NO one in their right mind could conclude, after looking at what has happened in the last six years, that the world is in a normal business cycle.
But all you have to do is to look at what is happening in Japan’s economy to know that the current situation is not sustainable. Have I suddenly come around to the belief that the world in is a giant ‘bubble’ since 2007? Certainly not.
The globe has been in a growing bubble since ‘The Nixon Shock’ in 1971 when the US dollar became the worlds’ reserve currency and the substitute for gold and silver. All that has happened in the last 10 years, including the debt crisis and the rise of China as the world’s largest economy started in 1971.
I figure that we have from nine to 18 months before we begin a new and different phase and it is going to be ugly for most of the world. I will stand by my conviction that the Philippines and a few others like Indonesia are going to be safe from the worst of this next phase of the debt and currency crisis.
Part of the reason is demographics as I wrote about two weeks ago and part of it will be because we (again like Indonesia) are not as dependent on our wealth being derived from trade with other countries.
But if the situation is going to change in the next year or so as I believe, how can one profit from it?
Let’s look at a couple of variables that are going to greatly influence the future. I had anticipated early in 2013 that the US dollar was going to weaken significantly. I was obviously wrong and now the dollar has the chance to significantly strengthen even more. Both Europe and Japan, and to a lesser degree, China really want the US dollar to become the undisputed king of global currencies once again.
Another factor is that the policies of the major central banks are starting to diverge. While all want greater inflation in the hopes of spurring economic growth, they are no longer on the same page.
Japan is making a multitrillion-dollar bet, in yen of course, that if you make the local currency as worthless as possible, maybe people will spend it and the economy will come back to life. The only way Europe can grow is for the individual countries to go their own way. The United Kingdom is on the verge of leaving the European Union and Germany and Greece would both like to see the other doing their own thing.
The US wants inflation to spur spending and low prices to keep people from starving. That is a tough combination.
Here is an interesting fact. Since the airline deregulation in the US in 1978, global air travel prices are down by 40 percent even with much higher oil prices. But air travel globally has become more like riding a cheap bus with little amenities for the average travelers.
While the global economy has been a disaster since 2009, one business has grown by 34 percent and with a very high profit margin. That is first-class airline seats. The greatest growth has been in Asia where the number of these first-class seats has more than doubled since 2009.
Business class has been upgraded so much that the service compares with first-class of four years ago. In the Middle East, Qatar Airways has seen a 132-percent rise in first-class passengers and those of Emirates rose 32 percent. But it is not just in the Middle East and Asia. Within Europe in 2014, traveling first-class is now more than double the 2005 total.
We know that the upper classes have done well in the last five years. So if the financial crisis has only benefited the wealthier economic classes, then that is where the big business opportunities are and will continue to be.
Does this seem an odd time to be building more five-star hotels and resorts in the Philippines? No, in fact, the timing could not be better.
E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.