Here's my entry for elaborate metaphor of the week... I have a talent for swimming against the tide. I even – and please forgive the sudden change of locomotion – manage to ski uphill.
This week's column comes from London after a sojourn in the glorious Alpine venue of Mont Blanc and the town of Chamonix (well, Argentiere, just a little higher up the mountain). An old soccer injury to my knees means that I cannot do the twisting and turning required for downhill skiing, and so have to content myself with the gruesomely difficult business of Alpine skiing, or ski de fond, as the French would have it.
Have you ever tried out those Alpine ski cross-trainers in the gym? Well, Alpine skiing, much of which feels like an unnecessarily slippy walk up a series of hills, is the real thing. And it's much, much harder. I'm not sure it's necessarily good for the soul, but an hour of grinding effort does makes one aware of a couple of things. One is that you don't get anywhere in this life, unless by hard work. The second is that going against the grain makes you think things through. As an uphill skier, I came to wonder about the attitude of the downhillers, just sitting in their gondolas, getting off at the top of the mountain, and then sliding down. Is that really exercise?
As I was hoisting myself up a particularly gruelling slope, the thought came to mind that there's plenty of money going into the markets, but maybe there's not a lot of investing going on at the moment. There are plenty of institutional and large individual investors prepared to slide down the slope of low-interest complacency. But where's the value in the markets today?
We're at the very end of the crash-avoidance era. The Western banks have been bailed out, the UK economy, in particular among Western countries, has had a vast amount of cash simply pumped into it. Consumers have been so fearful and commodity prices have been relatively low (although oil, in particular is looking bullish), so that inflation hasn't been too much of a problem.
The US is still congratulating itself on still having a banking sector. Rates are low, just as they are in the UK. The anger towards the "interesting" accounting that went on at institutions such as Lehman Brothers is tempered by simple relief – relief that there's still an office to go, still a real estate market despite having vast numbers of dodgy credit lines withdrawn.
So I'm feeling very, very gloomy at the moment. The markets around the world look buoyant. Yet I cannot help thinking of the complacency of those folks in their pagodas on the way to the top of the mountain – there to slide inexorably down, down, down. Yes, maybe that kind of easy, almost effortless momentum does provide a thrill or two, a moment of euphoria. But it seems to me the West has been overpaying itself, creating liquidity for the sake of it, and not producing value.
The counties that do produce value are those with the commodities to sell, and a workforce that will actually work. For the moment, the West can say it has a handle on the model of the "knowledge" economy. The greatest knowledge the West offers us, it seems to me, is that of how many dollars anything, anywhere in the world is worth.
John Paulson, the hedge fund manager who astutely made a fortune by calling the credit crunch's inevitable ramifications for the markets in general and mortgage derivatives in particular, has said that world came very close to losing confidence in the dollar. In other words, we almost gave up on the dollar as a unit of value. If that had happened, only the countries with strong workforces and plenty of commodities – labour and goods – would have had economic power.
Having averted that major crisis, Western investors are sliding to the bottom of the slopes again with a smile on their faces. But what happens when there are no Chinese or Indian market participants willing to hoist them back up to the top of the hill for another bout of quantitative easing? In the worst case scenario, only the holders of physical assets will win the day.
The head of the European Central Bank has given his tentative support to the idea of a bail-out fund to bolster the Eurozone's financial stability.
For the moment, we have the unedifying sight of the Europeans fussing over how they are going to restructure things following the aberrant performance of the Greeks, as previously highlighted in this space. The European Central Bank Governor, Jean-Claude Trichet has cautiously welcomed the latest proposal of a European version of the International Monetary Fund (designed to help out lame ducks) saying it deserves examination.
Then, in a recent speech in California he went on to plug the only product that some Western countries have to sell – money: "Financial innovation should continue. It would be a big, big mistake" if it did not.
Quite. Because the system of finance is in many ways Europe's best and most truly global product. And if we do decide that we're not so keen on the dollar and the system – dollar or euro-dominated, it matters little - that goes with it? The investment advice then is simple and stark: Don't buy China or India funds, or any other paper assets. Buy property, mines and farms in asset-rich countries. It may not happen just yet, but come 2013, 2014 at the latest, the end of the world is nigh for the West and its ownership of the capitalist system.
As you can tell, I've come back nice and relaxed from my skiing trip. I clearly need a change. I am shortly chairing a session of a conference devoted to the nature of money quite soon, and will be heading off to indulge my passion for horse racing at the Cheltenham Festival (where, I hear the first-ever entrant from Dubai is set to face the challenge of the hurdles). I promise to report back with the most encouraging news I can find from these events.
- Martin Baker is a journalist, author and commentator on international business affairs
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