Geo-Political Matters and Global Economics

I indicated last week I would begin to make a few comments on the major points, that in my view, need to be addressed right now, to move forward (fiscal responsibility, education, energy, defense, healthcare, social security and other entitlements).

But first, a few words on the geo-political environment are necessary as backdrop to understand the source of my observations.

Others are much better informed to discuss geo-political matters and the global economy, but it is important to note that I do remain relatively bullish on the U.S. economy as well as the global economy (in the long-term recognizing short-term volatility). I believe in the American spirit of entrepreneurism and capitalism, two principles on which this country was founded and are the economic cornerstone of this nation.

I strongly believe that there is entirely too much emphasis and importance placed on knee jerk reactions to current events and what I perceive to be the competition within the media to be the first to report events (whether it is geo-political or economic) and immediately interpret its meaning. A recurring theme you will see develop in my observations is that this entire world needs to spend way more time in thoughtful and respective dialogue and work towards resolutions and appropriate consensus. I could go on for hours on this subject, and perhaps one day I may!

A simple case in point is the Dow and S&P lost almost 2% in value last Friday due to the unrest in Egypt with some news outlets discussing the impact on oil and energy – but Egypt is a net importer of oil!

The Middle East
With that, the world is full of push and pull and the unrest in Egypt, while individually is not overly concerning to me, it is very much a symptom of a bigger issue. Certainly if it spreads, it is a concern. Egypt while a very old country chronologically in the history of the world dating back to 3000 BC, is an extremely young country compared to its neighbors when the median age of its citizens is 24.

If citizens of other countries see riots and violet protests as a means to effect change, that becomes very concerning. The interplay and balance within the Middle East with Saudi Arabia, Iran, Israel, etc. is fragile. More unrest could occur if any of these countries see this as an opportunity to try to exert some additional power and significance given the stretched resources of the world’s chief enforcer – the United States. As I type this, President Mubarak has indicated he will not run for re-election. This should significantly calm matters and restore the existence of fragile balance over the next few months.

Japan and China
The likes of Japan don’t worry me. As John Mauldin (www.JohnMauldin.com) so perfectly says, “Japan is a bug looking for a windshield.” And while a lot of time is dedicated to China in the news outlets, China will never be viewed on superior terms or even equal terms when compared to the U.S. China is all about China. There is frightening oppression (of all kinds) throughout China (China recently blocked all information about Egypt via the internet and other social media outlets – although, as did Egypt); and the manipulation of their currency for their own benefit makes Fed Chairman Bernanke and Treasury Secretary Geithner weep in jealously. China is interesting and obviously worthy of attention from an economic balance perspective as they contribute to the world economy, but they are only about China and nothing else, full stop. Just one more example – China is considering a law that requires foreign companies to transfer technology to China if they hope sell in the Chinese market. China is looking to lead not by inventing, but by stealing and rebranding. Ultimately, that is not a sustainable business model.

I just cannot envision a scenario where China is respected as the U.S. is respected.

Europe
Europe is important but fairly well-balanced. Again, much is being made about nothing with respect to the EuroZone, the Euro and its challenges. Each member is relatively small in the grand scheme of the geo-political world and its economic and geo-political operations will eventually sort themselves out quite naturally in time.

The United States
All of this points to the United States continuing to be the Commander-in-Chief from a geo-political and economic point of view. However, for this to occur there does need to be some very meaningful and real changes in the United States; and these changes can come about as a result of dialogue, not protests. The United States simply cannot continue with a budget where only 60% of the cost is covered by revenue and the remaining 40% is borrowed, coupled with the fact that 84% of the budget represents entitlements and defense.

These are important points and the United States need to get its fiscal house in order and strengthen its core competencies.