Very excited to share this recent Real Vision interview clip examining how the Tri Polar World (TPW) thesis can be used throughout the global investment process from asset allocation to regional weightings, country selection, sector determination and stock level opportunity. Further thoughts on how low volatility begets low volatility & how the best global synchronized econ recovery in decades provides the space for CBs to begin normalization.
Globalization’s ship has sailed and the party is over. Emerging in its place is a new tri-polar economic order composed of major trading blocks in the Americas, Asia and Europe. Watch Jay's interview with Jobs in ETFs to learn more.
PODCAST: Globalization’s ship has sailed and the party is over. Emerging in its place is a new tri-polar economic order composed of major trading blocks in the Americas, Asia and Europe.
Thank you Ken & all the folks at MSCI for the invitation to speak today. I would like to take the next 30 minutes or so to discuss with you the global framework for growth, utilizing a model I call the Tri Polar World. I will do so in the context of President Trump and his likely approach to trade, utilizing both a US and global perspective.
This will be a 30k foot view and we will cover a lot of ground in a short period of time. I hope to leave you with a better understanding of the current global trade profile, the opportunities for US trade under Pres. Trump and how the Tri Polar World can serve as a global growth catalyst. I hope our engagement might also spur some fresh thinking about the global real estate map.
Here is a piece on the Tri Polar World where I argue that both top down geo economic and geo political forces together with bottoms up corporate supply chain reshaping are driving regional integration, aka the TPW. The Tri Polar World global framework has been instrumental in driving a differentiated investment perspective as illustrated in my Top 5 Trades of 2017 video which I made available earlier this week.
As President Trump contemplates a new trade order, one that puts America first, he may be surprised to find he is pushing on an open door. From both a top down geo- economic level as well as bottoms up corporate level, 21st Century trade is in urgent need of a new vision.
One vision the President may wish to consider is what I have termed the Tri Polar World (TPW) global growth model. This model argues that regional deepening in the three main regions of the Americas, Asia and Europe could become the world’s next growth catalyst.
Globalization as we know it is dead in the water while policies of economic nationalism risk trade conflict across the globe. Given a fragile global economy coupled with a broad and massive debt overhang, trade conflict is arguably the last thing the world needs. Regional deepening on the other hand has the potential to harness the tailwinds of technology & consumer demand to drive the global economy forward.
Similar to most new orders the TPW arises out of the ashes of its predecessor, the Washington Consensus, itself a victim of the Great Financial Crisis (GFC) of 2008. One reason for the world’s current growth malaise is that the GFC upended not only the US debt financed consumption model but also Europe’s vendor financing model and the emerging market’s export to the West model.
Thus globalization has been in retreat since 2008, as the financial sector, the tip of the globalization spear, was rolled back while global trade growth rates became so anemic as to fall below already unsatisfactory global GDP growth rates. At the corporate level, outdated concepts such as outsourcing and offshoring have been replaced by onshoring and supply chain reshaping to service the last mile.
Today, each main region has the potential to deepen its integration & thus stimulate growth via three new and mutually reinforcing factors: the ability to self finance through growing wealth pools and deeper capital markets; the ability to self produce through the rise of advanced manufacturing, automation and robotics (albeit with worrisome job implications) and the capacity to self consume through urbanization, the service economy and the relentless rise of e commerce.
Each region has approached this new world differently, providing an opening for Presidential leadership. Asia, led by China, has been the proactive region, as demonstrated by the creation of the Asia Infrastructure Investment Bank, China’s launch of its One Belt, One Road project (designed to reposition and repurpose China’s infrastructure capacity), and most recently the opportunity to develop pan Asian trade pacts aided by President Trump’s decision to withdraw the US from the Trans Pacific Partnership (TPP).
Europe, beset by a series of rolling financial, economic and political crises, has been the reactive region, focused on trying to keep its union intact. It’s an open question as to whether the combination of Brexit and President Trump will reenergize the European project or cause its demise. Ongoing projects such as the Capital Markets Union and Digital Single Market suggest opportunity; multiple elections this year pose risk.
That leaves the Americas or the inactive region. The Americas, which arguably introduced the concept of regional deepening with the North American Free Trade Agreement (NAFTA), has failed to make any progress since.
President Trump, in upcoming talks with his fellow NAFTA leaders, has a tremendous opportunity to lead with this new trade vision and not only update NAFTA but extend it further southward, bringing into the regional fold South and Central America. Focusing southward as opposed to across the Atlantic or the Pacific would deepen economic relations with 20 + countries and roughly 500 million people whose political systems are more open to closer engagement with the US than at any point in the past several decades.
Such a vision would leverage NAFTA rather than eliminate it, demonstrate a strategic vision beyond the art of the deal and lead the way to a new cycle of US, regional and global growth. Technology is bringing the world closer together, replacing the 1980s-1990s cheap labor & global supply chain focus with that of 21st Century customer fulfillment, last mile logistics and regional integration. President Trump has a unique opportunity to Go Big AND Go Home. He should seize it.
The global economy remains listless: buffeted by weak oil, falling prices, lack of demand, the absence of fiscal stimulus and a near-total dependency on monetary policy. Roughly 25% of Europe’s sovereign bonds offer negative yields, the US remains stuck on a 2% growth path, China is slowing rapidly while Japan seeks to bolster a weak recovery.
Regional integration can act as stimulant to refresh globalization.
Five years into the global financial crisis, the prospects for economic growth are again deteriorating. The IMF has revised downward its 2013 forecast for world economic growth to 3.3 percent, confirming that a worldwide economic growth compression is still at work.1 U.S. GDP growth in the first quarter of 2013 came in at 2.5 percent, well below estimates, and is expected to weaken further as cuts in government spending and payroll tax hikes together with headwinds from Europe and China continue to act as a drag on the U.S. economy.2 The Euro-zone remains in recession, as economic weakness has spread from the southern Euro-zone economies to Germany and other core economies.