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USA: The next rebirth? - Views on News from Equitymaster
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  • Jul 3, 2002

    USA: The next rebirth?

    Like Superman without his Krypton, the United States looks like a weakling. Humbled by a collapsed NASDAQ, massive accounting fraud, a weakened US dollar, and the costly and emotionally exhausting threat of the next 9/11 hanging over its citizens like a Damocles’ sword the US is down on its knees. That is the general perception.

    As investors flee the USA and head for greener pastures in Europe or Japan, and as the elite of the investment world change their strategic allocations to US equity markets to “reduce” or “underweight”, I am personally putting more of my money in the US stock market. Here is why:

    • Strong dollar/weak dollar: Much has been made of the 10% decline in the US currency and Mr. George Soros has said that a further 30% decline in the greenback over the next few years is not unlikely. By definition, if the US dollar weakens, something else has to strengthen. The 3 large currencies that can take up the slack of global trade and money flows (most of which is denominated in US$) are: the Euro, the Japanese Yen, and the British Pound. Oil is probably the single largest product traded globally and technology products (chips, PC parts, etc) are probably not far behind. I doubt there are many sheiks out there that would wish to see their oil revenues denominated in Euro, a currency run by a committee representing a region in existence for less than 3 years. I doubt these same sheiks would like to see their oil revenues in Japanese Yen, a currency that one half of the country wants to see weakened (to boost export profits and postpone reforms) and the other half wishes to see gaining ground (to stop capital flight and prevent a government default – a catastrophe that is potentially 50x the size of Argentina’s default). And, yes, many sheiks may have their lavish homes in England and have their suits tailored in Bond Street, but oil priced in British Pounds is pretty much the act of an irrational human who wishes to see one’s wealth decline – carrying on the secular trend that began in the 1940’s when Britain surrendered its leadership of the world.

    • Fight back: For all its faults (and the US has many) there is something very American about America. The will and the ability to fight back. It is in their blood – literally. The people who helped create the America we know today came by boat from Europe to seek a better way of life. They came with nothing (not even rules) and built a lot out of land that they stole from the Native Americans. A 9/11 is not going to take away 550 years of history out of the American blood. And the recent immigrants who have left China, India, Latin America are not going to head back to their own countries in a hurry – they will contribute to that fight for their own version of the “American dream”. My belief is that the collapse of NASDAQ, the frauds at Enron, Tyco, WorldCom, the conspiracies at CSFB, JP Morgan Chase, Merrill will make them more determined to clean the system of these “rats”. If 9/11 had happened in Japan, they would still be in room trying to see how to respond (ask any Indian company with a Japanese collaborator how their Japanese partners react to a crisis). If a 9/11 had happened in the Euro zone, they would still be arguing over which language the report should be written in and which country should be represented in the committee. If a 9/11 had happened in UK, they would have had long speeches in the Houses and then would have asked NATO what to do – and the US is the prime supporter of NATO. If, along with 9/11, any of these 3 currency blocs had been hit by a stock market scandal (by the way, their versions of NASDAQ has collapsed as much as the NASDAQ!) and their versions of Enron, Tyco, WorldCom, CSFB, JP Morgan Chase, and Merrill, you would have had the equivalent of a national suicide (in Japan) or a revolution (in Euro zone and Britain). Most certainly, life would not have “carried on” as it has for most Americans.

    • Points 1 and 2 above sort of lead me to this one, True government: The Americans seem to elect a leader and President who has a dream that he can communicate and change as and when required by feedback from his party. Most of the political leadership in Japan, UK, and the Euro zone is elected on hope and, if those leaders fail, the voters just vote for the next hope the next time around. When was the last time anyone ever quoted anything from a speech given by the leaders of the other countries? But his own people on the streets quote President Bush’s words frequently. The boss says what the electorate is thinking – those polls in America gauge how much the leadership is in tune with the everyday talk of Joe Bloke. And the Americans talk straight: we may not like what they say, but they say it the way they wish it and act accordingly. If they don’t like Arafat, they will say it. They want to punish the guys in Enron and WorldCom and Merrill, they say it and execute them quickly. The government reflects the desire of the ordinary citizen for speedy justice. Germany, France, and UK have had their share of scandals and accounting malpractice: Maxwell in UK, Kirch in Germany, and the ongoing investigations of the banks funding politicians in France, so no everyone there is a saint.

    None of the above is any sort of defense for all the corporate wrongdoing anywhere in the world. But, given the way different countries react to fraud and terrorism, my bet is on the US being a better place to be invested in.



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