Where on earth are we?
by 
hsl
|
Posted: Tuesday, October 5, 2004 Word Count: 2426 Summary: Written just under a year ago,the article may have been slightly overtaken by events in one or two areas.I hope this is not an inappropriate forum for such an article and that the subject matter holds your interest.I kept it as tight as possible but understand it may not be for everyone. |
Where on earth are we?
It is surely axiomatic that a manicured investment policy is inappropriate in untidy markets. This should not inhibit bold and creative thinking but, conversely, recognise that precision is always a hostage to fortune. Markets will, in my view, remain untidy for some time to come as we are now on the cusp of profound geopolitical change.
The sands are shifting far beyond the Iraqi desert. The recent spike in bond yields hints at a faltering recovery by the US economy but that is a mere sideshow in the overall scheme of things. The real action is on the street. And I don’t mean Wall Street.
The nature of public protest has grown progressively more strident in the modern age. We have witnessed the emergence of the professional agitator. Social unrest is by no means a new phenomenon but its manifestation today represents a very troubling dimension. Globalisation has seamlessly interwoven the power of travel and propaganda to devastating effect. Once upon a time, though not so long ago, the disenfranchised or disaffected possessed limited tools to spread their message beyond their immediate confines.
However, the rapid movement of people and ideology has created a powder keg, particularly in the Arab world. The roots of this problem are deep and tangled but they pose a serious threat to the democratic west. We see, with disturbing frequency, suicide bombers posthumously awarded spin doctors, along with martyrdom, to justify their actions and promote their cause. Moreover, volunteers for these grotesque acts are drawn across the Moslem diaspora.
In the blink of an eye, at the flick of a switch, the world is wired. The ability to transmit images in nanoseconds is one demonstration of the confluence of travel and propaganda. One must not merely think of travel in human terms. Information is no longer sent. It travels and with an almost missionary zeal. It has a sense of urgency and purpose, frequently invoking a response. It is a form of interruption marketing, slick, direct and often compelling. The message may seem benign when simply offering cheaper mortgages or brighter teeth but, when it delivers a call to arms, it can assume a much darker complexion.
Joining the revolution has never been simpler. The economics of air travel today have ensured an apparently limitless supply of routes at affordable rates. Diehard urban guerrillas may regard the back of a truck as the method of choice to reach enemy lines but pragmatism generally dictates cheap flights for the majority. Whatever, there is plenty of time to engage in a little revisionism of the Koran or other sleight of hand on the road ahead. The purity of the cause brooks no argument. Yet we must also remember that they are largely products of closed societies. For every Osama bin Laden, who does, lest we forget, come from educated stock, there are 100,000 foot soldiers who do not.
Closed minds permeate all strata of society and, regrettably, they are not the preserve of Arab crusaders alone. Look no further than artistic and literary circles. Greece, as much a cradle of civilisation as Iraq, contains such an overwhelming preponderance of Greek art in its museums that art from other countries becomes a mere footnote by comparison. A world view, as displayed in France, UK, US and elsewhere, simply doesn’t appear on its radar screen and, similarly, Saudi Arabia, by no means a cultural desert historically, shows its disdain for outside influences by only publishing around 330 foreign books each year. By way of comparison, Spain, as a random example, published some 16,750 overseas titles in 2001.
So where, you may ask, am I heading with all this? I foresee two pretty seismic forces creeping ever closer. The first is the struggle between secular and fundamentalist Islam and the other is the demographic shift caused by changing population trends. Strictly speaking, the former is an internal affair but it does, of course, have wide implications. Among the most significant developments of the war against the Taliban and Saddam Hussein was the coverage of the conflicts by al – Jazeera, now almost a poster child for mainstream Arab opinion. Although its sponsorship by an emirate certainly came in handy, it was arguably the first time the Arab world spoke with a plausible voice, regardless of whether one appreciated the message. It does seem supremely ironic, however, and something of a contradiction, that bin Laden, having so publicly eschewed the trappings of the infidel, should repeatedly utilise that very western invention, the satellite telephone, from his mountain retreat. No doubt there is a line somewhere in the Koran that will enable him to justify this blatant hypocrisy.
