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Thursday, July 26, 2007

Place your bets

The Dow Jones Industrial Average closed yesterday at 13,785.07. Where will it go? Please see the survey on the right.

Here's an idea: the doomsters may be correct in their analysis, but wrong in their prognosis. If sovereign wealth funds continue to grow, we may see a new type of massive institutional investor, one that has no plans to retire or die. So ownership of American, British and other Western countries' businesses will shift to the East.

Initially, this will seem to make little difference, except that the markets may become better-supported against falls and may trend upwards, long-term (in currency terms; I'm not so sure about inflation-adjusted terms). But the dividends on foreign-owned shares will not accrue to the host countries, and so the US and UK will bleed from two wounds: trade deficits and accelerating loss of investment income.

If small businesses are eaten by big businesses, and big businesses have been taken over by sovereign wealth funds of other nations, the result for us may be not only economic impoverishment, but a form of slavery, since we will have lost control of our means of production. All we will have left is our labour, and in world terms, you and I are grossly overpaid. There is an developing Eastern middle class that can and will do everything better, faster, harder and cheaper than you. Many of them speak better English than the English.

Look at the businesses these sovereign wealth funds are going for. China: $3 bn for a 9.9% stake in giant US hedge fund Blackstone in May this year, and now (with Singapore) 10% of Barclays Bank (UK); Qatar: Sainsbury's (UK supermarket chain). These investments involve commercial property, finance and retail distribution. I've recently relayed James Kynge's statement that Chinese manufacturing only gets them 15% of the end price; now they're after the other 85%. I shouldn't be surprised if we start to see acquisitions in marketing and advertising firms, too.

What to do? I think:
  • Work hard and earn as much as you can, while you can.
  • Look after your health. Better not to get sick in the first place, than hope for "healthcare" to put Humpty Dumpty back together.
  • Live simply and well within your means. Do you need a car? One that size?
  • Pay off debts as fast as possible.
  • Save and invest.
And if you have time and don't mind potential official surveillance and bullying, give your politicans earache about their incompetence, which is on a scale that to some might seem almost treacherous.

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