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April 23, 2006


Barry Ritholtz


It appears that you are mashing together two distinct phenomenon. One is all the excess liquidity sloshing around the world. That's why many indices are at record levels.

If you break it down, these record highs are less impressive: The 5 year highs in the Dow are the rersult of annual returns of 3%. Forgive me if I am underwhelmed.

Even this year -- the best 1stQ in 6 years we were told -- if you bought the Nasdaq 100 the first week, you have been under water the rest of the year. Again, underwhelming.

As tot he design economy -- that's all well and good. It works great for ETFs, for Apple, AMD, and Google -- but these design companies are not the lion's share of the economy.

The longer we consume more than we produce, the greater the net assets we transfer to other countries. Like $75 Oil and other macro-economic phenomenon, it doesnt matter and won't -- until it finally does . . .

PS I enjoyed Wall Street Meat

Ward Good

The service sector is the lion's share of the economy and the character of small businesses, the lion's share of employment has changed dramatically in the past few decades while economic statistics apparently have not.


I think you're a bit too optimistic.

What makes you think foreigners will continue to buy US Bonds or even your equities when the dollar is falling precipitously, especially here in Korea. The falling dollar is setting new directions into the Central Banks of China, Japan, Korea and Taiwan. We would have to wait and see due to America's presence in foreign affairs keeping Asians continously buying its treasuries but with US's decreasing power I'm pessimistic. It is as much a political issue as it is economical. These are great bargaining chips for the Asian countries. (FTA and all)

We have seen the Swedes officially announce that they will decrease their exposure to the Dollar and buy Euros. And they've already started. This can cause a domino effect with more nations joining and choosing Euro as their investment. And lets not forget that Iran and other OPEC memebers are gradually thinking Euro as their exchange rate for its products.

I agree that some of the money leaving US treasuries will go into your equities, but the size won't be comparable and not enough for your markets to continously grow at a strong rate. I think the central banks will diversify into Euros and other international equity and bond markets, obviously leaving a good chunk to the US but less then before.

Like the man above mentioned, it's too risky to base your economy solely on the design side of economics. It's the future no doubt, but you do not want to base your economy on soley design and service which you're heading towards. You need the base to create jobs and to increase exports. What worries me the most is your excitement with your design economics. Your design companies, like google, apple, ebay, motorola, yahoos and what not are not successful overseas, especially in the biggest growing markets in Asia. These design companies make all the money in the US. It's not very competitive over here. Since your economy is based on 2/3 domestic consumption, all the buyers are Americans and that's why your design companies are successful, not because of their competitiveness overseas, because they don't have one currently. And lets not even get into your manufacturing and the hard industry side, because you need new directions there quickly.


I would much rather be the country of Web 2.0 than the country of cheap bathroom fixtures (i.e. China). Ideas make the money. And China HATES ideas. Especially freedom-type ideas. So they are going to be limiting the true high-margin businesses because of their own self-censorship. This mindset HAS to stifle innovation and certainy MUST stifle any innovation/creation of intellectual property. And, in the long run, it's ALL intellectual property.

Ben Qing

I have to agree with "Ward Good." To assume that the world will keep dumping their profits into America seems a little arrogant maybe even naive--especially while we have a numbskull president like Bush in office. God forbid we have another IR (Industrial Revolution) republican replace him in a few years. If that happens, then Mr.Kessler's economic theories will be fraught with misconceptions.

Anyway, loved "Running Money" Andy and looking forward to your next....


The whole thing falls apart if other countries don't protect Intellectual Property.


Design economies, or innovation economies will always be the ones ended up on top of the food chain. In China, and other economies that got their start selling cheap goods and services to the US, they realize that they must turn themselves into knowledge and innovation economies. They know all that they are doing now is arbitraging their cheap labor or resources and selling it to us and Europe. At some point, someone else cheaper is going to come along and replace them. I can point to the gradual migration of Shanghai's textile industry several hundred miles inland as an example to the continuous need to search out cheaper labor and resources. Another example is how manufacturers who originally went to Shenzhen are now looking for new sites in Szechuan and even Vietnam. Andy's "glib" but accurate (nonetheless amusing) point that Japanese sold us all the electronic goods, got all our moeny, and somehow left it on our shores buy buying real estate point out one interesting fact: that buying in the US is still the safest thing to do. I will start getting worried when my Chinese clients start withdrawing their money from their Cayman accounts and start buying into Shanghai real estate with that money.


In response to the dissenting comments to Andy's piece, I'd like to point out that perhaps his closing lines best address the ambiguities of the stock market -

"The stock market is notoriously schizophrenic.... But it’s more often right than wrong, especially when proving pessimists wrong and optimists delusional."

If you think Andy is too optimistic (delusional, naive?) or if someone else thinks you are too pessimistic, the stock market will prove you both wrong. The right answer is obviously somewhere in the middle and if you zoom out all the way on your temporal lens, it wont matter what that middle is.

For those of us who like to zoom in - better be alert when things start moving rapidly, try focusing then...


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