East Vs. West

This week, Barron’s interviews Ian Bremmer [$] of the Eurasia Group, with the main theme being the fundamental incompatibility between (pseudo) market capitalism (U.S.) and state capitalism (China) and the possible fall-out due to  friction between the two models. Bremmer’s musings continue a seeming trend in which economists and historians, most notably, Niall Ferguson, see a rise in economic fortunes and power for eastern countries as western societies experience  a decline in wealth.

In the interview, Bremmer foresees tech as a national-security sensitive industry like defense, relatively high oil prices, a nuclear-armed Iran and a thriving Brazil. All predictions should be taken with some skepticism as it is impossible to account for all the variables in a system as complex as the U.S. economy, much less the global political/economic situation.

Perhaps the most thought-provoking assertion Bremmer lays out is his view that the top for global trade is already in. If this were true, what would the implications be for common investment strategies such as picking BRIC stocks or favoring large caps such as Coca-Cola (KO) with large overseas revenue streams? And if the U.S. is truly “the smart kid in the dumb-kid class” as Bremmer sees it, will the pendulum swing back toward stocks with an American focus?

Here at the Enlightened American, macro considerations weigh into our investment decisions but the foundation is always value investing. Since the overall environment can drastically affect a company’s earnings stream, macro factors cannot be discarded, even for a bottoms-up investor. Like so many things in this life, the key is to strike a balance, keeping aware of the bigger picture without letting it blind us to true opportunities. As always, this is easier said than done and remains a work in progress. It will be interesting to see how our investment strategies and the global macro situation turn out.

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