It's Catching On

Globalization is one of the most powerful forces in the economic world today. Yet, much of the investing world can't see it. Just in the last three months we've devoted a ton of space to the topic. (See our past commentaries: "Go Global," "More Connected Than It Looks," and "Domestic Growth Abroad.")

As the world continues integrating regions from all points on the globe into the economy—we believe it's only the beginning of a period of extremely powerful, and positive, change. Boons in consumer demand, technology, productivity, trade between nations…the list goes on and on, and it's due in large part to globalization.

One reason many have trouble seeing it is myopia; people naturally tend to see the world narrowly and solely within their frame of reference. For instance, many US citizens think globalization is stealing jobs and dulling America's competitive advantages. But the global view shows that US corporations are prospering more than ever—largely due to the integration of global sales and operations. (Oh, and unemployment continues to sit at 4.5% or below too.) And what would the German or Japanese economies be without exporting their goods to the rest of the world? How would emerging nations like India and China ever hope to develop without buying and selling goods and services on the global market?

In fact, things are already so integrated that—almost always—the world's economies are highly correlated with each other. We've observed that recessions and booms tend to happen throughout the world, as do bull and bear markets. When there's a recession, it's usually a global recession; when there's a bull market, it's usually a global bull market.

Others are (finally) beginning to catch on to the idea of globalization—headlines, executive commentary, and even political speeches are citing it more often. As the world begins to recognize the already numerous benefits the global economy offers, we suspect investor sentiment and demand for equities will also rise in kind. Today alone we identified a number of articles with globalization as the topic.

1. Same Track, Different Train
By Alec Young, Standard & Poor's Equity Research via BusinessWeek
https://www.businessweek.com/investor/content/feb2007/pi20070209_878986.htm?chan=investing_investing+main

2. Don't Worry About the Yield Curve!
By Mark Hulbert, MarketWatch
https://www.marketwatch.com/news/story/sp-tells-why-investors-neednt/story.aspx?guid=%7B65E4DFCC%2D1C3F%2D4432%2D980F%2D7214DEFA5DC6%7D

We've said often that the yield curve of a specific country or region isn't nearly as important as it used to be because in a global economy banks and other entities can easily go overseas to find the cheapest financing. Therefore, a GDP-weighted global yield curve is a much better economic indicator.

It's A Low, Low, Low, Low-Rate World
By Editorial Staff, BusinessWeek
https://www.businessweek.com/magazine/content/07_08/b4022001.htm?chan=rss_topStories_ssi_5

More than that, globalization creates a highly competitive environment for goods, capital, lending…everything. As the global economy continues to open itself up to more customers and more demand, prices are pressured downward and competition for lending keeps rates low too. One of the reasons for that is that developments in financial instruments has allowed risk to be packaged and repackaged and distributed throughout the global economy—another factor which stabilizes and keeps rates low and in turn promotes even more economic activity.

G-7 Seeks to Shed Overlapping Regulations
By Deborah Solomon, The Wall Street Journal
https://online.wsj.com/article/SB117123840196205264.html?mod=home_whats_news_us

For all this possibility, there are still risks. Protectionism and nationalism stand in the way of globalization's march forward. Luckily, while there are in fact some smaller rogue nations in Latin America, Asia, and the Middle East who are isolating themselves, most of the world is generally on the right track in breaking down barriers and redundancy to promote trade.

Yet, we still think globalization is an underappreciated positive factor in the world today. This is as big as the Industrial Revolution and the Information Age, and, perversely, many still see it as a threat and not a boon. That makes globalization a great investing opportunity, and a reason for optimism.