Heard in the Village: May 2010

The villagers watched Goldman Sachs being grilled by Congress. Their thoughts were it might help get questionable parts of financial reform passed but it is also likely to keep investors out of the market much longer than if Congress had not had the hearings. This could hurt the markets for years. They felt the hearings showed how extensive the lack of ethics on Wall Street had become. Goldman was just the first one being investigated.

Any violation of law is much less an offense than the violations of trust that Wall Street and the financial community has apparently been doing for years.

The villagers assume Wall Street is not a “level playing field” but it is usually level enough to keep investing. The areas that blew up had to do with greed, leverage and regulators not doing their job because of political and vested self interests. These areas of the market, the villagers stayed out of and had few problems with investing. They continue to invest and expect to profit in the markets.

They were more interested in the article in the April 26, 2010 issue of BARRON’S with Ian Bremmer of EURASIA Group and his new book The End of the Free Market.

His concern is global dominance of Western multinationals will be challenged by the state capitalism of China and other emerging countries. We are going from global free trade to more regional trade.

Targeted tariffs are popping up in countries where multinationals corporations won’t be able to compete as usual.

Bremmer thinks the U.S. government support of free trade has diminished, and as a result, increased protectionism and higher tariffs are coming.

State capitalism of China and other countries are fundamentally incompatible with the U.S. When Baidu is favored by China over Google, Google has a problem as will other multinational companies. Many multinationals will need to rethink their business plans as their growth opportunities become more limited in different regions of the world.

Multinationals will be facing new competition from government preferred or owned companies in different industries and regions.

This article was important to villagers who know changes are coming. They needed to review their global investment strategies including expanding their use of regional and country mutual funds.

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