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sinking global funds

Tuesday 29 July, 2008

I read this article by Gail MarksJarvis of the Tribune Global funds no longer make world go round

Apparently the local economies of the world are linked after all. It has been speculated recently that the rest of the world had been decoupled from the American economy so that the rest of the world would continue to grow while Americans suffer from the aftereffects of the real estate financing fiasco. This article indicates that we are dragging the rest of the world down with us. In a sense the escalation in world oil prices affect US consumers more than anyplace else because gasoline is taxed less than anywhere else in the world, & thus our retail price reflects the fluctuations in the market more than elsewhere, i.e. we notice more of a difference when the price goes from $3 to $4/gallon (33% increase) than when a more highly taxed European sees petroleum go from $8 to $9/gallon (12 1/2% increase).

The role of foreign investors participating in the global stock markets has increased as well. My impression is newcomers saw these markets as ever increasing, without recognizing that they’re roller coasters. It looks like investors are retreating to supposed safe havens in this time of uncertainty & those markets which are benefiting from demand for raw materials.

I think in many ways, inflation is a greater risk in countries where it’s been commonly accepted, such as Latin America. It will be a real test to keep inflation under control in countries like those. Inflation in staples like food can be political hot potatoes. Talk of a commodity bubble is worrisome. It’s safe to say a lot of the internet bubble money went into real estate. Now that that bubble has burst, I’m wondering where it will go. Has it gone into commodities to fuel emerging economies growth? I question whether most investors have been that sophisticated.

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