–Which stocks will lead the future? We repeat the question. And we expand it. Will it be the same stocks that led the tech run in 1998? Or will it be the same stocks that led the energy and resource run in 2005-2006? Or will it be a whole new sector altogether? A whole new country? A whole new global growth paradigm?
–Or will it be an epic correction, leading to depression and bear market in all stocks? More questions to ponder. But one more baton-passing to put things in perspective.
–Imagine for a moment you’re on a steam-powered paddle boat headed up the Mississippi river from New Orleans to St. Louis in the year 1901. You have no iPhone, no Blackberry, and no WiFi to connect you with the world around you. You have only your dreams of a more prosperous future and your plans to find it somewhere out West, in a country the size of a continent.
–Yet the world around you is cautious, and perhaps rightly so. There is war. The largest, most powerful empire in the world is in the third year of bloody insurgency called the Boer War in Africa. There is also financial risk.
–In your own country, hundreds of thousands of newly rich investors have just been wiped out in what history books will remember as the panic of 1901. The panic is triggered by a brutal financial knife-fight for control of nation’s railroads between soon-to-be-legendary-capitalists E.H. Harriman, J.B. Schiff, and J.P. Morgan.
–The fight for Northern Pacific railroad sends the stock soaring…and then crashing…and leaves investors gutted and the capitalists firmly in control of what looks like the most economically important asset the nation has.
–Meanwhile, earlier in the year, oil gushes out of a well in East Texas that the locals call by various names. The one that sticks is “Spindeltop.”
–The discovery of oil in east Texas marks the birth of America’s rise as a world oil power. And what few people realize at the time, including yourself, steaming up the river in the Louisiana night, is that energy itself will be the key to political and military power in the next fifty years.
–America will ride its energy revolution to the head of the global pack, using its energy resources to help defeat the resourceful but energy starved Germans in Europe and the determined but energy-starved Japanese in the Pacific.
–Historians will late observe that abundant, cheap energy power led to military power which led to political power, which led to a reconstruction of the world’s post-war economy that distinctly favoured American companies, American consumers, and most of all, the American dollar. By 1950, America would have reached the pinnacle of its geopolitical and economic power, standing astride virtually unchallenged.
–But you couldn’t have known any of this in your paddle boat in 1901. England was an Empire. America was just an idea. There was a panic on Wall Street and the world’s attention was preoccupied with England’s war in Africa. Of course these things happening in the world outside weren’t on your mind. You were headed West, finding your fortune in what would become the greatest economic story of the 20th century. Getting gloriously rich was enough to keep your mind busy full time.
–Now let me ask you a question dear reader. Do you think the average man on the street in China gives a damn what happens in Iraq? Do you think in fifty years the American consumer will be the most important consumer in the world? Or will it be the Chinese consumer? Don’t you think that if America could survive financial panics and banking crises during its long ascent to the top of the global heap, China can do the same?
–There are differences of course. America was a country rich in natural resources, especially energy. China is energy poor. America formed its own capital to finance its own business growth. And it was an open and mobile society, and young. It was not, as China is today, trying to manage the migration of 500 million people from the farmhouse to the penthouse. America thrived on instability. China’s government covets stability. So there are differences.
–But our main point is the baton of leadership in the global economy is passing from West to East, if only for the reason there are more customers in the East. True, there is more money in the West, and experience, and disposable income. All those things matter. But when you’re looking a the big trend, there isn’t much doubt about where it’s headed. The only question is who can ride out the bumps in the road while preserving his capital and finding the next big thing. More on that tomorrow…and the day after that…and the day after that….