September 30, 2005
The Cost of Distraction
The Cost of Distraction. I had a great opportunity to talk with investors today in Atlanta where I spoke to several hundred financial advisors. They told me one of the big problems they face is clients that are still scared to invest in the equity markets.
Who can blame them. For weeks now, all we hear on the television is about death and destruction. It's like having the four horsemen of the apocalypse for roommates.
The hurricanes were a big human story. A lot of people were hurt. But they are not a big economic story. Our economy in the US produces about $13 trillion worth of goods and services this year. Private citizens in America own more than $105 trillion dollars of assets and have a net worth of over $50 trillion. It would take more than a hurricane to knock it over.
My main point today, both at the investor meeting and while taping Bulls & Bears on Fox News later this afternoon, is that we can't afford to spend any more time talking about hurricanes. The one thing we know about storms is they do end. Instead, we have to focus on problem number 1. Unless we change course, the US and China are going to knock heads over energy supplies in the not too distant future. Both countries need to take steps to avoid that.
In China last week I learned a disturbing fact from my friend Peter Schwartz at SRI. At current levels of oil per dollar of GDP and projected growth rates, China will consume more oil in twenty years than total global oil production today. It is paramount that both countries find ways of reducing oil and energy consumption per unit of GDP and do what we can to increase supplies of oil, gas, coal, nuclear, and renewable energy.
One reason why is the Arabian Gulf. It will cost more than $750 billion in capital spending there over the next decade to capacity growing fast enough to match demand. Investors won't put up the money unless they believe political risks are under control. That means continued troops in the region.
Another reason is what's happening in China. China is fast privatizing their oil industry, which is going to give rise to massive capital spending in the next few years for new refineries, new LNG facilities, and new exploration. To the extent China can discover new energy sources it will allow them to relieve pressure on global markets. It will also help China burn less coal and improve air quality.
It is going to take a lot of capital to do all this, which makes me b elieve we will see high returns and attractive equity markets for a long time to come. No matter how many hurricanes we see.
JR
Posted by John Rutledge at 10:19 PM | Comments (2)
CNBC Squawk Box on Technology and Education
CNBC Squawk Box on Technology and Education. I did 2 spots on CNBC Squawk Box last Wednesday. (I know, I apologize for not posting it ahead of time.) Had a great time. The first was about technology, the second about education. I think they are the same subject. In the first spot I had a disagreement with Mark Cuban about technology. Mark thinks American school kids have all the communications technology they need. I think that's a load of crap. I have spoken with grade school principals who tell me they do not have access to high-speed networks. They don't exist because our laws have made it uneconomic to invest in the fiber to the school/home/business. Thankfully, there are draft bills now in Congress that may help the situation. In the second spot I got to speak with Margaret Spellings, US Secretary of Education. She is terrific, and understands the problem. Education is the only reliable way to lift poor children out of permanent poverty. One of the anchors asked whether we could afford the money to improve education. We don't need more money, we need more productivity in education to lower the cost so every kid gets all they need. Technology is the way to get it. I saw things in China that will make you want to make sure your children get the best training possible. More on that later.
JR
Posted by John Rutledge at 11:47 AM | Comments (1)
Fox News Bulls & Bears Tomorrow Morning
Fox News Bulls & Bears Tomorrow Morning. I will appear on Fox News Bulls & Bears program which airs tomorrow (Saturday) morning. We will talk about oil prices, the economy, and stocks that make sense in this environment. See you there.
JR
Posted by John Rutledge at 11:42 AM
Back at the Keyboard Again
Have been getting calls and emails from subscribers. No, I didn't die in China, have just been nailed to an airplane seat. Am now on a first name basis with the crew on the Newark-Beijing nonstop flights. Will get back on the job now. More later today and over the weekend on China, hurricanes, economy, and investments.
JR
Posted by John Rutledge at 11:34 AM
September 10, 2005
Off to China
I am heading to Beijing today to meet my old friend Bob Mundell and check out the new Mundell International University of Entrepreneurship (MIUE) named in his honor.
