"Why can't things go back to the way they were?" That is the big question -- or perhaps the big whine -- coming from Wall Street these days.
America used to "drive the bus" in global economic terms; now other areas of the world are getting more attention. The U.S. consumer used to be unstoppable; now the cracks are starting to show. The U.S. financial sector used to be a massive profit center; now it is more like a massive black hole.
Wall Streeters with a taste for yesterday are trying to jam a square peg into a round hole. They keep saying, "But isn't it like this? Won't it be that way again?" No, it isn't like that. And no, it won't necessarily be like that again.
It's a crazy, mixed-up, upside-down world. And yet, it's the same old world it's always been.
The wisdom of Heraclitus
Human beings aren't good with time frames as a rule of thumb. We tend to place too much weight on personal experience and recent history.
When people say, "But it's always been this way" in reference to America's economic dominance, they don't realize that "always" means a few decades or so. They don't stop to think what "always" actually means. Twenty years might as well be forever to them; there's no grounding in market history.
History is all about change. The Greek philosopher Heraclitus pointed this out thousands of years ago. You can't step into the river twice, Heraclitus said. And you can't invest in the same market twice. Trends can go on for long periods of time, but then they stop. The only permanent fixture is change.
China comes into its own
Two recent news items stand out in terms of showing how things have changed. Both of them are milestones of a sort; big picture evidence of how the world is moving on.
The first item regards Chinese investment flows. China's Sovereign Wealth Fund has just decided to put $5 billion into Morgan Stanley, one of Wall Street's bulge bracket investment banks. For that chunk of change, China will pick up a just under 10% stake in the blue-blooded firm.
The Morgan Stanley purchase brings China's overseas investments to $29.2 billion for the year, according to Thomson Financial. Here is the interesting part: Investment inflows into China for 2007 are pegged at just $21.5 billion. (Data again provided by Thomson Financial.)
The dragon is coming into its own. For the first time, China has invested more capital abroad -- a good chunk more -- than it has taken in from foreign investors. Meanwhile, the mighty Wall Street banks look more like damsels in distress.
Bankers' insomnia
The second "sign of the times" comes from Ken Lewis, CEO of Bank of America. Mr. Lewis sits atop the largest financial institution in the United States. His bank's market cap is $30 billion or so larger than Citigroup's.
Mr. Lewis sat down to an interview with The Wall Street Journal last week. What weighed heavily on his mind you ask? Default risk.
No surprise there, given the nature of bankers and all. But we're not talking default risk from people with bad credit this time. (Been there, done that.) No, Mr. Lewis now frets over people with good credit.
In this brave new world we have all become risks. The rottenness in America's financial system is so pervasive, so far gone, that the top banking brass now worry about everyone. Subprime woes, traditionally seen as the bottom 20% of the spectrum, are spreading to the higher tiers. It's enough to keep Mr. Lewis awake at night.
Comin' up around the bend
Old strengths and old weaknesses are shifting places. The familiar order of things is crumbling. The world is moving on. The good news is, profit opportunities still existÂ… and if anything there are more exciting opportunities ahead than ever before.
We just can't sit and wait for things to go back to "normal," though. There is no normal -- not in the long run, anyway. As the legendary trader Ed Seykota once quipped, "The trend is your friend till the end when it bends." In regard to how things have been, and where things are going, we are smack-dab in the middle of a truly massive bend.
Next up: Stephen Oakes pops the hood on the aerospace and airline industries, and considers aircraft maker Boeing from a fundamental and technical perspective. Stay tuned.
Justice Litle is an Editorial Director of Taipan Publishing Group.
Courtesy: www.taipanfinancialnews.com
