Saturday, July 21, 2012

Earth, Economics

I trade securities for a living,  which means I sit behind a computer screen all day.  Most of my day is engulfed in reading and research.  In the background I am tuned into Bloomberg Radio and TV.  Periodically,  I've got CNBC running. I keep a myriad of economic spreadsheets and financial models up to date,  and I'm always listening to company conference calls.  Its not the static, ho-hum lifestyle most people think.

Given the current state of the economic crises in the developed economies of our world,  governments are now playing an extremely heavy hand in trying to fix our economic problems.  So,  I am knee-deep in political news too.  My world is in insular bubble of business,  economics and politics,  24x7.  I soak it all in,  form opinions on what it all means for the immediate future,  and place bets with my capital in an effort to garner superior returns.

So far, so good.  22.1% IRR through 14 years of trading (that's an annual return,  not over 14 years),  AND after-tax,  after draw down for living expenses.  That's damn good.  And it's made for a financially comfortable lifestyle.

These days,  you simply can't turn around without hearing, reading and thinking that the economies around the world are on the verge of a giant crash. Given the current economic crises in all the developed nations in our world,  its easy to allow all the negativity to influence my investing opinions.   But,  if one steps back from all the daily negativity and takes a fresh look at the larger landscape of our planet,  is it really all that dire out there?

Answer:  No.

There are good reasons to be positive about the world economy.  One only needs to roll up the facts,  which I've done in just two simple tables.  Look at these tables,  think about the information they present,  draw your own conclusions about what this information means for the intermediate term economic future of planet earth.

I look at this info and can't help but shake off all the negativity.  You?


Focus on this:
  • Only 14% of the world's population live in countries that are in debt up to their eyeballs.  These 14% have a GDP per person of about $39,135 per year.  
  • These 14% also account for the bulk of the world's GDP ... 63%.  
  • The other 86% of our world live in developing countries in which debt is under control.
  • These 86% have a GDP per person of only $3,996 per year.
Citizens in countries like China, India, Russia, Brazil, Indonesia, Korea and Taiwan have just recently gotten a taste of the good life.  They want homes,  and cars,  and good schools,  and vacations,  and decent food.   They want to live safe, comfortable,  productive lives.  They want their children to receive a good education.   They want what the developed world has had for decades.   Because of financial crises in other parts of the world,  will these folks suddenly stop demanding an equal standard of living?  Nope.

That gap between $39,135 for 14% of the world,  and $3,996 for the other 86% will be closed.  And it's going to happen more rapidly than we can currently envision.  And as it closes,  there will be a massive amount of worldwide economic growth and opportunity.

Just think about the math.  Even if the annual GDP in the developed economies stayed stagnate,  and the developing economies could produce output at $39,135 per person,  well,  the world economy would be significantly larger than it is today.  The world's GDP would grow from $63 Trillion annually today,  to $273 Trillion.   4.3 fold growth.

It's easy to get sucked into all the negativity around us right now.   But, it's wrongheaded.  And if you allow it to guide your deployment of capital,  you're going to be a loser.  Shake the negativity off,  there is economic growth ahead,  and lots of money to be made.  Yes,  there will be bumps in the road,  but that's no reason to get off the road entirely and not make the trip.   Stay engaged.  Stay invested.  Continue to read and research, and deploy your capital wisely.  There's massive economic growth on the horizon.

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