I spend a lot of time talking about the importance of technology and education. We have to learn that in today's global economy, we are competing for capital, not jobs. Human capital tops the list. China gets it. The MIUE is an excellent example of how China is moving aggressively to bring in top quality talent--managers, scientists, engineers, entrepreneurs, and, yes, even economists--from around the world to train their people.
I will also speak at the China International Economic Forum,Shenyang Summit in Shenyang. Should be fun.
-JR
Posted by John Rutledge at 12:08 PM
Fox News Special on the cost of Katrina
Fox News Special on the cost of Katrina, Saturday Sept. 10. I joined the Fox News’ special report with Neal Cavuto to discuss the financial impact of Hurricane Katrina. With the 4th anniversary of 9/11 on everyone's mind, we discussed the reaction of the financial markets after 9/11 compared with the response to Katrina. Katrina was the worst national disaster in U.S. history, but, unlike after 9/11, the market was up. What gives?
People fear disorder. We need order to survive. When we take a breath, we want to find oxygen there every time. When a disaster strikes, people’s sense of order is shattered. When we loose the patina of civilized order, we behave badly. But people survive and adapt to change.
Americans are tougher now than we were in 2001. In the past 4 years we have supped on chaos—9/11, anthrax, Dot.coms, SARS, Iran, Iraq, Tyco, Enron, MCI, Arthur Andersen, Martha Stewart, Mad Cow (no, this is not a redundant reference to the prior item), scandal, Bird Flu, Russian school hostages, London bombings, Sudan, steroids, and $3/gallon gas. We have fired our ‘priests’ and former trusted advisors. We have burned witches--Sarbanes-Oxley. We violate due process at Guantanamo. A new army x-rays our shoes at airports.
While we don’t like the flavor of chaos, we are getting used to it. The interesting thing to me is the world is no more chaotic today than it ever was; it’s just that Americans can see it now real time and unedited. The lights are on and the cameras are rolling now everywhere and all the time with real time news coverage. Cable TV, networked PC’s, satellites are the reason.
This stuff isn’t hard. Our parents had it hard. They had the Great Depression, World War I, World War II, Hitler, Stalin, Korea, China, and Nuclear Threat. They didn’t whine. They fought wars, went to work, raised families, saved and invested. And the economy grew.
We’re beginning to do the same. Growth is very strong. While Q4 GDP growth could decline by 1/2% from recent 3-4% levels in Katrina’s wake, it will be back on track by the first quarter of next year. New Orleans employed 600,000 people before Katrina out of 148 million total for the U.S. U.S. employment. Our strong labor markets grows by about 200,000 people each month. We will replace the jobs lost in Katrina in 2 months. Although there is no way to make up for the human suffering and losses, the strong economy will help people get back to work and begin to rebuild their lives. The Fed will continue to target low inflation as their primary concern, but they will be more cautious about raising the fed funds rate now, not wanting to derail the rebuilding after Katrina.
Inflation is low and will stay low. Interest rates will stay low. Profits are up. The stock market reflects those strong fundamentals.
It would be a big mistake to bet against the American economy today.
-JR
Posted by John Rutledge at 11:37 AM
Real Time News
Real Time News. Our ability to see, non-stop, real-time coverage of events around the world has initiated changes that we are just beginning to see and do not understand. 1) It was the proximate cause of the Easter Accord in Northern Ireland and the IRA laying down weapons this year. That peace was literally purchased with American money, drawn from Irish-Americans who could not stand to see the violence in Belfast on their TV sets. 2) Increased visibility has dramatically increased the reach, the audience, and the ‘return on capital’ for terrorists. 3) It has increased the demands that poor people in China, India, and elsewhere are placing on their governments for rule of law and rising living standards. The result is policies by their governments to attract foreign (U.S.) capital, which has spawned the outsourcing battle here and in Europe.
The open question is what that steady stream of raw footage does to the viewers. Investors’ reaction to the New Orleans flood is an indication that we may be ready to confront real problems again. The flood of donations and the response of the stock market are both very positive signs for the country.
-JR
Posted by John Rutledge at 11:31 AM