This is one of those charts — call it infoporn — that us junkies find so very telling:
Notice that Asia, for its its mindshare, is still relatively tiny, and the U.S., despite her plethora of self-inflicted woes, remains globally dominant.
After that picture, words are almost redundant, but anyway, here’s a quick Ubiq-cerpt:™
"The world’s financial system is overflowing with stocks, bonds and other financial assets — $140 trillion worth, to be precise.
The figure was released in a study by McKinsey & Co. that maps financial assets around the globe and seeks to track the flows of these assets as they move from one region to another, putting hard numbers on the oceans of capital washing up around the globe.
At $140 trillion in 2005, the value of the world’s financial assets hit a new peak and was more than three times as large as the total output of goods and services produced across the planet that year.
The study, released today, paints a picture of a world in which investors and the banks that manage their money are spreading their bets more broadly. Flows of investment across borders hit $6 trillion in 2005, McKinsey said, above levels reached at the height of the 1990s stock-market bubble and more than double the figure in 2002.
At the epicenter of these financial flows is the U.S., which takes in about 85% of the flows from countries that are net exporters of capital — places like Japan, China and the Middle East. "It’s a pretty striking thing," says Diana Farrell, director of the McKinsey Global Institute, an in-house think tank that produced the report. "Of all the savings that citizens world-wide are willing to put outside their countries, the U.S. gets 85% of it."
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Fascinating stuff . . .
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Source:
World’s Assets Hit Record Value Of $140 Trillion
JOANNA SLATER
WSJ, January 10, 2007; Page C8
http://online.wsj.com/article/SB116839213664272112.html
I didn’t see the usual disclaimer: “No business analysts were seriously harmed in the making of this chart.”
… makes Henry C. K. Liu’s point about US hegemony.
Thanks Barry…indeed good stuff.
“Of all the savings that citizens world-wide are willing to put outside their countries, the U.S. gets 85% of it.”
Dollar crash, my arse!
How come bonds are financial assets? Are not not liabilities for the same amount?
I’d like to see a historical chart of world financial assets / world gdp. I’d bet that ratio is at an all-time high.
At the epicenter of these financial flows is the U.S., which takes in about 85% of the flows from countries that are net exporters of capital — places like Japan, China and the Middle East. “It’s a pretty striking thing,” says Diana Farrell, director of the McKinsey Global Institute, an in-house think tank that produced the report. “Of all the savings that citizens world-wide are willing to put outside their countries, the U.S. gets 85% of it.”
I would love to know the ratio of (1) how much of these flows are driven by people & organizations pursuing a return on investment and (2) how much of it is a result of foreign central banks sterilizing domestic money growth and/or manipulating their currency exchange ratio with the USD.
Setsers Blog often has a lot on the later group & their flows.
The reason it should be of interest to many of us is I’m not sure the FCB flows care so much about a return or even capital preservation as long as their goal of keeping their currency weak and their domestic money supply under control is accomplished so they can keep their export industries running full speed ahead.
I don’t think you would want to get involved in transactions where some of these central banks are active… especially if they don’t care if they make money on any given series of transactions – they are there for a different reason. That is sort of like playing chicken with kamikaze pilots.
My two big caveats are that the assets are (1) presumably counted only from official sources, and (2) denominated at nominal (and distorted) exchange values. “Actual” asset values OTOH have “fundamental” localized and social components. For example, the same productive asset in substantially similar production regimes can produce the same output regardless of its valuation.
Those numbers look a little low for the US. But then there are lies, damn lies..blah blah.
One should draw other less obvious data from this as well. 1) The world is not flat and those who believe it is never took second grade science classes. 2) The US is in no jeopardy of losing its status as the dominant economic power. 3) The intellectual capital of society is directly proportionate to its wealth. In other words, these Chicken Littles calling for ten trillion engineers and scientists from China to over run is is preposterous. 4) The US will drive the future of innovation and global wealth into the well beyonds. 5) Japan is and will be the dominate technological and innovatie power in Asia for a long, long time.
Outstanding chart. It is clearly telling me that a long-term investor should invest a significant % of their portfolio in emerging Asian equities. Short-term financial distortions aside, Asian economies possess well educated, industrious (still hungry)labor forces, they have higher savings rates to provide capital investment, are moving towards free markets and international accounting standards and have a population about 10X the size of either Europe or the USA.
Short-term risks, yes. But also the best oppportunities for long-term gains IMO. I think I’ll buy some more ETFs this morning!
Brady
For once, I agree with (part of) BDG’s comments. Our cerebral capital is not at risk of being “shown up”. Yet he’s wrong, or doen’t understand the premise of the flat world. The key is not us LOSING out in outsourcing or the technology edge…IT”S ALL ABOUT MASSIVE NUMBERS OF NEW CONSUMERS! Every day peasants are moving to the coasts, to join the 22nd century. This new demand for “stuff” cannot be ignored, and is in the early innings.
