I recently had a chance to speak at a conference where Dr. Ian Bremmer spoke after me. I was very impressed with his thought process and asked him to give me an outline of his speech to share with you for this week's Outside the Box. It's a shorter version of his powerhouse book, Every Nation for Itself: Winners and Losers in a G-Zero World. I highly recommend it.
And what, you're asking, is a "G-Zero world"? In a word, it's a leaderless world. A world in which, as Bremmer says, "Not so long ago, America, Western Europe and Japan were the world's powerhouses. Today, they're struggling to recover their dynamism…. But nor are rising powers like China, India, Brazil, Turkey, the Gulf Arabs and others ready to take up the slack…. If not the West, the rest, or the institutions where they come together, who will lead? The answer is, no one."
And that means the world's big problems won't get addressed as effectively as they should, as long as the leadership vacuum persists. Talk about Muddling Through!
This book by Bremmer is going to make a difference, and I'm not the only one who thinks so –
"Ian Bremmer combines shrewd analysis with colorful storytelling to reveal the risks and opportunities in a world without leadership. This is a fascinating and important book." –FAREED ZAKARIA
"Every Nation for Itself is a provocative and important book about what comes next. Ian Bremmer has again turned conventional wisdom on its head." –NOURIEL ROUBINI
Tonight I am in Chicago, where I spoke at the CFA conference this morning. It went well. I will try to get a link for you later. It hasn't been all work, either. David Rosenberg, Barry Ritholtz, and I all had dinner gigs, but we met up at the bar and just hung out for about three hours. Got to love O'Doul's NA beer. Not quite the same as a good chardonnay but healthier for me.
I will hit the send button as I have to get up for a breakfast meeting with Sam Zell. We have never met and I am looking forward to it. He is quite the legend. I will give you an update on the conference next weekend. The reviews are coming in quite strong. It was interesting to see the European elections after the analysis we were given. There is so much that seems up in the air. You can almost feel the changes coming. I feel like the kid in the back of the car on a long road trip: "Are we there yet?"
Your holding out for a world that works analyst,
This week we look at a report called “Working Out of Debt,” about debt and deleveraging, from the McKinsey Global Institute. This is a well-done summary of their longer paper, which has been updated, called “Debt and deleveraging: Uneven progress on the path to growth.” I discussed the original paper both in my regular letter and in Endgame. It is one of the best, most definitive pieces on the topic I have read. For those trying to understand how the deleveraging process will affect their particular world, I think it is a must-read. I have been spending more and more time thinking about the whole process of deleveraging, and am coming to think deleveraging is the critical and fundamental factor shaping the economic environment and impacting every decision countries and businesses are faced with. This paper was done by Karen Croxson, Susan Lund, and Charles Roxburgh; and they are to be especially commended for their insight and work.
This summary and the full report look at the relevant lessons from history about how governments can support economic recovery amid deleveraging, and at the signposts business leaders can look for to see where economies are in that process.
Overall, they tell us, the deleveraging process has only just begun: “During the past two and a half years, the ratio of debt to GDP, driven by rising government debt, has actually grown in the aggregate in the world’s ten largest developed economies. Private-sector debt has fallen, however, which is in line with historical experience: overextended households and corporations typically lead the deleveraging process; governments begin to reduce their debts later, once they have supported the economy into recovery.”
You can sign up at their website and see the full report at https://www.mckinseyquarterly.com/Working_out_of_debt_2914. I would strongly recommend you do so, not only for this report but because their website is chock full of well-done articles on a wide variety of topics, and they update it frequently with more material. It is all top-notch. It is worth visiting just to see what they have done in areas that may be of more specific interest to you, or because like me you are an information junkie and want to keep up on a wider world than just macro-economics.
Have a great week. Mine will be busy but interesting, which is always good. And this Friday I start a series on the choices that we face in the US, so there will be lots to ponder amidst the noise.
Your wondering how the Giants got into the Super Bowl analyst,
As my good friend Gary Shilling says, in leading off his piece on 2012 investment themes, which is this week's OTB, "This year is just the first step in the long-run journey that will continue to be dominated by The Age of Deleveraging" – which also just happens to be the title of Gary's latest book. Whether you call it that or call it the End Game, as I have, it shapes up as a profoundly different and challenging era for all of us. Gary identifies 9 causes of slow global growth in the years ahead:
1. U.S. consumers will shift from a 25-year borrowing-and-spending binge to a saving spree. This will spread abroad as American consumers curtail the imports of the goods and services many foreign nations depend on for economic growth.
2. Financial deleveraging will reverse the trend that financed much global growth in recent years.
3. Increased government regulation and involvement in major economies will stifle innovation and reduce efficiency.
4. Low commodity prices will limit spending by commodity-producing lands.
5. Developed countries are moving toward fiscal restraint.
6. Rising protectionism will slow–even eliminate–global growth.
7. The housing market will be weak due to excess inventories and loss of investment appeal.
8. Deflation will curtail spending as buyers anticipate lower prices.
9. State and local governments will contract.
Gary has always been prescient in looking ahead – witness his call nearly a year ahead of the Great Housing Debacle that commenced in '07 – but you don't just want to know what's coming, you want to know what to do about it; and that's exactly what Gary is going to run down for you, sector by sector and asset by asset, in the following pages.
I note that this piece is just an excerpt from the January issue of Gary's INSIGHT newsletter. OTB readers can get the entire 48-page tour de force, and a full year's subscription, plus the Jan. 2013 issue as a bonus, for $275 via email, by calling them at 888-346-7444 or 973-467-0070. Be sure to mention Outside the Box to get the special rate and free issue.
Now let's check out Gary's investing themes for the coming year.
Your antsy about 2012 analyst,
I have been reading and talking with Simon Hunt for a long time. He is a very thoughtful Brit who spends a lot of time in China and thinks about copper and commodities and cycles. He has enough seasoning to have seen a few cycles himself. This piece summarizes rather well the view that he has expressed for some time. And while I am generally skeptical of relying too much on cycles for specifics (they work until they don't), I think Simon has some very powerful conclusions. From his summary:
"The world is in a balance sheet depression which will make a second and perhaps more dangerous credit crisis almost inevitable. That should break out next year or in 2013.
"The three global pillars of the world economy, the USA, Europe and China, each have their own problems, but their impact is global because of the feedback loops from the financial sector to the economy.
"The USA has a debt and deficit profile which is unsustainable; the Euro Zone has to decide whether it can forge a fully fiscal union or whether the costs are too great, in which event membership will be restructured; and China is trying to put its economy on a more sustainable growth path at a time of leadership change.
"Debt and demographics will be the determining forces to global growth. Markets will no longer countenance indecision and pushing debt problems under the table by lending more funds to indebted governments. Politicians want to postpone what they know is inevitable: debts must be repaid."
This is a very interesting Outside the Box and one I suggest you put some thought into, as to how its conclusions may affect you.
I write this from Dr. Mike Roizen's office in Cleveland, where I will be at the Wellness Clinic tomorrow to do a general physical and to find out specifically what is wrong with my right arm. Nothing life-threatening here, as I told my daughters last night. Just life-annoying.
I get back to Dallas in time to go shopping for Thanksgiving dinner and start the cooking. Some things just have to be done overnight. I love this week! 40-plus people coming to dinner. And I hope you have a great holiday as well. And if you are not in the US and don't celebrate Thanksgiving, then make up an excuse and get your family and friends together and have a great meal, emphasis on together. We should do things like this more often!
Your enjoying life more and more (even with the damn arm) analyst,
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.