Concord Investment Counsel

Anchored by the Scars of the Last Cycle

The outlook for global growth is not bright as wounds and fat left from the sins of the last cycle have become a significant scar on the face and body of global growth. Despite the ugliness, the global economy is pushing forward and seems likely to continue on this path. The overall health of the global economy is not easy to diagnose when weighing its obstacles against the consumption engines of growth. The obstacles are clearly significant and may be the worst in modern history. Fortunately the global engines of growth are likewise significant, leaving the globe hanging in a delicate balance.

The scars on the face of growth are ugly. They are deep pockmarks from an unhealthy appetite for debt. The globe accumulated a mountain of debt over the last few decades, so the resulting deleveraging cycle has forced the mature parts of the world to reduce consumption. The US and other obese areas could well be on a Jenny Craig diet for the next decade. Less significant but still notable would be: the ongoing and costly fight against terrorism, persistent global disasters, and geopolitical events.

On the better side of the face of growth is a profile that we have grown to like. The engines of growth for the globe are mostly about rising consumption due to a growing base of middle class consumers in emerging areas of the world (ie: Brazil, Russia India and China). This is not a new trend but one that has accelerated over the last decade as repressive governments have fallen and Capitalism has taken hold in many areas including Eastern Europe, Asia, Africa, and the Middle East.

Product innovation is another significant engine that made the 90’s such a great cycle for growth and is still alive today. The most exciting and notable areas include healthcare, energy, consumer electronics, and telecom. Fortunately, capitalism is still alive and growing and is the root of great innovation.

How does a reasonable investor balance the engines of growth against the obstacles on the road? This difficult problem may bring rationality to those of us having a difficult time understanding the volatility the financial markets have produced over the last few years.

Will the good defeat the bad or will the globe fall into a terrible depression? Clearly one needs to have a deeper understanding of the obstacles in the road to recovery. The subject matter here is far greater than the scope of this article but will be summarized in a series of articles to come on the Concord Blog:

The Economic Revolution

Part 1 – Global Debt – Are We Past the Point of Return?

Part 2 – The Evolution of the Political Environment – US and Global Trends

Part 3 – Weighing the Cost of Terrorism and Global Disasters

Part 4 – Capitalism & Communism – Under Fire

*Be sure not to miss the most recent Concord Quarterly Newsletter, filled with more of our insightful commentary and outlook.

Labels: Economic Outlook

January 2012: Economic Review and Outlook

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