The rise of al – Jazeera does, nonetheless, suggest that the concept of a free press is tentatively taking shape in the Arab world. Although the television station may physically sit plum in the middle of the traditional Arab heartland, its audience is drawn from far and wide. There is a dangerous tendency to assume that the Near and Middle East regions represent substantially all Moslems. The reality is very different, as significant population groups have spawned in areas as geographically diverse as America, Indonesia and West Africa. The global Moslem population is around 600,000,000 today and it is anticipated that this figure will double in the next fifty years. Simultaneously, the developed world, with the exception of America, will see a dip in numbers.
These bare statistics tell a simple truth. The carrying cost of comparatively affluent societies includes, inevitably, its share of retirees. Advances in medical technology have proved a double edged sword as they have interfered with the natural order of things. Historically, disease and social deprivation conspired to keep population growth in check but their effects have been largely neutered in western societies over the last two generations. The bottom line is that more people require more support from a denuded public purse. The disarray in the global pension industry and the apparent lack of contingency planning has been covered elsewhere but much more intriguing is the deconstruction of certain cultural stereotypes. The Italian fondness for children is legendary, for example, but sits very uneasily with the fact that Italy is witnessing a precipitous decline in fertility rates. Perhaps the Pope isn’t Catholic after all. Moreover, this is by no means an exception. A similar pattern has formed in Spain, Switzerland, Germany and Japan and, unlike America, these countries are unable to offset this fall through net immigration. Japan is arguably the most vulnerable of all to this trend as it is hit by a triple whammy of a deeply conservative society, strong resistance to change and the extraordinary longevity of its senior citizens. In most places, centenarians register more than just a raised eyebrow but in Japan it’s almost an everyday occurrence. So here’s to you Mrs Nakamon, life loves you more than you will ever know.
Yet, much as we may salute Mrs Nakamon, life is a little less generous to inhabitants of, say, Yemen or Afghanistan. This might perhaps explain the prodigious birth rate in such countries. Then again, as in Italy, cultural stereotypes can be very misleading. In Bangladesh, one of the poorest nations on earth, largely illiterate womenfolk are learning to close their legs and open their eyes. I would suggest, however, that the Indian subcontinent has, traditionally, enjoyed a strong matrilineal heritage and that the concept of female emancipation is no overnight sensation there. Unfortunately, from my vantage point, I don’t see much evidence of female emancipation on the streets of Gaza or the feudal domains of the Taliban. The pace of reform in this region may, nonetheless, be influenced by the recent award of the Nobel Peace Prize to Shirin Ebadi, the Iranian human rights lawyer. I accept that she represents a mere chink of light but one must continue to believe that strong minds and impassioned people, whatever the oppression, will have a voice. The world is changing very quickly, however, and secular Islam, as recent events in Istanbul have tragically shown, is fighting for its legitimacy. The emergence of an Arab middle class is still embryonic and fragmented and must fight both the blind fanaticism of fundamentalism and its sheer weight of numbers. The propaganda war is fought in and out of the bedroom. The greatest single weapon the fanatics possess is procreation and, believe me, they are not shirking their responsibilities.
There are ten Islamic countries that especially come to the fore in this respect, namely, Afghanistan, Algeria, Indonesia, Iran, Iraq, Pakistan, Saudi Arabia, Somalia, Sudan and Yemen. By 2050, it is anticipated that the combined populations of these countries will match those of the industrialised world. The 2002 United Nations Population Report advised that average fertility rates for 1995 – 2000 ranged from 2.05 children per family in the US, 1.70 in the UK and 1.19 in Spain to an astonishing 7.30 in Yemen. And just in case you think Yemen reflects an extreme, we see figures of 5.09, 5.48 and 5.92 for Saudi Arabia, Pakistan and Nigeria respectively. The United Nations expects that by 2050, Yemen’s population will exceed that of Germany. It is remarkable that a relatively unknown Islamic state, that many would struggle to identify on the map, may soon be more populous than a powerhouse of the European firmament. I am sure Bismarck will be turning in his grave at the thought that his erstwhile empire had been supplanted in numerical terms by a distant Gulf outpost. Further examples of the emasculation of the old world order will include Italy, Japan and Russia. Step forward instead Iraq, Iran and Saudi Arabia. Although I envisage there will be some variance to these projections, they will remain directionally correct.
