Riding high in a Grand Bull Market

The new first world economies are driving one of the biggest bull runs in history.

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Summary: There is much more to the world economic stage than the US and Europe. Asia and Latin America represent the new first world economic forces, which are rapidly replacing the old first world economies in the US and Europe. Those “new” macro-economic forces are now behind one of the biggest bull markets in history. And there’s good reasons to cheer.
Key take-out: Processes such as the “bottom up economic revolution” and “intra-regional trade” are providing the strong fundamental basis of our ongoing Grand Bull Market.
Key beneficiaries: General investors. Category: Economics and strategy.

The world is a very different place to what it was even 10 years ago. It is difficult for all of us to keep up, but perhaps it is most challenging of all for senior western economists to do so.

While there is a spattering of original thought from the investment banks of Europe, it is largely the major institutions of New York that drive the global daily commentary and views regarding macro economic developments, as well as the outlook for financial markets.

Last week I wrote that markets are nearly always wrong, and that the reaction, though expected, to Bernanke’s speech was a perfect case study example of this (see Buy the QE market dip). We live in a world where the daily market view, whether delivered by e-mail from our broker or over the television screen, is set by people who do not understand the modern global economy, and who still think and act as if the world has not moved on from that historical period of western dominance.

More than this, there are some real-world fundamental shifts that simply are not accounted for in the dominant western-based approach to economics. The financial modelling of London and New York, simply fails to “look out the window” to see what is happening all around them in a very new world.

Personally, I am a great fan of “look out the window” economics, and when we do, we discover that reasons to cheer for our “Grand Bull Market”, which commenced several years ago and is ongoing, abound.

The changing world order

The first, primary distinction that must be made is that of the “new first world”, and the “old first world”. This is not a forecast or a theory. This is a statement of fact as to how the world has been operating for some time now, though the egos of the west tend to avoid such clarity. The “new first world” consists of Asia and Latin America. The “old first world” consists of Europe and the USA. The emerging markets attribution can largely be confined to Africa. What the global economy is now very much about, however, is the “new first world” of Asia and Latin America. Particularly Asia, which leads the global economic cycle.

A great deal of forecasting goes astray on the basis of believing that what is happening in the US, will impact the rest of the world. In actual fact the US, like Europe, lags the global economic cycle that is set by China/Asia. During the GFC, big C (China) saved little c (capitalism). We should never forget this. The world has forever changed. This is particularly important in understanding the Grand Bull Market we have all been enjoying for several years. In Australia the situation has been more frustrating, as we so urgently sabotaged ourselves with additional taxes and aggressive monetary policy so soon after the GFC. But, nonetheless, the global equity bull market, led by the US, has certainly kept our market higher than it might have otherwise been.

The trick is to understand why the US has had such a great run. It is not because of clever economic management in the west, but is in fact due to the better-managed economies of China/Asia. The rest of the world rescued the US from its plight, and was helped in the process by a lower US dollar. Strong global revenues to the US from strong economies elsewhere, amplified by a falling US dollar, generated the revenue and profits needed to drive US stock prices higher.

The bottom up economic revolution

The next major factor to consider in our Grand Bull Market story is what I like to refer to as the “bottom up economic revolution”. Across Asia and Latin America in particular, but also in the US, and perhaps even Europe, people have been only recently empowered by the internet. It is such a cliché these days to refer to the role of the internet, yet it is still a relatively new development, and one that continues to have tremendous impact. The “new first world” has also seen political freedom expand both vertically and horizontally, and combined with the advent of the internet has allowed individuals and small businesses to aspire to a better lot for themselves, their communities and indeed their nations. The allowance to “aspire”, as well as the means to do so, has certainly transformed China, and has had a similar impact across all of Asia and Latin America.

The regional realisation

Upon the strong foundational stone of “aspirational economics” has come the realisation within Asia and Latin America that business and trade with one’s immediate neighbours can be every bit as profitable as trading with the US or Europe. Where once upon a time nations down the eastern seaboard of Asia competed with each other to sell similar products to the same US market, they have now specialised according to their respective strengths and do avid trade within their own region. I termed this “intra-regional trade” nearly 10 years ago, and this process has been the primary driver of global growth for some time.


The dawning of the “new first world” economies through processes such as “bottom up economic revolution” and “intra-regional trade” is the strong fundamental basis of our ongoing Grand Bull Market.

These are historical forces driving unprecedented global prosperity capable of carrying the Dow Jones Index well beyond 20,000. It is just hard to see it all clearly, through the prism of old world thinking of US dominance, and the belief in the requirement for key leaders in the west to make clever decisions.

The most important players, the individuals and SMEs of the “new first world”, really don’t care what happens on Wall Street or in Washington. They are just getting on with the job of building their businesses and their family’s prosperity.

Clifford Bennett is chief economist of the White Crane Group at http://www.whitecranegroup.com.au/eureka/

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The world is a very different place to what it was even 10 years ago. It is difficult for all of us to keep up, but perhaps it is most challenging of all for senior western economists to do so.

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