Fred, I liked you better when you were on Baretta. The only thing I ever had to hear you say was “Polly want a cracker”. Now, you’ve learned to repeat everything Don Hays says rather than be a generally mute side kick to Robert Blake. Might you tell me how 800 million Chinese making less than $1 per day is going to help us sell our consumer goods? Not that we won’t sell them some consumer goods. America’s innovation and export potential is based on the industrial economy. We export capital goods and capital wealth and that is what drives our export engines of innovation. The consumer markets are not markets of innovation. Most anything and everything you can cite as an innovation in the consumer markets came from the US or European industrial or military markets decades before. Why don’t you share with me what we sell the Korean and Japanese consumers besides beef and oranges? What will drive our export engine is the need and desire for foreign businesses and governments to update their business technology, infrastructure, business processs and innovation.
You need to learn to think rather than just parroting what you hear. Or go back to asking for crackers.
You know, snarky insults, followed by incoherent rants don’t in fact make you look smart. But I’m sure your smart enough to know that. I will never respond to your insults again.
Good luck (you’ll need it!)
Dryfly
Central bank reserves are roughly 60-65% denominated in dollars, accroding to the periodic studies conducted by the BIS and the IMF.
More and more of the central banks, including China, are seeting up investment authorities, similar to those of Singapore ($150 billion AUM), Norway ($300 billion), and Abu Dhabi ($350 billion.) Those institutions are very much profit maximizers.
But the point that a good deal of the money is currently in the hands of non-profit maiximers is a good one. That’s why they keep buying European currencies at farcically overvalued levels.
It’s the 300 million Chinese making much more than a dollar a day that are a new market.
Follow your old US trends – from the era of the TV crime / drama / comedy – if you like B, the Chinese are growing 10% per annum with 40% marginal tax rates, since, well, since Barnaby Jones.
If you’re a rah-rah Bushite, if / when they cut taxes they’ll grow even faster, right? … right?
Anyway productivity is what you want to track. US productivity vs the Euro, Japanese, and emerging Asia trends. That will give you a good idea of where things will go. I for one believe the sun will never set on the American empire… (where did we hear that one before?)
Anyway place your bets I’ve placed mine.
Fred, I find that amusing. It was yesterday when other posters provided facts and you came back with your snarky remarks. That’s actually the word another poster used to describe you: snarky. You can’t even come up with an original thought when you are attempting to deflect your baseless diatribe which has no supporting evidence.
You see, there is a pattern here. You regurgitate what you read and when someone disagrees and provides facts or a well thought out counter argument, you either attempt to reframe the argument or move off to some other attempts at vomitorium to cover your post’s lack of depth. That’s the problem when you are parroting rather than thinking. You leave yourself open to the sustainability of the argument you are parroting. I propose you go back, read a few books and when you are prepared to banter on here with some modicum of self thought, we’ll go back at it.
I disagree with many people on here but they’ve developed their own thoughts or thought through their own positions. You, on the other hand, need a cracker. I appreciate the fact that you won’t respond to my posts any more. Go sell some Caterpillar tractors, Manitowoc cranes, IBM supercomputers, Oracle business software, GE turbines, Boeing aircraft, Applied Materials fab equipment and Accenture business process services to your Chinese consumers making $1 a day.
I just read a survey that has 4 out of 5 computer/networking industry respondents seeing demand for their products increasing in the first half of ’07. I imagine that’s a surprise to the “recession is coming” crowd.
The rotation from energy (crowded) to tech (hated) is in the early innings. The death of technology and productivity will be proven wrong.
“Of all the savings that citizens world-wide are willing to put outside their countries, the U.S. gets 85% of it.”
? If
The US is not an asset-bubble economy…
are we are a sponge(bob) economy.
So, “…the U.S., despite her plethora of self-inflicted woes,..”. BR, let us know what these are (give us a ranked list, please) and tell us why the markets don’t seem to be paying attention to this “plethora” of Gloom and Doom.
bdg
you obviously have never been to china…its eye opening. climb out of your tower and see what is real.
Central bank reserves are roughly 60-65% denominated in dollars, accroding to the periodic studies conducted by the BIS and the IMF.
Since markets move at the margins… and that the composition of the flows need not equal the composition of the reserve pools… The more interesting question then becomes…
‘What is the composition of a particular flow, NOW?’
Because that will play a big role in valuations of their reserve holdings LATER.
More and more of the central banks, including China, are seeting up investment authorities, similar to those of Singapore ($150 billion AUM), Norway ($300 billion), and Abu Dhabi ($350 billion.) Those institutions are very much profit maximizers.
We assume the Chinese will have ‘fund profit’ as a motive – the test will be when (if) the RMB moves up & threatens the export engine… Will the party go along with that? I’m not so sure.
But the point that a good deal of the money is currently in the hands of non-profit maiximers is a good one. That’s why they keep buying European currencies at farcically overvalued levels.
It also explains why PBoC, BoJ keep buy ridiculously over-valued USD denominated assets… in an effort to drive down their rising currencies relative to their neighbors (export competition) as well as in absolute terms vs the dollar.