I am sure I am not alone in questioning the competence of the CIA with regard to intelligence gathering. American insularity and arrogance have characterised much of the flawed response by the Bush Administration to the curse of fundamentalism. Yet, as in every government agency, amidst the dross and the dereliction, there are pockets of excellence. My faith was partially restored in the CIA by its publication in July 2001 of a fascinating and most revealing report entitled “Long – Term Global Demographic Trends: Reshaping the Geopolitical Landscape”. Its findings are very sobering and I quote:
“The world’s poorest and often most politically unstable countries – including, among others, Afghanistan, Pakistan, Colombia, Iraq, Gaza and Yemen – will have the largest youth populations by 2020. The failure to adequately integrate large youth populations in the Middle East and Sub – Saharan Africa is likely to perpetuate the cycle of political instability, ethnic wars, revolutions and anti – regime activities that already affect many of these countries. Unemployed youth provide exceptional fodder for radical movements and terrorist organisations, particularly in the Middle East”.
The key, as the CIA points out, is integration but its implementation will require a volte face by the US and its fellow G7 members. It is not about the redistribution of wealth per se but the creation of tools which the disenfranchised and disaffected can utilise for both their benefit and that of the wider world. The planet possesses very considerable resources indeed but their accessibility is denied to most. I have little doubt that a number of excellent aid programmes have made an impact but one is left with a sense that policymakers adopt far too generic an approach. Every micro economy possesses its own DNA and the simple application of funding, expertise and native wit, as lifted from the foreign secretary’s handbook, will not wash. The missing link is a coping mechanism. This essential cog recognises that the rate of development and understanding in each subculture is unique and that technological, economic and political transformation must run parallel with that of the individual. As new societies evolve, they must be guided at a pace that enables these constituent parts to work together. One needs look no further than the present maladministration of Iraq to see that one cannot automatically seek to impose western democratic values and structures without fearful consequences. In turn, one must surely question the validity in the modern age of institutions such as the United Nations and NATO and the composition and power of their appointees. That, my friends, is a matter that demands your attention.
As for an investment perspective, some pretty stark conclusions emerge. The economic influence of Europe and Japan will diminish as they are forced to finance wheelchairs ahead of guns. The US, by dint of sheer size and productivity, will keep its place at the top table. However, I am deeply concerned by the level of the federal deficit and assumptions that the usual suspects will prop up the dollar in the capital markets. Furthermore, the yen and euro cannot be relied upon as effective counterweights in asset allocation models in the future. They will become fringe rather than core currencies as is the case today with, say, the Swiss franc or Australian dollar. A dominant currency will emanate, in due course, from the East Asian bloc, incorporating the yen, and one should not dismiss the prospect of what I would best describe as a Muslim dollar which can be conveniently, and not inappropriately, abbreviated to the mullar. This may seem a little less fanciful when you consider the convergence of the nascent Muslim banking sector, brand awareness, technological development, empowerment and the small matter of a billion and a half consumers, dedicated in every sense. The hugely successful introduction of Muslim coca cola is but one example of this trend.
My three key watchwords in this troubled investment climate are liquidity, diversification and humility. The first two speak for themselves but humility comes from an appreciation that what applied yesterday may not be relevant tomorrow. I do not know how events will play out in the Middle East and beyond but what I do know is that the geopolitical change we confront everywhere will challenge our view of the world. The disciplined and metronomic existence of Mrs Nakamon will be a distant memory indeed.
