Eric Fry

Eighteen years ago, Morgan Stanley’s Investment Strategist, Byron Wien, quipped, “Unless Europe engages in an extensive program of restructuring, in 20 years it will be a vast open-air museum.”

But Europe did not restructure herself. Instead, she clung tenaciously to her beloved Welfare State. As a result, the museum’s doors are now open…and what a delightful museum it is!

Every exhibit hall features fascinating artifacts of capitalism and/or real-time interactive displays of the “Welfare State in Motion” — i.e. in stasis. The “Paris Exhibition” gets our top vote: Plop yourself down at a café table, sip a $15 cappuccino and watch unionized employees pretend to work.

Be sure to put it on your bucket list.

As museums go, this one may be the most dynamic and expansive one on the planet. If current trends continue, a brand new “American Wing” will be opening soon. In fact, to judge from the graphic below, this museum may soon have docents strolling the streets of almost every major economy in the Developed World.

The Shifting Composition of World GDP Over the Last Decade

During the last decade, the six largest economies of the Developed World lost “market share,” while six of the seven largest economies in the Developing World gained market share. America’s share of world GDP, for example, plummeted from roughly 32% to 22%. By contrast, China and Brazil both doubled their shares of world GDP, and most other Emerging Economies posted similar results.

These data points show the world as it is; not as we might like it to be…and certainly not as Americans believe it to be. Yesterday’s superstar economies are fast-becoming today’s has-beens, while many of yesterday’s basket-case economies are fast-becoming today’s dynamic upstarts.

Despite this palpable reality, most Americans continue to invest as if past performance does, indeed, guarantee future results. They prefer the “known quantity” to the “unproven prospect.” Problem is; the “known quantity” doesn’t really exist. The “known quantity” may be known, but its future performance is a complete unknown…as the history of sport frequently reminds us.

In 2007, the final year of Roger Clemens’ legendary, 24-year baseball career, he signed a $28 million contract to wear Yankee pinstripes. He would go on to win six games (and also to lose 6 games) that season with an ERA of 4.18. That’s almost $5 million per win, or $5 million per loss, depending on your perspective.

That same year, the L.A. Galaxy soccer team paid $250 million to import soccer legend, David Beckham, for a five-year contract. During those five years, Beckham spent lots of time nursing injuries and very little time leading his team to victories. Sure, he delivered a few memorable moments on the pitch, but not $250 million worth.

Known quantities may be familiar, but that doesn’t qualify them as intelligent investments. Out in the global economy, for example, many of the preeminent known quantities are losing their edge to relatively unknown up-and-comers.

Half of global GDP is now produced by what we call the Emerging Markets. Looking farther out, the IMF expects the Emerging Markets to produce more than 60% of the world’s GDP growth over the next four years — or about five times the growth the G-7 countries will contribute.

The IMF has been known to make a mistake from time to time. But its forecast is probably close to the target in this case. So perhaps the time has come to cast aside our fears and to embrace the world as it actually is, not as we might like it to be.

Aging superstar athletes cannot rejuvenate themselves…and neither can aging Welfare States.

Eric Fry
for The Daily Reckoning

Eric Fry

Eric J. Fry, Agora Financial's Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling.  Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research, institutional research products dedicated to international investment opportunities and short selling. 

Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry  supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts.  His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.

  • http://www.facebook.com/keith.jagger.94 Keith Jagger

    The only thing I have to say to this is…USA…USA. We’re number 1; Charlie number 10.

Recent Articles

Give Your Book Away For Free, Make More Money

Chris Campbell

The publishing industry is on its head. These days, it makes more sense to make money before you write your book and give it away for free once you do. In today’s Laissez Faire Today, Chris Campbell shows you how to create a hit with those two counterintuitive steps. Read on…


How to Poke the Russian Bear in 3 Easy Steps

Greg Guenthner

Interested in buying the dip in Russian stocks this morning? Before you do, let’s try to knock some sense into that skull of yours. Late last week, I reminded you why we bid farewell to the big Russian bear back over the summer. At the time, Russia was one of the cheapest markets in the world. But cheap can always get even cheaper—and Russia is certainly no exception. With comic book supervillain Vlad Putin manning the controls from his secret Siberian lair, the Market Vectors Russia ETF (NYSE:RSX) has dropped a cold 20% since registering its late June highs. Does it have a shot at rebounding? Greg Guenthner explains…


Why Malpractice from the Fed Will Undermine Growth

Steve Forbes

The latest friend of ours to weigh in on the topic of the value of your money is Steve Forbes. As you’ve been reading this week, we paid a visit to Mr. Forbes recently, to discuss his latest book, Money. In this essay, you’ll find his thoughts on currency devaluation… it’s impact of economic growth and your investments…


Video
The Two-Pronged Approach To Safe, Consistent Gains

Steve Forbes

What causes individual investors to underperform the market year after year? Volatility? The Fed? In today’s video, Steve Forbes reveals what’s sabotaging your investment strategy – and the simple steps you can take to see consistent gains.


The Real Reason the Global Economy is Such a Mess – and How to Fix It

Steve Forbes

Why is the global economy such a mess? Why can't the world's foremost economists and financial thinkers seem to get it right? Simple... They don't understand the most basic element that makes up an economy: money. And as Steve Forbes explains, it all stems from the incorrect assumptions of a general theory of money. Read on...


Laissez Faire
Why Democracy Isn’t All It’s Cracked Up to Be

Chris Campbell

Is Democracy really all it's cracked up to be? And, more importantly, does Hong Kong really need it? China's wayward island already enjoys many of the freedoms of most democratic countries including free business, free trade and even low taxes. Chris Campbell ponders this idea today as he observes the protests from afar.