Tuesday, March 10, 2009

Economic Power Is Flowing from West to East

Earlier today I read an article on the Seeking Alpha investing website. The author of the article was wondering why in the world China was stockpiling oil and other commodities now. After all, the global economy is tanking.

The thinking behind the article is further proof of one of my main long-term investment themes. That theme is that global economic power is flowing from the Western economies - led by the United States, to the Eastern economies - led by China.

In China, the leadership thinks in terms of decades. They care little for the short-term. China, therefore, is stockpiling key commodities such as oil for future use. China is also outright buying commodities companies in places like Australia and Canada. This way China can insure future rapid economic growth by having an assured supply of the necessary commodities for their economy.

Then we turn to the United States - the country that is based immediate gratification. We have corporations that rarely looked beyond the next quarter or two. The goal of managements has been to "beat the street", get rave reviews on CNBC, and then see their stock price rise.

The rising stock prices has meant lavish bonuses and stock options for executives. This emphasis on the very short-term in corporate America has definitely come home to roost. Many of the current economic problems stem directly from emphasizing short-term results and ignoring the long-term consequences.

Unfortunately, the emphasis on the short-term extends right down to the individual level. I speak to many individual investors on a regular basis. I am amazed by how they are so short-term focused.

When I mention, for instance, that I expect many commodities to much higher in price within two years, here is the reaction I get - "Who cares! I don't care about two years down the road".

Is it any wonder that most individual investors portfolios are in shambles?

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