There are a few other themes I shall cover over the coming months which address this process of change including China, desalination, land, renewable energy and what I euphemistically call sixing, more of which anon. Please feel free to comment on my musings, as appropriate. I hope they have given you a flavour of my thinking and offered some useful insights on the way of the world today.
Howard Lewis
24/11/2003
It is surely axiomatic that a manicured investment policy is inappropriate in untidy markets. This should not inhibit bold and creative thinking but, conversely, recognise that precision is always a hostage to fortune. Markets will, in my view, remain untidy for some time to come as we are now on the cusp of profound geopolitical change.
The sands are shifting far beyond the Iraqi desert. The recent spike in bond yields hints at a faltering recovery by the US economy but that is a mere sideshow in the overall scheme of things. The real action is on the street. And I don’t mean Wall Street.
The nature of public protest has grown progressively more strident in the modern age. We have witnessed the emergence of the professional agitator. Social unrest is by no means a new phenomenon but its manifestation today represents a very troubling dimension. Globalisation has seamlessly interwoven the power of travel and propaganda to devastating effect. Once upon a time, though not so long ago, the disenfranchised or disaffected possessed limited tools to spread their message beyond their immediate confines.
However, the rapid movement of people and ideology has created a powder keg, particularly in the Arab world. The roots of this problem are deep and tangled but they pose a serious threat to the democratic west. We see, with disturbing frequency, suicide bombers posthumously awarded spin doctors, along with martyrdom, to justify their actions and promote their cause. Moreover, volunteers for these grotesque acts are drawn across the Moslem diaspora.
In the blink of an eye, at the flick of a switch, the world is wired. The ability to transmit images in nanoseconds is one demonstration of the confluence of travel and propaganda. One must not merely think of travel in human terms. Information is no longer sent. It travels and with an almost missionary zeal. It has a sense of urgency and purpose, frequently invoking a response. It is a form of interruption marketing, slick, direct and often compelling. The message may seem benign when simply offering cheaper mortgages or brighter teeth but, when it delivers a call to arms, it can assume a much darker complexion.
Joining the revolution has never been simpler. The economics of air travel today have ensured an apparently limitless supply of routes at affordable rates. Diehard urban guerrillas may regard the back of a truck as the method of choice to reach enemy lines but pragmatism generally dictates cheap flights for the majority. Whatever, there is plenty of time to engage in a little revisionism of the Koran or other sleight of hand on the road ahead. The purity of the cause brooks no argument. Yet we must also remember that they are largely products of closed societies. For every Osama bin Laden, who does, lest we forget, come from educated stock, there are 100,000 foot soldiers who do not.
Closed minds permeate all strata of society and, regrettably, they are not the preserve of Arab crusaders alone. Look no further than artistic and literary circles. Greece, as much a cradle of civilisation as Iraq, contains such an overwhelming preponderance of Greek art in its museums that art from other countries becomes a mere footnote by comparison. A world view, as displayed in France, UK, US and elsewhere, simply doesn’t appear on its radar screen and, similarly, Saudi Arabia, by no means a cultural desert historically, shows its disdain for outside influences by only publishing around 330 foreign books each year. By way of comparison, Spain, as a random example, published some 16,750 overseas titles in 2001.
So where, you may ask, am I heading with all this? I foresee two pretty seismic forces creeping ever closer. The first is the struggle between secular and fundamentalist Islam and the other is the demographic shift caused by changing population trends. Strictly speaking, the former is an internal affair but it does, of course, have wide implications. Among the most significant developments of the war against the Taliban and Saddam Hussein was the coverage of the conflicts by al – Jazeera, now almost a poster child for mainstream Arab opinion. Although its sponsorship by an emirate certainly came in handy, it was arguably the first time the Arab world spoke with a plausible voice, regardless of whether one appreciated the message. It does seem supremely ironic, however, and something of a contradiction, that bin Laden, having so publicly eschewed the trappings of the infidel, should repeatedly utilise that very western invention, the satellite telephone, from his mountain retreat. No doubt there is a line somewhere in the Koran that will enable him to justify this blatant hypocrisy.
