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ARTICLES
Where Capitalism is Working by Ruchir Sharma: Capitalism has come under increased scrutiny recently. In response, Ruchir Sharma offers a defence of capitalism by examining successful models in Switzerland, Taiwan, and Vietnam. He argues that effective capitalism includes economic freedom, limited government involvement, careful public spending, and avoiding excessive market interventions.
While I largely agree with Sharma, it's worth pointing out two things: Some countries (like those in Eastern Asia) owe much of their success to periods of government direction; and, as important as economic growth is, it’s vital that a balance between economic growth and income/wealth equality is found. Without it, long-term stability is risked.
Prospects for the Dollar in a Fracturing World by Confluence: The U.S. dollar is the world's reserve currency, which is a big deal. Should you need a barrel of oil, ounce of gold, or bushel of wheat, you'll need USDs to purchase them on an international exchange. As the global economy evolves, many suspect the dollar's days of supremacy are numbered. After all, the Dutch guilder and British pound also enjoyed reserve currency status once upon a time.
With that in mind, here are the current factors as they pertain to the US dollar:
- It has appreciated against most major currencies over the last decade, making it relatively expensive and possibly due for a correction.
- America's trade deficit and rising public debt needs to be rectified, or at least mitigated. Both the Democrats and Republicans talk about improving U.S. trade, but neither show any interest in tackling the country’s debt.
- Many developed countries (especially Russia and China) are seeking to reduce their reliance on the U.S. dollar for trade and their national reserves.
- This may become easier as the Chinese-friendly block of countries grows stronger and more reliant on each other.
- A key reasons for gold’s recent assent is that central banks have aggressively bought gold to bolster their national reserves.
If the USD does begin declining in value - whether slowly or significantly - this would likely benefit foreign equities, potentially increase bond yields, and would boost prices for commodities since they are priced in U.S. dollars.
How to Think About Risk by Howard Marks: This 36-minute video offers an excellent summary of investment risk:
- Risk in investing is the probability of loss, not volatility.
- Risk is unquantifiable and often counterintuitive, depending more on price relative to value than asset quality.
- As risk increases, the range of possible outcomes widens.
- Effective investing involves managing risk continuously through experienced judgment.
- Superior investors understand potential outcomes and achieve asymmetric returns.
- Successful investing balances risk-taking with the limitation of uncertainty.
A Time Bomb Is Threatening Economies Across Asia by Jon Emont: Despite strong economic growth over the last decade, youth unemployment is dangerously high in China, India, and Bangladesh. Why dangerous? Because elevated levels of youth unemployment often cause political instability.
Case in point, it's believed low levels of employment were in part responsible for the recent ousting of Bangladesh's prime minister, Sheikh Hasina. China seems quite aware of this risk, as it ceased publishing youth unemployment numbers a little while ago. This is something to track moving forward.
Sales of Dog Strollers are Outpacing Baby Strollers in South Korea by Dasl Yoon and Soobin Kim: The title says it all. South Korea has a serious demographic issue. But this problem is not unique to them - the other East Asian countries (China, Japan, Taiwan) also share this problem.
Book Review: How the War Was Won by Author Unknown: This review examines the book How the War Was Won by Phillips Payson O'Brien, which presents a new perspective on World War II. It’s unique as it focuses on the importance of production and supply, as opposed to the results of battles. Some of the key points include:
- Battles are often overrated - modern war makes it difficult to destroy enough enemy weapons and supplies in a single battle to decisively affect the outcome. What mattered more was the Allies' ability to disrupt Axis production and logistics.
- Allied bombing campaigns significantly degraded German and Japanese industrial capacity and supply chains, making it impossible for them to effectively arm and deploy their forces.
- The Allies won the "production war" - they outproduced the Axis in critical areas like aircraft, ships, and oil. This crippled the Axis war machine.
- Japan was a much more formidable industrial power than commonly understood, but the Allied naval blockade and bombing devastated its merchant fleet and economy.
- The conventional narrative over-emphasizes dramatic battles, neglecting the importance of logistics, production, and systemic disruption of the Axis war economies.
My knowledge of World War II isn’t adequate to know whether the author’s theory is correct, but I appreciate his counterintuitive approach. It's a good reminder to remain open to possibilities outside our accepted narratives.
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