Going Long on God

The following was an interesting obituary published in The Economist, a prominent nonreligious publication.  Sir John Templeton, a known contrarian, started one of the largest and most successful funds on Wall Street, was praised for his economic foresight, and was rewarded heftily because of it.  His philosophy of going against the flow could be seen in all aspects of his life, including religion.  In today’s world, being a Christ follower would definitely be considered contrarian.   However, judging by John’s track record, I’d say going long on God is one investment in which his payoff will never end.   

 

…But most of all Sir John went long on God. As a lifelong Presbyterian with a devout and curious mind, he reckoned that the market price of the creator of the universe was probably 1% of its actual value. The crowd might have lost interest in this underrated stock, so dully and unerringly recommended by theologians and priests down the centuries, but Sir John bought it up on the firm expectation of stellar future earnings. Indeed the divine, he once said, if approached in a humble spirit of inquiry, might turn out to be 3,000 times more than people imagined it was. Full article…

Look Out Below…

NYC to Join Motown in Singing the Blues

Recently returning from a trip to New York, one thing was clear: New York is a city in decline.  The buildings are aging, the metro system is inefficient and the infrastructure is not up to 21^st century standards.  The financial conditions under the surface are no better.  Banks and Investment Houses are losing money, dramatically downsizing, or closing their doors all together.  The city that never sleeps looks worn-out and ready to retire.  

 

During the second half of the 20th century, the United States has seen its global dominance in dozens of industries slip away.  One jewel that we have maintained is our vast financial services industry which has called New York City home.  Its economic contribution to our country’s GDP has more than tripled since World War II.  However, our current global financial crisis, manufactured on Wall Street and exported to the entire world, may result in New York losing its financial crown.

Once upon a time America controlled the automobile industry.  But after several decades of excessive taxation, burdensome government regulation, union extortion, and a stubborn lack of foresight and innovation, we no longer dominate an industry that we practically invented.  Just as Detroit no longer claims center stage in the world automobile marketplace, soon New York could lose its position at the center of the global capital marketplace.

First off, financial activity tends to be centered around where the money is.  Right now all the money is coming from Asia and the Middle East.  When the United States was the world’s greatest creditor nation and its largest supplier of capital it made prefect sense for that capital to be allocated here.  But why should the Chinese and Arabs send their savings to New York only to have it re-invested back in China and Dubai?  Wouldn’t it make more sense for the Chinese and Arabs to allocate their own capital locally rather then out-sourcing the job to us?

Secondly, when the dollar’s strength was widely regarded and never questioned, it made sense for foreigners to apportion substantial percentages of their savings in U.S. dollar denominated investments.  This preference gave Wall Street a competitive advantage in attracting capital.  However, now that confidence in the dollar has evaporated, perhaps permanently, this advantage has been lost.  Furthermore, investment in the U.S. was encouraged by America’s respect for private property, low taxes, and minimal government regulation.  However, this advantage has also been lost as other nations have improved their private property laws, deregulated, and lowered taxes, while we have done the exact opposite.  As a result, the returns on U.S.-based investments have far underperformed those achieved in every other major market.

Lastly and most important, Wall Street’s reputation, once its greatest asset, is also in jeopardy.  Just as Detroit lost its reputation for high quality and innovative cars, bankrupted dotcoms and worthless sub-prime mortgages are creating similar problems for Wall Street.  How can you expect to keep your customers if you continually sell them shoddy merchandise?  Wall Street has spread trillions of dollars of junk around the world and in so doing shattered its reputation with some of its best customers.

The coming crash will only exacerbate these conditions and the reaction will be severe.  In the end, finance and banking, like manufacturing, will be yet another industry lost to foreign competition.  The new financial capitals will likely be in Asia and the Middle East.  New York will certainly still have a role to play, but much like Detroit, it will be but a shadow of its former self.