China Watch Blog picked up this interesting article from Star Online quoting an international financial expert, Satyajit Das, who contends that the debt- fueled boom and “botox economics” of the past have come to a halt to make way for what will be, at least until global debt levels come down, a bleak future.
Gold, not a solution during difficult economic times
“The most difficult period will be the time it takes to wipe out the debt,” he said last week at a talk organised by the Malaysian Investment Banking Association. Das has over 30 years experience in capital markets and risk management and is now a consultant to banks, corporations and regulators.
In a sobering assessment of the health of the world economy, he likened the various pump-priming actions by governments and central banks to driving with the handbrake on.
From the current malaise, he sees three possible outcomes: a 75% chance of stagnation, 20% of a collapse, and 5% of belle epoque.
For the man on the street, he has this advice: “First I would pray. People asked me what I would buy in 2008. I said foodstuff, energy, and a gun to protect you. The world is going to look a very ugly place.”
Das, a former banker who published a book in 2006 anticipating the credit crash, thinks that in the future the top 10% of the population will rule the world and hire 20%, leaving 70% with nothing.
“You already see this with security and gated communities becoming more prevalent. I’ll be dead, thank god,” he laughed.
On what the ordinary person should do to protect his wealth, he said: “You need a trading mentality and to look very carefully at what other people are doing.
“My investment strategy now is very simply summed up. I don’t bother asking questions about fundamentals. What are other people thinking and doing?”
Das also dismissed the long-held notion that gold was a refuge in times of trouble.
“I don’t understand gold, it is an irrational asset. My mother, who is Indian, would buy gold whether it is valued at US$20, US$200 or US$2,000. It doesn’t make any difference to her because people have an innate desire to own gold.
“In my mind there is no difference between gold and paper currency. You still rely on someone to give you something in return it is a different act of faith. Gold is not a good investment after adjusting for inflation, but it can be a short-term tactical asset.”
Asked about Malaysia, Das said that as the global economy waned, the question was not whether the country would be affected but rather to what degree.
“Malaysia has natural resources. You have things people need, at least in the near term.
“But a lot of the growth is dependent on government spending. There is a need to get away from investment-driven growth.”
On Asean, he remarked that the 10-nation region was to an extent “trapped in the China story” as its suppliers and exporters, especially in the case of Singapore and Hong Kong which are trade-dependent economies.
However, Das pointed out that the world was not at the end of growth per se, just the end of “financially-engineered” growth.
“Real growth stems from a few things: population growth, productivity and innovation, and new markets.
“But they are limited. Besides North Korea, I can’t see any other country that has not been integrated into the global economy, unless the Martians start to trade with us,” he joked.
“The point is all those things will not bring us back to the growth of the past. We are in for a very long period of adjustment. To some extent we are going backwards.
“We are going to see not a great deal of forward progress, but a return to a more sustainable economy. That will be a long process.”
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