History in the Present

Some months back I had lunch with an older financial planner (yes older than me, imagine that!). Great guy. "I never read the news," he tells me. Reading my surprised expression, he goes on "Well think about it, when was the last time you made a good investment decision based on the news." No argument there.

And yet, I still read the news, not that closely, mind you. At the other extreme I remember guys who used to work at the Mutual Series Fund managed by Michael Price (apparently legendary though I had never heard of him at the time). Price would quiz the young guys at his firm about the details of specific stories from the Journal, stories which may have come out in the second edition of the paper later in the morning. He expected them all to have read the whole thing, including the later edition. Admittedly the guy has largely faded from memory.

Certainly I don't read the paper to think it's going to help me make market-beating decisions on the day I read it. That's not happening. But I do think it's important to be somewhat up to date on the news because what happens today constitutes history as it transpires. For example, as I was writing yesterday's blog post I thought to myself: "have I broken out this story about the fifteenfold increase in Airbus market share back in 1983?" Turns out, I had, in this post from 2007. That is of course drawn from deep prehistory, back when Paulson was still the CEO of Goldman Sachs and when Sachs bestrode the world, before Paulson as Financial Crisis-era Secretary of the Treasury had gone down on bended knee before Nancy Pelosi in front of many other congresspeople and implored her to help him and move the $700 billion TARP through Congress, which saved the banks and kept the wheels on the economy but gave us the Tea Party which...

Also, we should note that Paulson was arguing at the time in essence that the strictures placed on US public companies by Sarbanes-Oxley (post the accounting scandals that brought down Enron, Worldcom, Adelphia, Tyco, Arthur Andersen and others) would force companies to list in Europe rather than the US. Turns out it didn't happen like that. Companies didn't list in Europe. Instead, they didn't list at all. An altogether new era of private financing (private equity, private credit) dawned. Now a lot of money is trapped there and deep-pocketed individuals and institutions want to translate their paper gains into liquidity. We'll see if it works. Opinions vary as to whether it's feasible.

Fifteenfold

Sometime last week I was reading something about China's Yuan (AKA Renminbi) becoming more and more acceptable and accepted as a way of conducting trade internationally, which moves it closer to becoming a plausible reserve currency and a challenger to the dollar's primacy. As of now the dollar still dominates a 58% share of global trade but that's down from 70% at the turn of the millennium. The dollar's dominant position constitutes the US's "exorbitant privilege," that everybody needs dollars to settle trade which creates demand for dollars and therefore makes it cheaper for us to finance everything than it otherwise would have been.

So the dollar still dominates but... Many around the world are pondering this question.

It takes me back to the fateful moment over 40 years ago. There I was in my interview for the AB Duke scholarship at Duke.  I was arguing for a National Industrial Policy in support of Robert Reich's proposed program for one. European champion Airbus's share of the large passenger jet market had gone from 1% to 15% and I had written that its share had increased "fifteenfold." A fact. The professors pressed me on this, asking me if 15% really constituted a threat.

Lockheed Martin exited the commercial market a year later. By 1997 McConnell Douglas had been eaten by Boeing the last company standing to do battle with Airbus.

So funny things do happen as small numbers grow. Right now the yuan/renminbi has a 2% share of global trade. It doesn't sound like much but one never knows, does one?