Excellent article Jon!! Thanks for sharing that...
I found the following to be of particular interest:
Q: What's your favorite asset class at this point?
A: Emerging markets offer the best value. It is a volatile and niche asset class, but the conditions are in place for emerging markets to do very well. They are cheaper than they have ever been. They've got a very positive liquidity environment. Other major markets are much trickier. Europe looks cheap, but the economics are terrible and the rise in the euro, which could increase a lot further in the next few years, is going to be deadly for European profits.
But doesn't that suggest that the ECB and Japan will recognize that a weak dollar is not in their interests politically? And if their economies are so weak and ineffcient, can the Euro stay at such elevated levels for long?
Q: Some people have started comparing Europe to Japan.
A: I would accept a comparison between Germany and Japan more readily than I would accept a comparison between the U.S. and Japan because of policy mistakes in the case of Japan and policy mistakes and a lack of flexibility in Europe. The U.S. has used every weapon available: it has eased fiscal policy, it has cut interest rates and it has let the dollar go. Europe has done nothing. It can't do any of these things. The European Central Bank could cut interest rates, but they've got a hairshirt approach of how they view the world. It looks tremendously complacent from our point of view, and it's an enormous policy mistake.
The German financial system is in pretty bad shape. They have very inflexible labor markets. To the extent that in a deflationary environment you want to be as flexible and adaptable and nimble as possible, Germany is dragging around a lot of anchors. Germany is at risk of deflation much more than the U.S.
It's nice to know that others share my concern about the inability for Europe and Japan to properly restructure their economies.
The US has excesses with regard to its volatile markets, but they sort themselves out over time as capital flows in and out of our markets and currency. But the biggest problems with Europe are intrinsic to the structure of its welfare state. They have locked themselves into economic liabilities through their generous entitlement programs, which will be hard to manage without importing tremendous quantities of labor to replace their declining work force demographics. And that will create greater social unrest than in likely in America where Latinos will make up the bulk of an expanding American tax base.
If there's any reason why I'm a moderate conservative with regard to entitlement programs, it only takes looking at Europe...
But from a workers point of view (if you can get a job), Europe is head and shoulders a more preferable place than the US with regard to benefits.
Thanks again for the article..
Hawk |
