Since June marks the 25th year of my life I
thought it would be interesting to see how much the world and its people have
changed since the day I was born. Taking a step back and observing what has
happened over the last 25 years allows us to see what trends have emerged and
what the next 25 years might hold for us.
The Sleeping Giant:
China Awakens
A phenomenal story of exponential scales, China which once
had an economy with an annual GDP of $310 Billion now boasts one of the world’s
most impressive growth stories. After the collapse of communism this populous
Asian country has gradually relaxed their policy and allowed the free market
mechanism to take hold.
China has now displaced Japan to become the world’s second
largest economy with GDP now sitting at $8 Trillion and growth never seemingly
slowing down. What makes this particular economy an important one is the fact
that it is a developing nation, much of which would otherwise be shifted aside
when it comes to worldwide policy agenda. China’s role has now been cemented as
the leader and representative of developing nations around the world, something
which most developed nation have sat up and taken notice.
China’s mammoth population of 1.5 Billion people has meant a
large amount of manufacturing processes which require human skill has been taken
up by China to the detriment to other developed nations such as Japan, Europe
and the United States.
Although there are many challenges that lie ahead for this
nation I expect that the next 25 years will see a shift in sentiment towards
China and its developing stages towards its eventual greater role as a main
player in the world economy and a balanced policy view.
Leading the Way to
Innovating Energy
Sasol has to be one of the darling’s on the JSE and will be
for many years. In June 1989, Sasol was quoted at R12.50 and today it’s well
over R600 a share representing 48 times its value 25 years later. This is only the capital gain and excludes
the dividends paid out over the same period.
This
is the kind of share any long term fundamentalist wants in their portfolio and
the last 25 years is proof that there are still shares out there that grow
gradually and over a number of years the returns to shareholders is mind
blowing. A great case study for students and prospective investors of how the
notion, slow and steady works in a stock exchange.
What I like most about this company is its innovation in the
field of fuel technology, taking energy sources which might have laid dormant
and creating petroleum. The world’s demand for cars keeps growing and with a
few decades of oil reserves left the world has begun its path to creating
sustainable energy.
Going forward there is plentiful opportunities coming forth
and Sasol is well positioned to take advantage of these; one of these
opportunities is in the United States where shale gas is being used to create
petroleum.
Once a Promising
Story Now a Regressive Dilemma
Those
old enough to remember will recall the time when Japan was set to overtake the
United States as the world’s largest economy by the year 2010. That was
predicted in 1980 and what seemed to be a promising story turned out to be a
long receding tale of a time that once was.
The Nikkei 225 reached its highest point in 1989 and it has
been all downhill from there. A strengthening currency against all other major currencies,
a propensity to save rather than spend and abnormally low inflation rate for
prolonged periods of time have led Japan’s economy to a state of inertia.
The Japanese reliance on technologies and commitment to
producing the highest grade quality goods at reasonable prices has meant that
much of the emphasis has been placed on mechanisation and massive investment
into skills required to produce further technologies. Japan in its own right is one of the world’s most
innovative nations yet this has led their society to become disconnected with
the real world.
Although Japan may be well ahead of its times it is the
first of a few developed economy’s who are beginning to face these
circumstances. Man’s expectation on technology may inevitably lead to the
downfall of its own economy.
The Printing Press
Never Stops
The 1980’s economic policy was largely dominated by two
people, Ronald Reagan and Margaret Thatcher. They both supported growth without
any increase in money supply, instead looking for the inefficiency which had
been created by previous administrations to correct themselves by means of
increasing productivity. Although much
of their terms in office were marred with controversial decision making and
hard line policy, they did lead their economy’s out of the mess they were in.
Fast forward 25 years after their tenure ended and what we
find is a very much different situation.
The above chart is that of a US Treasury Bond with a term of
10 years. As more money is created the
interest rate gets lower and lower. What we see here is 25 years of mass money
creation which has lead these interest rates hitting a 70 year low.
What can we deduce
from this chart? Thatcherism and Reagonomics are extinct and the world is one
large inefficiency. The problem comes in when these rates are left are
abnormally low rates the amount of debt
being borrowed increases at alarming rates and we all know that debt has to be
paid off some time or another.
I believe that the Financial Crisis in 2008 is only the tip
of the iceberg and I further believe that debt in developed world is going to
be very problematic for policymakers. If enough is not done to start eroding
the piles of debt the world sits on we could just be sitting on rubbish dump of
disaster.
If you would like to contact me you can through my email at cadetrader@gmail.com or if you wish to follow me on twitter and get the latest updates of news, interesting commentary and general trends in the market, my twitter handle is @CadeTradeR if you follow this link it’ll take you directly to my twitter timeline:https://twitter.com/CadeTradeR
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