Update: US Speaker Nancy Pelosi just landed in Taiwan, the first time such a high level official visited the island since 1997. China reacted strongly back then, but it was mostly hot air. I think it will be different this time. In 1997 China’s GDP was 10% of America’s - today it approaches 80% and I think it will react accordingly.
The US stockmarket has always been "optimistic". It always managed to quickly discount geopolitical crises and move on to new highs. For example, in the last 10 years S&P 500 is up 190% while Germany's DAX is up a mere 85% - see chart below.
The obvious reason has been the status of the US as the world's premier economy and undisputed geopolitical power. But, this is no longer the case as China and Russia are clearly nipping at America's heels. The fact that Pelosi's visit to Taiwan has to be kept a secret speaks volumes.
How long can US stockmarkets trade at a fallacious premium? IMHO, until China decides to truly flex its muscle and challenge the US in a one-on-one confrontation. Pelosi's trip may very well be one such situation, there will certainly be more. (Russia is already challenging the US/EU with impunity, sanctions are a joke).
The American general public has always been isolated from and indifferent to international affairs, taking their country's power for granted. Sad to say, but my experience shows that the same holds with American financial professionals.
I think a rude awakening is fast approaching and the premium will melt away.
PS There are more signs that America's pre-eminence is weakening: India is siding with Russia and China, Turkey's Erdogan is flouting US power, Saudi Arabia is going its own way. This is not "normal", it's not business as usual.
hmmm.... you know,... what bothers me is not so much the events itself, but the way the U.S. media depicts events... to keep things current, let us use the Taiwan example...
ReplyDeleteThe U.S. media tends to focus on the possibility of a Chinese invasion... and from that perspective, China has the far weaker hand... because success is somewhat dubious. But the truth of the matter is there is another option... China could just Nuke Taiwan out of existence... It does not need the land,... it certainly does not want the people... it fulfills all strategic goals... And from this perspective, China's hand is much stronger... I am sure the media (and anyone who has thought about the issue) is aware of the nuclear option... what really bothers me is that the media is not even considering the (most likely?) offensive option.
The refusal to have a good, factual discussion is disturbing, cause it makes it really hard to reach good decisions...
That's a chilling thought... but I assume China views Taiwan as part of the country (it certainly claims so) - why would it nuke itself? I think that the most likely option is the takeover of one or more of Taiwan's other small islands near the mainland. And I think it will happen very, very soon.
Deleteindeed China views Taiwan as part of itself.... and such a betrayal can never be forgotten... enemies can be forgiven but not traitors... =)
ReplyDeleteHmmm sanctions take time to be felt fully, Russia is a tiny, corrupt, backwater State trying to punch way above their weight imo. Here's an interesting Yale study on the Russia sanctions
ReplyDeletehttps://t.co/4B9kGmHaUZ
As for China, all the Pelosi blustering may just be mostly directed internally; with Xi looking to get further ratified in the upcoming Party Congress.
Hey cambron... it is nice to see you again. =)
ReplyDeleteWay I think of stuff is that only production counts to raw power, not the consumption aspect of gdp... also, if the focus is power , ppp adjustment is necessary. So for U.S. power, where consumption at 83 % of gdp.... its actual power is approximately (1 - 0.83) * 25,346,805 = 4,308,956... China's is (1- 0.543) * 30,177,926 = 13,791,312... btw... if you calculate this way, Russia is not a small economy... it is nearly the size of Germany...
table of PPP
https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)
Putin and Xi... are aggressive and possibly unethical... but they are not mad.... they have survived numerous power struggles... I trust their power calculus.
DeleteCheers akoc, I'm always lurking here ;) Sure, production is what counts, but precisely Russia mostly exports raw commodities, and then Putin and his ilk steal a good chunk of the revenue...
Deleteyup agree... Russia alone is no threat.... China alone can be isolated... Russia with China... now we are talking business... Russia with China, India and ASEAN... we may be talking new world order here...
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