The rise of al – Jazeera does, nonetheless, suggest that the concept of a free press is tentatively taking shape in the Arab world. Although the television station may physically sit plum in the middle of the traditional Arab heartland, its audience is drawn from far and wide. There is a dangerous tendency to assume that the Near and Middle East regions represent substantially all Moslems. The reality is very different, as significant population groups have spawned in areas as geographically diverse as America, Indonesia and West Africa. The global Moslem population is around 600,000,000 today and it is anticipated that this figure will double in the next fifty years. Simultaneously, the developed world, with the exception of America, will see a dip in numbers.
These bare statistics tell a simple truth. The carrying cost of comparatively affluent societies includes, inevitably, its share of retirees. Advances in medical technology have proved a double edged sword as they have interfered with the natural order of things. Historically, disease and social deprivation conspired to keep population growth in check but their effects have been largely neutered in western societies over the last two generations. The bottom line is that more people require more support from a denuded public purse. The disarray in the global pension industry and the apparent lack of contingency planning has been covered elsewhere but much more intriguing is the deconstruction of certain cultural stereotypes. The Italian fondness for children is legendary, for example, but sits very uneasily with the fact that Italy is witnessing a precipitous decline in fertility rates. Perhaps the Pope isn’t Catholic after all. Moreover, this is by no means an exception. A similar pattern has formed in Spain, Switzerland, Germany and Japan and, unlike America, these countries are unable to offset this fall through net immigration. Japan is arguably the most vulnerable of all to this trend as it is hit by a triple whammy of a deeply conservative society, strong resistance to change and the extraordinary longevity of its senior citizens. In most places, centenarians register more than just a raised eyebrow but in Japan it’s almost an everyday occurrence. So here’s to you Mrs Nakamon, life loves you more than you will ever know.
Yet, much as we may salute Mrs Nakamon, life is a little less generous to inhabitants of, say, Yemen or Afghanistan. This might perhaps explain the prodigious birth rate in such countries. Then again, as in Italy, cultural stereotypes can be very misleading. In Bangladesh, one of the poorest nations on earth, largely illiterate womenfolk are learning to close their legs and open their eyes. I would suggest, however, that the Indian subcontinent has, traditionally, enjoyed a strong matrilineal heritage and that the concept of female emancipation is no overnight sensation there. Unfortunately, from my vantage point, I don’t see much evidence of female emancipation on the streets of Gaza or the feudal domains of the Taliban. The pace of reform in this region may, nonetheless, be influenced by the recent award of the Nobel Peace Prize to Shirin Ebadi, the Iranian human rights lawyer. I accept that she represents a mere chink of light but one must continue to believe that strong minds and impassioned people, whatever the oppression, will have a voice. The world is changing very quickly, however, and secular Islam, as recent events in Istanbul have tragically shown, is fighting for its legitimacy. The emergence of an Arab middle class is still embryonic and fragmented and must fight both the blind fanaticism of fundamentalism and its sheer weight of numbers. The propaganda war is fought in and out of the bedroom. The greatest single weapon the fanatics possess is procreation and, believe me, they are not shirking their responsibilities.
There are ten Islamic countries that especially come to the fore in this respect, namely, Afghanistan, Algeria, Indonesia, Iran, Iraq, Pakistan, Saudi Arabia, Somalia, Sudan and Yemen. By 2050, it is anticipated that the combined populations of these countries will match those of the industrialised world. The 2002 United Nations Population Report advised that average fertility rates for 1995 – 2000 ranged from 2.05 children per family in the US, 1.70 in the UK and 1.19 in Spain to an astonishing 7.30 in Yemen. And just in case you think Yemen reflects an extreme, we see figures of 5.09, 5.48 and 5.92 for Saudi Arabia, Pakistan and Nigeria respectively. The United Nations expects that by 2050, Yemen’s population will exceed that of Germany. It is remarkable that a relatively unknown Islamic state, that many would struggle to identify on the map, may soon be more populous than a powerhouse of the European firmament. I am sure Bismarck will be turning in his grave at the thought that his erstwhile empire had been supplanted in numerical terms by a distant Gulf outpost. Further examples of the emasculation of the old world order will include Italy, Japan and Russia. Step forward instead Iraq, Iran and Saudi Arabia. Although I envisage there will be some variance to these projections, they will remain directionally correct.
