelligence and analysis of government moves, and that's what my friend George Friedman at Stratfor offers. I'm enclosing below his team's Fourth Quarter Forecast. George's team analyzes US government policy as well as the moves that are being taken by central banks and governments around the world as the private sector gets taken public all across the globe. You will not be able to understand market moves if you don't understand who the real movers are now.
I'm sending you Stratfor's Fourth Quarter Forecast, and I strongly encourage you to join Stratfor and get access to all their daily intelligence. George has arranged a special offer on a Stratfor Membership for my readers: click here to take advantage of this opportunity. In this new era, I use Stratfor daily to give me a wide-lens, global view of politics and economics. I know you'll gain as much from reading Stratfor as I do.
What countries are truly the have and have nots of the world? Good friend and business partner Niels Jensen of Absolute Return Partners suggests we look at the old equation in a new way? Food and energy resources may be at least part of the definition in the future. In this week's Outside the Box we continue a them I mentioned a few weeks ago: agricultural needs are going to be a new and important force in the world and when coupled with energy may shift the balance of power in the world in strange a different ways.
When, as Niels points out, Afghanistan poppy farmers are shifting to wheat farming, the world is truly a different place. I think you will find the research he has done to be truly worth a few minutes of your thinking time.
And as a preface, I was reminded a little while ago that a Financial Times headline story last Friday mentioned that China is buying African farmland and building massive amounts of railroads and infrastructure to get grains to the market. I have long been bullish on African farmland. This week's OTB will tell you why.
This week in Outside the Box we look at two brief essays which give us different perspective on the Continuing Crisis. The first is by Mohamed El-Erian, the co-chief executive and co-chief investment officer of Pimco. His book, 'When Markets Collide: Investment Strategies for the Age of Global Economic Change', will be published by McGraw Hill in June, and it will be on my summer reading list. El-Erian argues in the thought-provoking piece from the Financial Times that the crisis is still far from finished, and that those who think we are returning to more placid times may be surprised when volatility suddenly becomes even more pervasive.
The second is by good friend and Maine fishing buddy David Kotok, the chief investment officer of Cumberland Asset Managers (www.cumber.com). He was recently in Africa where he met with the head of the central bank of a small country with headline inflation of 10%. The problem is that "core inflation" is 5% and food inflation is 15%, yet accounts for 50% of the GDP. He asked a group of financial thinkers (including your humble analyst) to ponder what that central banker should do. Do you set high rates and target overall inflation or set lower rates and not worry about food inflation.
Why should we worry about inflation in a small African country? Because the principles are the same, and it makes a real difference where the Fed comes down at the end of the day on this very question.
This week's reading should be very helpful and thought-provoking. I hope you enjoy this read as much as I did.