Economies in Asian coun­tries grow dur­ing tur­moil in U.S.

The Mercury News - - Business - Steve But­ler Steve But­ler is the CEO and founder of Pen­sion Dy­nam­ics Com­pany LLC. To read past col­umns and learn more about his book, visit www.pen­sion­dy­nam­ics.com and click on re­sources. Steve can be reached at 925-956-0505 ext. 228 or sbut­[email protected] pen­siondy

A re­cent trip to Viet­nam, Cam­bo­dia and Laos left me in awe of the stun­ning dis­play of eco­nomic progress in that part of the world. Driv­ing into Ho Chi Min City from the air­port of­fered a tes­ti­mo­nial to the suc­cess they are achiev­ing as they move to­ward a free-mar­ket econ­omy. A string of au­to­mo­bile deal­er­ships in­cluded Rolls Royce, As­ton Martin, Jaguar, BMW, Mercedes — and a com­ple­ment of other ma­jor brands. Our guide pointed out that changes hap­pened overnight in 1995 when Pres­i­dent Clin­ton lifted the sanc­tions that had per­sisted for the 20 years since the end of the war in 1975. Schools im­me­di­ately ter­mi­nated Rus­sian and French lan­guage classes and switched to English.

At one in­ter­sec­tion, I es­ti­mated that there were eas­ily 200 mo­tor scoot­ers, like a bat­tal­ion of sol­diers, wait­ing for the light to change. There are over 5 mil­lion scoot­ers in a city of 12 mil­lion peo­ple.

They even have a scooter ver­sion of Uber known as “Grab.” You dial up a ride on your phone. A guy on a green scooter with a match­ing uni­form pulls up, of­fers you a green crash hel­met, and off you go. We hired scoot­ers with driv­ers to take us on a food tour of street “restau­rants.” The econ­omy is lit­er­ally “hum­ming along.”

Mean­while, the Chi­nese, Ja­panese and Aus­tralians are all build­ing in­fra­struc­ture in­clud­ing bridges on the scale of our own Bay Bridge. In Laos, the Chi­nese are build­ing a high­speed train to bring tourists and com­merce to that moun­tain par­adise. For­eign coun­tries are of­fer­ing to build these projects at no cost in some cases in ex­change for the right to do busi­ness.

A trip to to­day’s In­dochina of­fers a re­minder of the ex­tent to which we are all part of a global vil­lage with the power of eco­nomic cross-pol­li­na­tion. The fight over bal­ance of pay­ments is­sues just ig­nores the com­par­a­tive ad­van­tage that cre­ates cheap prod­ucts for us to buy, which then al­lows us to be able to af­ford more of what we cre­ate do­mes­ti­cally.

Which brings us to the trade war. Main­stream econ­o­mists point out that both sides lose in a trade war, and the stock mar­ket tur­bu­lence in­di­cates agree­ment of the busi­ness com­mu­nity.

Gary Cohn, the for­mer direc­tor of the Na­tional Eco­nomic Coun­cil, pointed out that Pres­i­dent Ge­orge W. Bush in­tro­duced steel tar­iffs in 2002. Although it did save 6,000 steel­work­ers’ jobs, those jobs were off­set by hun­dreds of thou­sands of job losses across the econ­omy. The tar­iff-in­duced price in­creases (ef­fec­tively “taxes” that we pay) ad­versely af­fected sales of any prod­uct in­volv­ing steel — and ul­ti­mately threat­ened the jobs of 6.5 mil­lion work­ers in those steel-con­sum­ing com­pa­nies. It was a re­peat of what had hap­pened in the 1920s and again in the 1950s.

The months ahead will be piv­otal as the mar­kets come to terms with not just tar­iffs but our in­ter­nal po­lit­i­cal tur­moil as well. No­body is ever 100 per­cent con­fi­dent in the wis­dom of mak­ing a spe­cific in­vest­ment de­ci­sion. It is, at best, a guess at cor­rectly as­sess­ing the prob­a­bil­ity of suc­cess.

There’s al­ways that “wall of worry” to clam­ber over. We have, for ex­am­ple, passed the tip­ping point where the RATE of growth has just started to slow down. That means the econ­omy is still grow­ing, but that it is not grow­ing as fast. His­tor­i­cally, this is a for­ward in­di­ca­tor that lets us know that stock prices will be soft­en­ing sooner or later. The model, by it­self, in­di­cates a mild re­ces­sion in 2020 which may al­ready have been re­flected in the yearend mar­ket per­for­mance.

Be­yond just the fi­nan­cial data, we have to con­sider po­lit­i­cal fac­tors like the trade war, po­lit­i­cal tur­moil and ag­gres­sion from Ko­rea, Rus­sia and China. More­over, there’s al­ways some Black Swan event that, by def­i­ni­tion is im­pos­si­ble to con­ceive of much less pre­dict. But un­like the Black Swan fi­nan­cial col­lapse of ’08, to­day’s par­a­lyzed frac­tious lead­er­ship would be pow­er­less to con­front the prob­lem as ef­fec­tively as the ex­pe­ri­enced Bush and Obama ad­min­is­tra­tions.

The in­vest­ment an­ti­dote is not a re­treat to cash but a segue to­ward a higher per­cent­age of bonds cou­pled with stocks in large com­pa­nies that pay div­i­dends — the mu­tual fund so­lu­tions would be bond funds or large cap value funds. Then, we grip the arms of our chair as tightly as we can, and, as our pres­i­dent is fond of say­ing, “we’ll see what hap­pens.”

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