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| Thought Leaders: Industry |
Expensive Discounts
David A. Schwerin
01/01/2008
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The implications of China’s evolving low-cost strategy are
every bit as significant for Wall Street as for Main Street. Investors have
benefited from a low inflation, low interest rate environment for many years.
Leverage has been easy to obtain and profitable to employ. Investors, mortgage
lenders and credit card borrowers have learned to enjoy living beyond their
means. China’s surpluses have been invested primarily in U.S. Treasurys,
facilitating our borrow-and-spend addiction. World economic growth has been
robust, but our current codependent relationship is unsustainable. Adjustments
such as cradle-to-grave pricing, which reflects all transportation, resource
depletion and disposal expenses, are necessary if we are to make the best
decisions.
The bottom line is that consumer costs are certain to rise as
China’s product quality is improved, its workforce better paid and its environmental safeguards enforced. This means that inflation and interest rates
will be higher. And as consumers are forced to rein in their debt, spending
will return to more sustainable levels. Add it all up, and today’s historically
high profit margins are likely to decline. Investments that look reasonably
priced today may be more reasonably priced tomorrow. As a professional money
manager for more than 35 years, I know that predicting future trends is
perilous. I also know that markets are constantly changing, and China’s shifting
priorities will offer both opportunities and risks for the thoughtful investor.
Art by Matt Mahurin.
David A. Schwerin is the president of the Institute for Ethical
Awareness and a visiting professor at Tianjin, China, University of Commerce.
His most recent book is Conscious
Globalism: What’s Wrong with the World and How to Fix It.
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