Don’t Believe the Globaloney

Strategy+business ^ | June 7, 2016 | Daniel Gross

[expat_panama]

Generalizing from the particular is one of the biggest — and most common — mistakes analysts make. There’s a natural tendency for people to extrapolate from their own personal experience and conclude that the results are the norm. But that’s a poor analytical frame. If the main stock you chose for your portfolio is off 30 percent, it doesn’t mean the entire stock market is down 30 percent. If home prices on your street are booming, it doesn’t mean that prices in your town, or the country at large, are soaring ahead.

We can see this dynamic playing out in some of the discussion surrounding the topic of globalization. The rising flow of people, goods, services, and information across borders has been one of the defining powers of our time. It’s a force that has endured through boom and bust, and through political and financial crises. But last month, Jeffrey Immelt, the CEO of General Electric, which has 420 factories in dozens of countries around the world, said that he saw an end to this era of globalization. In the face of rising protectionist sentiment and the erection of barriers to the import of the goods that GE makes, the company might have to look at localizing production where relevant. Last week, the Wall Street Journal reported that many of the world’s largest banks have sharply reduced their overseas operations. And, of course, the U.K. may soon be reassessing its relationship with Europe.

And yet. The data — and the experience of many other companies — shows the trend of globalization is proceeding apace. Yes, the dollar value of global trade fell in 2015, largely because of the falling price of key commodities such as oil. But the World Trade Organization said that the volume of trade rose 2.8 percent in 2015, and is expected to rise another 2.6 percent in 2016. As for people moving around the world, the ITB World Travel Trends Report (pdf) found that the number of outbound trips was up 4.5 percent in the first eight months of 2015 from the year before, and is forecast to rise another 4.3 percent in 2016.

Just because your company is encountering obstacles operating in other countries, it doesn’t mean that all companies are. Businesses such as power and jet engines, which happen to be two of GE’s specialties, are more susceptible to protectionist pressures than some others. And it’s understandable why the banking sector, which essentially failed en masse in 2008 and 2009 and has yet to fully recover, has been retrenching.

In fact, many other industries are continuing to find new customers, markets, and opportunities around the world. Facebook now counts 1.09 billion users, of which about 84 percent are outside the U.S. and Canada. That’s about 910 million people — in early 2013, it had only about 530 million users outside the U.S. and Canada. On January 6, 2016, Netflix said it made its service available to people in 130 countries. In the last few years, Amazon has built out its cloud business into a globe-spanning operation. And newspapers may be contracting, but the Huffington Post, which started as a U.S. operation in 2005, now has editions in more than a dozen countries and regions — including Australia, India, Japan, and the Middle East.

And it’s not just digital businesses. From the outset, Starbucks has been a percolating story of globalization. The company’s effort to bring Italian coffee culture to the U.S. requires the sourcing of coffees from South America, the Caribbean, Africa, and Asia. Having saturated America’s malls, downtowns, and suburbs with outlets, Starbucks has turned its gaze abroad. The company is already in 70 foreign markets, including many that have a strong local coffeehouse culture — France, Austria, and Turkey, to name a few. But it still has plenty of new territory in which to plant its seeds. This spring, Starbuck’s opened its first store in sub-Saharan Africa, a region with 973 million people.

This is not to downplay the threats to globalization. In an era of anxiety and turmoil, we shouldn’t be surprised to see political and economic barriers to trade being raised. And as companies and industries are roiled by disruption and competition, some will certainly find that retrenching into core markets makes sense. All the while, the giant cargo carriers that both symbolize and enable globalization will continue to ply the world’s shipping lanes.

[expat_panama]

The article includes the following--

In the face of rising protectionist sentiment and the erection of barriers to the import of the goods that GE makes, the company might have to look at localizing production where relevant.

--and this suggested to me that the writer may know more about business than communicating.   Translating from biz speak into English it means protectionists hike up import taxes so GE can no longer import raw materials for their factories that make goods for export.   That means they have to close thier U.S. factories and open new ones in places where taxes are lower.  That's when protectionists complain about evil exploiting capitalists shipping jobs overseas and call for more import tax hikes followed by more factory closings.

The beatings will continue until morale improves.

[bert]

The imposition of global government will never happen

The increase in trade by companies with markets all over the globe will continue so long as it is profitable. Having a sales office in Singapore or Switzerland is today not much different than if it was located down the hall.

Almost none here recognize the importance of American Standards on trade across the globe. ASTM and ANSI standards are learned by heart by engineers everywhere as they go about their daily business. The parallel EU and to a lesser extent JI standards are sometimes in conflict but the people working with the specific standards know how to negotiate the problems.