I am sure I am not alone in questioning the competence of the CIA with regard to intelligence gathering. American insularity and arrogance have characterised much of the flawed response by the Bush Administration to the curse of fundamentalism. Yet, as in every government agency, amidst the dross and the dereliction, there are pockets of excellence. My faith was partially restored in the CIA by its publication in July 2001 of a fascinating and most revealing report entitled “Long – Term Global Demographic Trends: Reshaping the Geopolitical Landscape”. Its findings are very sobering and I quote:
“The world’s poorest and often most politically unstable countries – including, among others, Afghanistan, Pakistan, Colombia, Iraq, Gaza and Yemen – will have the largest youth populations by 2020. The failure to adequately integrate large youth populations in the Middle East and Sub – Saharan Africa is likely to perpetuate the cycle of political instability, ethnic wars, revolutions and anti – regime activities that already affect many of these countries. Unemployed youth provide exceptional fodder for radical movements and terrorist organisations, particularly in the Middle East”.
The key, as the CIA points out, is integration but its implementation will require a volte face by the US and its fellow G7 members. It is not about the redistribution of wealth per se but the creation of tools which the disenfranchised and disaffected can utilise for both their benefit and that of the wider world. The planet possesses very considerable resources indeed but their accessibility is denied to most. I have little doubt that a number of excellent aid programmes have made an impact but one is left with a sense that policymakers adopt far too generic an approach. Every micro economy possesses its own DNA and the simple application of funding, expertise and native wit, as lifted from the foreign secretary’s handbook, will not wash. The missing link is a coping mechanism. This essential cog recognises that the rate of development and understanding in each subculture is unique and that technological, economic and political transformation must run parallel with that of the individual. As new societies evolve, they must be guided at a pace that enables these constituent parts to work together. One needs look no further than the present maladministration of Iraq to see that one cannot automatically seek to impose western democratic values and structures without fearful consequences. In turn, one must surely question the validity in the modern age of institutions such as the United Nations and NATO and the composition and power of their appointees. That, my friends, is a matter that demands your attention.
As for an investment perspective, some pretty stark conclusions emerge. The economic influence of Europe and Japan will diminish as they are forced to finance wheelchairs ahead of guns. The US, by dint of sheer size and productivity, will keep its place at the top table. However, I am deeply concerned by the level of the federal deficit and assumptions that the usual suspects will prop up the dollar in the capital markets. Furthermore, the yen and euro cannot be relied upon as effective counterweights in asset allocation models in the future. They will become fringe rather than core currencies as is the case today with, say, the Swiss franc or Australian dollar. A dominant currency will emanate, in due course, from the East Asian bloc, incorporating the yen, and one should not dismiss the prospect of what I would best describe as a Muslim dollar which can be conveniently, and not inappropriately, abbreviated to the mullar. This may seem a little less fanciful when you consider the convergence of the nascent Muslim banking sector, brand awareness, technological development, empowerment and the small matter of a billion and a half consumers, dedicated in every sense. The hugely successful introduction of Muslim coca cola is but one example of this trend.
My three key watchwords in this troubled investment climate are liquidity, diversification and humility. The first two speak for themselves but humility comes from an appreciation that what applied yesterday may not be relevant tomorrow. I do not know how events will play out in the Middle East and beyond but what I do know is that the geopolitical change we confront everywhere will challenge our view of the world. The disciplined and metronomic existence of Mrs Nakamon will be a distant memory indeed.
There are a few other themes I shall cover over the coming months which address this process of change including China, desalination, land, renewable energy and what I euphemistically call sixing, more of which anon. Please feel free to comment on my musings, as appropriate. I hope they have given you a flavour of my thinking and offered some useful insights on the way of the world today.
Howard Lewis
24/11/2003