my fundamental view exactly

I came across this newsletter while doing some research on the internet. The author seemed to piece together exactly what I have been thinking throughout much of the year. I quote;

Investing and the big picture of the world.

I believe there are two major trends, or super trends, that are setting the stage for most of what is happening around the world. It is important to understand these two trends in order to interpret the day-to-day events that affect our lives. The bottom line is I think we are in a period of great wealth creation…

The first trend is the spread of capitalism, free markets, and democracies to many countries around the world. This trend started when the U.S., with these ideologies, became the single super power as the Soviet Union collapsed, symbolized by the tearing down of the Berlin Wall in 1989.

The second trend is the computer technological revolution. Initially, the computer reduced the cost of doing business. Now it is changing the way we do business. The impact goes beyond business and is changing our daily lives…

One of the most obvious of the sub-trends is the advances in developing countries. India and China are prime examples. Millions have left rural areas to work in the cities. These countries have become the low-cost provider of many manufactured goods (and sometimes services) and they have taken away pricing power for manufacturing facilities around the world. The net result is world-wide inflation remains very low. The exception tends to be in raw materials that are being purchased by the developing countries to manufacture goods for their citizens whose standard of living is escalating so rapidly. This is the reason world-wide prices of oil, gas, cement, steel, etc have all increased so dramatically while most other prices have remained flat.

All of this has caused huge shifts in capital and balance of payments problems. While the U.S. savings rate remains low and the Federal Government runs large deficits, the saving rates in many other countries is high. On balance, world-wide savings are positive. Much of the excess savings comes back to purchase what historically has been the safest investment in the world, U.S. government bonds. The surplus savings (and the purchase of long-term bonds) helps to explain why long-term rates have remained low, even as the Federal Reserve has increased short term rates, the "conundrum" as Chairman Greenspan has labeled it. Historically, long-term rates that are lower than short-term rates indicate an upcoming recession. Because of the high world-wide growth rates, this traditional forecasting tool may not work this time.

Robert Kreitler…Kreitler Associates

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