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Books : When Markets Collide: Investment Strategies for the Age of Global Economic Change

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Rating: 5 out of 5 stars - Emerging economies to make up US growth slack
1. Emerging markets are a key to understanding the global economic and financial markets. Sovereign wealth funds will provide a new pool of money. Directives have helped open emerging markets and allow monetary investment not before possible.
2. Emerging economies will have a growing influence on the global economy's growth rate.
3. For several years emerging Asian economies have account for more global GDP growth than America has. China and India consumer spending is increasing and contribute to global GDP.
4. Purchase power parity is a unit of measure that eschews the market exchange rate for a conversion based on what is need to buy the same amount of goods and services in each country. When measured using purchasing power parity, China and India contribute more to global growth in 2007 than did the US, UK, and Japan. China and India are moving into a new territory where they are able to internal consume and invest.
5. China will increasingly find that it's growth will be driving by internal demand rather than external markets. Policy will shift in favor of the consumer and help alleviate protectionist pressures coming from outside, especially from the US which some have label China as a currency manipulator.
6. Developing countries will increasingly step up as significant and sustainable sources of global growth
7. Global economic growth will gradually reduce the world's sensitivity to variations in US growth performance
8. Emerging economies will result in a greater emphasis on domestic components of demand. The global economy will be sustainable because a number of emerging economies are coming online resistant to US down turns.
9. Emerging economies have recycled their trade economies surplus back into US treasury instruments, mortgages, and corporate bonds. Exchange rates have remained stable. The big players are the Middle East oil producers and Asian producers. However, the imbalances are clearly unsustainable.
10. As emerging economies gradually shift their primary focus from the producer to the consumer, the rate of growth from imports in these countries will increase over that of the exports. Over the next decade many emerging economies will shift from being export machines to being consumers.
11. Emerging economies will absorb surplus labor from traditional sectors and traditional sectors will shift the focus away from incremental job creation to human capital accumulation and knowledge-based activities.
12. Emerging market export growth grew from 10 percent at the beginning of the decade to 17 percent by 2006.
13. The US in particular will be able to gradually and partially replace its reliance on the overstretched consumers with a new reliance on meeting the growing demand impulses coming from the rest of the world.
14. Global productivity gains put intense competitive pressures on manufacturers and service providers to reduce costs. Dis-inflationary impact is slowly dissipating and key emerging economies are now exhibiting a gradual increase in wages and partial exhaustion of high-productivity, low-cost labor.
15. A billion workers moving into the market place reduce world wages, inflation, inflation expectations, and interest rates.
16. Surging economies have been an important factor behind the surge in commodity prices.
17. Chinese consumption of oil was 7.1 mbd in 2006 and by 2030, oil demand 16.5 mbd and India demand will reach 6.5 mbd.
18. Emerging economies that have high growth rates are even larger users of natural resources. The impact of this extra demand will not be offset by the reduced consumption in industrial countries because emerging economies are less efficient user of natural resources.
19. Physical demand for commodities will be supplemented by financial demand.
20. Accumulative earnings from Middle East oil export for 2004 through 2008 will approach $2 trillion, 45 percent is saved, adding to large holdings of international reserves.
21. Emerging economies investment in US government papers puts downward pressure on US interest rates.
22. As reserve accumulation persists contributes to greater inflationary pressure and appreciation in exchange rates. Reserve accumulation makes exports more expensive. Authorities look for ways to sterilize large capital inflows through purchases of US government paper or outsourcing the management to Bank of central banks (BIS). Saves are pulled out and liquidity of the surplus is mopped up. The interest payments on the debt issues to sterilize the inflows far exceed that earned on the reserve (negative carry).
23. Countries can buy back their debt and extinguish debt in foreign currency that trades at higher yields than what was earned on the investment of the reserves.
24. Some countries are starting to setup Sovereign wealth funds (SWF). SWF of oil producers have been exploring opportunities in the Middle East and North Africa, India, Pakistan, and the Far East. Chinese entities have been purchasing investments in Africa and Latin America. SWFs operating cross borders and long term gives them value orientation.
25. Creditor countries must recognize that the shift in external payments has a permanency to it. Emerging countries must encourage domestic components of demand along with the external components.
26. Bond markets and US government bonds are facing the prospect of lower allocation of sovereign investments. The declining share will reflect a natural diversification in the asset allocation of the SWFs. While equity markets, real estate will likely benefit from larger allocations of bonds.
27. Derivative products have enabled a far greater degree of linkage across markets, at any time. BIS estimates, end of Jun 2007, the derivatives market to be $516 trillion. Credit Default swaps have shown the fastest growth. The visible revolution of derivatives has been the mortgage products.


