Dr. Fareed Zakaria is an Indian born, Yale and Harvard educated columnist, commentator, and international relations expert. Tagged a centrist, Dr. Zakaria is editor-at-large for TIME magazine and host of CNN’s Fareed Zakaria GPS. Speaking to financial advisors at Pershing’s InSite conference in Florida on June 8, 2012, Zakaria expounded on “Economic Crisis: Lessons Learned and the Way Forward.”
“Pessimism has gone global,” he declared. Will currency problems crash Europe? Are China and India slowing? While observing that the U.S. looks “positively cheery compared to Europe,” angst vexes American investors.
In a talk reminiscent of those delivered by the legendary John Templeton at pessimistic inflection points in days past, Dr. Zakaria took advisors down memory lane. We worry about stock market indexes that drop one to two percent in a day. On October 19, 1987, American warships shelled an Iranian oil platform in the Persian Gulf in response to Iran’s Silkworm missile attack on the U.S. ship Sea Isle City. Middle Eastern turmoil fanned fears of a U.S. slowdown and on Black Monday the Dow dropped 22.6%, erasing $500 billion in market capitalization in the largest single-day percentage drop in history.
In the 1980s, we feared the Soviet Union. On June 12, 1987, Ronald Reagan, in front of the Berlin Wall, challenged Mikhail Gorbachev, “Tear down this wall.” In December of 1991, a stunned world watched the Soviet Union disintegrate into fifteen separate countries. In 1992, the last leader of the Soviet Empire established the Gorbachev Foundation, headquartered in the U.S. The core mission of the foundation is to “contribute to the strengthening and spread of democracy and economic liberalization through a program of advocacy, research, and education.” When Nikita Khrushchev declared of the U.S., “History is on our side. We will bury you,” who would have predicted that history was on the side of freedom, capitalism, and economic integration?
In 1994, stock markets were roiled by the sudden devaluation of the Mexican peso in the “Tequila crisis.” In 1995, excessive debt in Asian countries triggered concern, prompting economist Paul Krugman to declare emerging markets “a myth.” In July, 1997, Thailand devalued its currency, the baht, triggering the Asian contagion, which led to the collapse of KIA in South Korea. Today KIA manufactures vehicles in a $1 billion state-of-the-art plant in West Point, Georgia.
The Russian debt default of 1998...the tech stock crash of 2000...each jarring event permeated by the word “crisis.” Bad bets on mortgages led to the 2007-2008 global financial squeeze, prompting The Wall Street Journal on 9/18/2008 to headline, “Worst Crisis Since ‘30s, With No end In Sight.”
Dr. Zakaria reminded advisors that the inherent strengths of the United States have always come to the fore as we reinvented ourselves. “Resilience” is an American hallmark. The U.S. dominates the Information Revolution. We have the finest universities in the world. We offer the best connection between investment funds and breakthrough research. Whereas many European countries and Japan are losing population, America continues to grow. U.S. growth will solve the housing crisis, eventually.
We are in a private deleveraging cycle that slows growth in the near term, but is healthy long term. Problems centered on debt, retirement, and entitlements are on the front burner, and will be tackled. “Tough times are a good thing,” argues Zakaria. Governments globally will be forced to confront reality. Look below the surface, he says. Wisconsin, New Jersey, San Jose, San Diego, Rhode Island...pension reform is happening. Entitlements are unsustainable, precipitating a rise in individual responsibility, as advisors advocate holistic planning and financial independence.
In Europe, Zakaria is confident that Germany will contribute to a bailout, leading to a tighter political and economic union. China will slow down but not crash, taking pressure off commodity prices, an overall positive, despite some slowing in commodity exporters like Australia and Brazil.
“Don’t bet against the U.S.,” declared Dr. Zakaria. Good advice for forward-thinking investors!
The Investment Coachä 1994, Walker Capital Management Corp., 3930 East Jones Bridge Road ▪ Suite 150 ▪ Norcross, GA 30092 ▪ 770-441-2603 ▪ (Fax) 770-441-7936. Lewis Walker is President of Walker Capital Management Corp. and Walker Capital Advisory Services, Inc., a Registered Investment Advisor (R.I.A.) Securities and certain advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative of SFA which is otherwise unaffiliated with the Walker Capital Companies. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Indexes are unmanaged and investors are not able to invest directly into any index Past performance is no guarantee of future results.