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Dealing with doomsday

Dealing with doomsday

The author offers tips for investors to survive the post-modern Dark Ages that he proclaims is the future.

The future is formidable— nuclear war, bloody rebellions, deglobalisation, xenophobia and Darwinian struggle for survival. At least that’s how Michael J. Panzner foresees the future and pens it with prolific persistence in When Giants Fall. According to him, with America’s days as a hegemonic superpower drawing to an end, the emerging leadership vacuum will cataclysmically alter the current political, economic and military alliances.

This tectonic shift in the global order will be marked by increasing violence and a breakdown of markets and financial mechanisms. Despite the gloomy picture, the financial veteran who has worked for HSBC and JP Morgan Chase isn’t trying to scare the readers: he postulates a gameplan to survive, even thrive. “The post-American era may well represent a singular opportunity, when one can achieve financial goals never thought possible,” he says. Though the book targets the US investors, those in emerging markets like India could also gain. Here’s why:

Think small: Identifying the industries poised to meet the coming challenges is the first step. The real test is to pick the right stock. As the world adjusts to the reality of resource depletion, the author expects a broader structural shift favouring smaller companies and firms with locational advantages. Larger corporations that were enjoying global wage and production cost differentials will find their advantages eroding in the face of the growing backlash against outsourcing and the age of isolationism, he portends. Investors would do well to stick to companies with a strong domestic focus rather than MNCs. The inference for Indian investors is to invest in telecom, utilities and home-grown consumer goods firms like Marico.

Bet on commodities: Notwithstanding the recent commodity market meltdown, the author makes a serious case for investing in them, particularly scarce ones. Growing prosperity in the developing world will drive commodity demand and result in a desperate chasing of these assets. Commodityrich nations will play economic hardball, pushing up the prices. “The fact that they have universal appeal means that powerful interests will be on the prowl to acquire these resources for themselves, by deception or force,” notes the author.

Of course, conditions apply. For one, only a select few are poised to do well, governed by market structures, production dynamics and logistics. So you should either directly own the main asset, or invest in allied industries. For global investors, Panzner suggests Canada as the ideal destination. Rich deposits of hydrocarbons and huge tracks of cultivable land make it the best placed, followed by Brazil, New Zealand, Thailand and Vietnam.

Count on currency: With the US star in decline, the near universal acceptance of the greenback as an international reserve currency is questioned. It’s increasingly likely that key global commodities like fuel will soon be priced in yuan, ruble and currencies of other emerging market champions. This will reduce the need to acquire and hold dollars for transactional purposes. Institutions with portfolio allocations that are overweight in dollardenominated assets will have to adjust holdings— and Indian investors should follow suit. The earlier you do so, the better it will be—the sound of the herd rushing to dispose of their dollar piles will trigger a domino effect and the anchor of stability will become lead weight.

Invest in real estate: Obvious, but the key is to consider the type of property. Housing, commercial and industrial property will remain in the doldrums, while arable land, properties that contain mineral deposits or those that offer protection against hostile natural or geopolitical elements, will have an edge. As fuel shortages increasingly dictate where people choose to live, the author’s calculations suggest that small to midsized cities adjacent to mass transit systems and navigable, flood-proof waterways will be attractive. By the same token, investing in metros could be risky, given their overdependence on energy and lack of self-sufficiency. In the case of emerging markets like India, real estate in metros is already over-priced; investors are better off scouting bargain deals in smaller cities and towns.

The arguments seem reasonably sound, but the book that claims to be a practical guide is more a record of all that has been said over the past two centuries. Whether it’s an attempt to validate his stand or showcase the breadth of his research, Panzner devotes as much space to quoting economists, journalists, politicians, authors and actors as penning his own views.

Therefore, the book fails to outline precise suggestions, settling for highlighting broad trends. Instead of suggesting the best course of action, Panzner lists multiple choices: those who think share prices will fall can make long-term bets, including selling stocks or stock-index futures short, or, even try to trade counter-trend rallies. Not very helpful, is it?

Panzner's Tips for Businesses

  1. In a resource-constrained world, advantages like global production cost differentials will dissipate. Entrepreneurs will have to become more locally focused.
  2. Businesses that make big allowances for disruptions and uncertainty in their plans will have an edge.
  3. Outsourcing production could prove more expensive when the economic and political costs of a new geopolitical world are factored in.
  4. Search for ways to transform waste into usable products. This will boost efficiency and generate green benefits in an increasingly eco-conscious world.
  5. The biggest winners will be businesses that can provide security and ways for customers to protect themselves against a growing plethora of threats.

Published on: May 28, 2009, 4:52 PM IST
Posted by: AtMigration, May 28, 2009, 4:52 PM IST