For Example, the GCC trade block realized that to facilitate trade across but within their borders, they needed to develop standards. That is precisely what they did. The pretty much adopted wholesale various ASTM and EU standards with little change while inserting specific needs. GCC is Gulf Cooperation Council composed of Kuwait, Saudi Arabia, Bahrain, Qatar, The UAE and Oman

ASTM is American Society for Testing Materials. ANSI is American National Standards. EU is European Union Standards

[expat_panama]

Happy Friday everyone!  the rally continues as the IBD distribution count dwindles down further and further --it's now just NASDAQ 2 and S&P 5!  On top 'o that trade yesterday was lite for our modest drop.  Futures however are pessimistic looking forward seeing stock indexes -0.32% even while metals are seen +0.13% (gold, silver powering up to $1,269, $17.34).

Later we get our morning's Mich Sentiment along w/ this afternoon's Treasury Budget.

Ya got to see this stuff:

Stocks Are Dangerously Expensive Now - Anthony Mirhaydari, Fiscal Times
Investors Are Much Gloomier Than Facts Justify - Simon Constable, TSC
How Soros's Latest Predictions Have Played Out - Simone Foxman, BBW
Will the Fed Raise Interest Rates? Who Really Cares? - John Tamny, IBD
Monetary Policy Has Never Learned from Its Mistakes - Jeff Snider, RCM
Don't Listen to GOP: Economy's Fine - Catherine Rampell, Washington Post
Paul Krugman Has Gone Too Far This Time - Kevin Dowd, Adam Smith Ins.
How the Wall Street Journal Has Lost Its Mind - Reihan Salam, Slate
Ronald Reagan's Trade Lessons for Donald Trump - Todd Buchholz, USAT

[expat_panama]

global government will never happen

It already has, but in substance, not form.  

The form of government is a flag, a big fancy capital building w/ some goofy head of state strutting around w/ his picture on the currency --we don't got that.  The substance of world government is a world community in constant contact working out procedures for mail, telecom, trade, norms of conduct --this is what's been evolving for a hundred years now and what's coming about is that folks that play by the rules prosper and those that don't live in squalor.  Doesn't matter if we like it, it's what is. 

fwiw, the overseas construction standards I've seen were based on a code originally put together in Sweden that was derived from the Uniform Building Code from the U.S.  Builders world wide follow the U.S. Uniform Building Code becuase while flags and languages may differ wind is wind and steel is steel.

[bert]

While on the subject, there is an even wider all encompassing document that is agreed on by all nations that matter. That is the Harmonized Tariff Schedule. It is a book about 2”thick if printed out

The schedule lists just about everything traded around the world. For those nations that live on tariffs, the schedule provides order to fix a tariff on every little thing. Each product is assigned a number. When tied to the standards, there can be a certain matter of quality assurance. In America, the schedule allows the department of commerce to measure exports with pretty good accuracy by category.

[expat_panama]

Interesting, and all the data will be ready for quick processing and that will me we’ll know even more about econ activity in goods.

A big problem w/ understanding the general economy at large is the fact that goods are a small part of the whole economy and it gets smaller every day. The lion’s share is services and it’s something be bean counters are really clueless with.

[bert]

My part time retirement job involves such a service.

Just next week I will be a paid observer at a meeting involving engineers from at least three companies of different nationalities all working in joint venture for a fourth country owner and providing products for still another company in another country that will integrate other products into a refinery control system.

All present are in effect service providers.

[odawg]

“Generalizing from the particular is one of the biggest — and most common — mistakes analysts make.”

So, therefore, according to this writer, just because the United States is being de-industralized because of globalization, that doesn’t mean globalization is a bad thing.

[expat_panama]

—and all those services are as you said needed by a refinery: goods producers, NEAT!

[expat_panama]

...the United States is being de-industralized because of globalization...

Hmmm, I didn't see that in the article.  You don't want to be jumping in from another thread so if this is something new you're tossing in to wake us up here we may want to refer to this other thread: The Myth Of Manufacturing’s Decline.

[odawg]

First, I was extending his logic, and second, by reading that title, anyone who thinks that our industrial based is not being eroded is an idiot.

Go to a big box store and find out where all our consumer goods are being made. Next, find out where Ford, Carrier, etc. are moving to.

[Diana in Wisconsin]

And just wait until Hillary! starts, ‘helping’ our economy!

Keep your powder dry, Folks. ;)

[Chaguito]

Immelt may have noticed that the standard of living in developed nations will decline more rapidly than that of poor nations in a globalist environment. He may have had a night vision of himself hanging from a light post.