A perfect vertical view, as many of our Big Apple high-rise buildings offer, can be enjoyed from my office window. Down there, gracefully stretching over two Fifth Avenue city blocks is the New York Public Library. The more interested visitor to this monumental site will know about Room 228e, aka the "Allen Room," named after journalist and writer Frederick Lewis Allen. With his 1931 book Only Yesterday, Allen made a name for himself (quite evidently), having offered a timely account of US history in the 1920s. It is remarkable to learn about the nation's collective state of mind over this time period, when Americans had every intention to move off the world's center stage, disillusioned with the actual cost and misdirected effort related to America's participation in World War I.
Observing the geopolitical landscape today, there is no shortage of conflicts involving the US, ranging from actual cold and hot wars, instabilities in the Middle East, current aggressions involving Russia, and finally to trade and proxy wars, the most prominent example being the lingering currency war with China and other Emerging Market nations. All may be reason enough to, once again, fuel a public opinion which, as in the 1920s, may become averse to absorbing the ongoing cost and effort of "policing the world." This is especially relevant as unfavorable socioeconomic conditions, as a result of the global financial crisis, have not been fully shrugged off, and monies spent may find better purpose at home.
Should the US once again decide to "turn within," it would likely not be as straightforward as before. Today's economic system is dependent on global trade and capital flows, outsourcing needs, and the exploitation of inexpensive labor and resources. With this in mind, a collaborative approach between developing and emerging economies, if not clear interdependencies, will continue to prevail. Yet, the picture may have changed already. A now more domesticated and energy-independent US may look closer to home in pursuit of its economic needs. Already today, Mexico has undercut China's cost of labor, and may very well take its place as an increasingly prominent production hub and trading partner to the US. Brazil, on the other hand, has emerged as a powerhouse of resources (arable land, commodities, water), but could clearly advance its economy further with an adoption of more refined democratic principles, such as those offered in the US.
Whereas many investors still focus on Asian economies, especially on China as a likely basis to capture superior portfolio returns, more fruitful opportunities may be found right across our borders. An investment allocation built on our thesis may even include our northern neighbor Canada, in a revival of the 1994 established free-trade NAFTA framework. The potential shift from an East-West-dominated socioeconomic system, as found in today's horizontal world, to a more North-South-bound framework, as our version of the vertical world, may not be the only direction, but may be important to consider when assessing the global macro picture in search of attractive investment opportunities. It was only yesterday when global imbalances led to a reset of political and economic relationships.
With a global economy still marked by deflation and subpar economic outcomes, the current world order, once again, may be changing. Diversify and invest accordingly.
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