Our Brave New World by GaveKal Research (2005)

Indeed, "this time it is different" are the most expensive words pronounced. This excellent book by Louis V. Gave and associates offers an overview of the economic landscape, and unfortunately offers some conclusions, which clearly became incorrect based on the current happenings in the US finance and housing markets. The author argues, that we are well on our way into the The Third Wave as described by Alvin Toffler. Free trade, technological progress, industrial overcapacity and easy movement of goods, led to the creation of "platform" companies, which keep the high value added parts of their processes in-house, and outsource all the rest (including most production). These companies need much less working capital (a good example of this would be Ikea, entirely being financed by its profits, taking in no external capital). The outsourcing eliminates industrial employment (and trade unions) in the developed countries (where most of these companies like to be located, as they also rely on the rule of law for their functioning), and exports volatility to producer countries. The old forms of accounting and economics also describe this process incorrectly, hence the big discussions on the US trade deficit (this is not to say, that the US dollar exchange rate will not worsen ...). Most profit of any production stays with the platform companies, and the profit generated abroad also has a strong incentive to be repatriated into the stable developing economies (as investment, real estate purchases, luxury consumption, and the like).
There is also the giant sloshing pool of capital invested with the various hedge funds, trying to find inefficiencies (and quickly eliminating any and all), working with leveraged "return to mean", "momentum based" and "carry trade" strategies. Lots of capital chasing less opportunities, so capital is becoming cheaper, but mostly for the customer in the developed countries (as platform companies need less capital, and it is likely not smart to lend to the volatile industrial producers and to their workers, who can get laid off very quickly ...) moving us towards a deflationary environment.
So where does this lead us? The conclusion on the decreased volatility and sustainable real-estate prices were incorrect conclusions, based on the latest dips (or depression ...) in the US Housing prices and great increase in the market volatility. Maybe this was just another asset bubble (sustained by the extra low US interest rate) or the world economies need to be observed as a whole. Also the deflationary pressure seem to be lacking just by looking at the US budget deficit. But there are other valuable pointers: invest in customer related companies (retail, finance, although finance stocks are not doing that great either), buy scarcity assets (like high end real-estate, art, and the like), invest in emerging markets (with an eye on the economy cycles) and invest in platform companies everywhere. There is also an interesting table evaluating various economies, on how much Ricardian growth (based on economic freedom) and Schumpeterian growth (based on economic creativity) is expected to happen (the UK and Eastern Europe do quite well, the US and Australia lining up behind). Recommended.

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