I have followed Patrick Chovanec on Twitter for several years and really enjoy his insights. His latest Quarterly Report for Silvercrest Asset Management is no exception.
For the past several decades, the U.S. has served as the world’s consumer of last resort. That allowed developing countries – namely Japan, and later China – to turbo-charge growth by producing more than they consumed, confident in the knowledge that Americans would provide the demand by consuming more than they produced. (A parallel pattern emerged within the EU, with Germany playing net producer and the rest of Europe net consumer). The surplus countries kept the game going by taking their export proceeds and lending them back to their customers so the deficit countries could keep buying. This is the global growth model we all became comfortable with……
Listen to most market commentators: while they may say that the financial crisis showed us the error of our ways, their every word belies a tacit wish to return to the world we knew before 2008. “When,” they ask, “will the U.S. consumer start spending again? When will Chinese output get back on track?” Europe, they dare to hope, will turn out okay as long as more countries learn to imitate Germany. Maybe a cheaper Yen will give a renewed boost to Japan’s exports.
These hopes are misplaced. We’re not going back to the past. The old growth model is broken. Here’s what will replace it…..
Read Patrick’s outlook at SILVERCREST ASSET MANAGEMENT GROUP LLC 1Q 2014: Desperately Seeking Demand
Hat tip to Leith van Onselen at Macrobusiness.com.au