I’ll believe things have changed only after they have really changed.
B –
3x’s production is not that bad(“exuberant” just to clarify)…is it?
Here’s BDG’s analysis in briefer form: “America, Fuck Yeah!”
More from Setser on flows & their effects on bond yields & asset prices (in USD anyway):
Here
He quotes Tim Geithner at the NY Fed…
“Part of this recent dynamic in financial markets is a consequence of the present state of the international monetary system, in which a substantial part of the world economy runs exchange rate regimes tied in some way to the dollar. This has entailed a sustained period of very substantial official accumulation of dollar reserves, putting downward pressure on U.S. interest rates and upward pressure on U.S. asset prices.
These forces are surely transitory, but their impact on capital flows, interest rates and asset prices are important, not just in terms of their short-term impact on growth. If they are large enough, they have the potential to alter or distort current decisions about investment and consumption in a way that could be detrimental to our longer-run growth prospects. And they are important because they work to mask or dampen the effects on risk premiums in financial markets that we might otherwise expect to be associated with the expected trajectory of the fiscal and external imbalances in the United States.”
When they write the economics chapter on the history of our time – this will be the lead story.
Dryfly
The dollar share of reserve assets has remained relatively steady over the past several years even as the stock of reserves has exploded. The dollar weighting in flows, by extension, is very similar to the dollar weighting of the stock.
Dollar assets are probably cheaper than European assets at the moment, given that the euro is roughly 15% overvalued against the dollar. Sterling is even more overvalued. And would could make a pretty good argument that fixed income assets everywhere (other than, ironically, Japan) are heartily overvalued thanks to central bank reserve flows and the pension fund bid for the long end.
The BOJ (or, more properly, the MOF), FWIW, has not intervened in nearly three years.
The smart money increased their short positions again this week by a little over a billion and a half dollars. I’ll say it again. While the little guy sits drooling in front of CNBC dreaming about all the money he’s going to make this year as the market soars to great heights the smart money is quitely selling at a feverish pace. These are firms with billions and billions of capital and massive research departments. They can’t just unload their positions overnight they need someone to take them off their hands. That someone is the little guys and boy have they swallowed it hook, line and sinker.
Gary
The Vanguard 500 (home of the the little guy) returned 15.64% last year, almost certainly more than the Tremont/CSFB headline and long/short equity hedge fund indices (the smart money guys who were all over the housing collapse and the distress amongst subprime lenders ), both of which were up 12% YTD as of the end of November.
It’s not obviously clear that the ‘smart’ money is seeing the ball any better than the little guys.
It’s not clear
I’m referencing the S&P futures in the commitment of traders report that comes out every Friday. The commercial participants are almost 50,000 contracts net short. The only time this level of selling didn’t eventually top an intermediate move was in the fall of 03. They missed the signs that this was the begining of a cyclical bull market. That’s the only time they were wrong. They are almost always early though. However they have been at this level now for over 2 months. A few other statistics: this upleg is the longest so far except the intial surge out of Mar 03. The % move for this leg is also the largest other than the initial move out of Mar 03. With this level of selling and all other factors getting stretched the market is becoming very dangerous. Human nature being what it is I’m concerned that the euphoric level of bullishness now will swing just as far over to the bearish side when the correction comes, taking this market much farther down than would have occured had we not had such a parabolic rise. Take a look at assorted other parabolic advances to see whats in store when the momentum runs out of steam. There’s just too much complacency, too many people are going to hold on for way too long when the correction or worse, bear market arrives.
what a bear dister this has been since july. 1 100 pt correction in 6 months is sjut eye popping. the total control of the markets is damm right scary. there not even allowing the natural ups and downs of the market to happen. look how quick oil crashed and burned as it was manipulated up for years. the same things happen to stocks
The rise of this market in the face of an inverted yield curve is unprecedented. The rise of this market in the face of a 6% Discount rate is also unprecedented. It makes me wonder either what the hell is going on or what kind of disaster awaits on the other side of this rally.I’m bearish as I think this is bad for the market eventually but until there is actual money destruction through deflation I think this market won’t correct. The players just seem to be moving money around from one sector to the next oblivious to any kind of risk. But the bears have been wrong on this market for YEARS.
There is a major 4 year cycle turn date coming up soon but I half expect the market to blow right through that historical obstacle like it has done to all the others.
I assume these are total assets. It would be interesting to see a chart of liabilities and even better net worth. The US should shrink a lot on those.
SilverStockReport math:
140 Trillion (assets) / 5 Billion (oz. Gold) = …
BDG,
What you may be overlooking with China is the fact that they now have the worlds second largest middle class consumer. Over 150 million. (They still have 1.15 billion subsistence farmers, but their middle class numbers are rapidly closing in on the United States and the Euro-area.
Cheers, Chris
BDG is a mouth breathing idiot. Don’t try to teach him anything.
I love laughing at him.
Visualization of the world’s assets
Visualization of the world’s assets