Rating: 4 out of 5 stars - Helps to get an all-round view on today's economy
The book is trying to keep the language plain but probably is not for those who haven't a clue about economy. It is a very interesting read so as to see the flaws and cons of today's economic world and to read between the lines from now on.


Rating: 3 out of 5 stars - important ... but I wish it were better written
There are few people in the world whose opinions and insights on financial issues matter more than El-Erian. So this is an extremely important book, even for the average investor. However, the book's audience seems to be mainly managers of large portfolios and financial policy makers, and many of the issues discussed will seem arcane to the average investor. Making it that much more difficult for the average reader, I thought the writing style left much to be desired. For instance, El-Erian repeatedly outlines the issues the book will cover, but then, when he actually gets to the meat of his arguments, I felt he left many important points unclear or even just alluded to. I hope future editions will try to improve the books clarity and organization.

Finally, I wish El-Erian would have spent a bit more time on explaining how the average investor implements and monitors the investing strategies he recommends. Nevertheless, keeping in mind that this is not a handbook for us normal people, the average investor can gain a truly authoratative big-picture account of how the global financial landscape is evolving and how this will impact their investments in the coming years.


Rating: 4 out of 5 stars - when market collide
excellent read and very pertinent to the investor/trader who wishes to stay on top of the future investment climate.


Rating: 5 out of 5 stars - Unlocking the Credit Crisis
The United States is now a debtor nation to the tune of about $10 trillion (why did I have to find out this amount from BBC America & THE THREE TRILLION DOLLAR WAR instead of from CNBC?). Debtor nations issue & market their debt at attractive rates to nations having a large surplus of money beyond what they require for investing in U.S. Treasuries. Unfortunately, due to an absence of a compliance agency overseeing the integrity of U.S. debt, bad debt got mixed in with good debt. (See my review of BAD MONEY for background on how we got to this point.) Thus, the global credit lock-up. Now it looks as if a stop-gap recall & some form of warranty for guaranteeing our bad debt has to be implemented UNTIL pristine regulations concerning debt quality & compliance laws are promulgated.

WHEN MARKETS COLLIDE presents a structure for repairing the global crisis. Sadly, it took a "Black Swan" event to awaken us to this necessity. El-Erian provides guidance for individual investors/institutions, national policy, & multilateral relationships.

A new way of thinking: Consider the global economy as a 3-D chessboard with each country represented by a board & everything inter-connected by derivatives for easing the passage from one board to another of each country's financial instruments & products. In other words, the variety of investment vehicles are here to stay. See allianzinvestors.com for PGP, for example.

From an individual investor's point of view, due diligence must rely less on out-sourced risk management advice & more on our own efforts. For example, Citigroup at $55 per share began losing value prior to the end of 2006, but it took Deutsche Bank until November 14, 2008, to guide us from a Buy to a Hold. Readers need to incorporate risk management with overlays & the Lemon Theory into traditional asset allocation. Promising alternative investment vehicles are the "130/30" funds & indexed products with actively managed overlays. See cefa.com.

I would ignore any negative comments on writing style. El-Erian mastered his English writing style while at Cambridge & Oxford.






 
   

 

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