"Kee" Points with Jim Kee, Ph.D.

Last week I attended an investment conference with an unusually engaging speaker lineup, and I thought I would share some of the more interesting insights with you. Among the speakers were:

Billionaire Sam Zell, father of the REIT (real estate investment trust), who in 2007 sold Equity Office Properties Trust for $39 billion, the largest private equity transaction in history at that time.Dr. George Friedman, Founder of STRATFOR (strategic forecasting) and author of several books including The Next 100 Years: A Forecast for the 20th Century.George Roberts, Co-founder of KKR (formerly Kohlberg Kravis Roberts), a private equity firm and pioneer of the leveraged buyout industry.Jim O’Neill, Chairman of Goldman Sachs Asset Management who first coined the acronym “BRIC” (Brazil, Russia, India, China).Global investment strategists from Goldman Sachs, JP Morgan, Morgan Stanley, etc.Here are what I felt were the 16 most provocative statements and insights. I don’t have the entire transcript so I will not attribute statements to individuals.My biggest take away is how at odds very informed people can be on the same issue.
The consensus was a recession in Europe, slow growth in the U.S., but improving and continued growth in emerging markets. “The emerging or ‘growth markets’ are more important than what’s happening in Europe, it’s ridiculous to call them emerging. The BRICS will be larger than the U.S. by 2020.”China’s growth going forward will be slower (6-8% vs. 10%+) by design as China transitions from an export-oriented economy to a consumer oriented economy. “They are focusing on the quality of growth now instead of the quantity of growth.”Most felt that this would constitute a soft (gradual slowing) landing rather than a hard (plunge in growth) landing, but several dissenters felt that a hard landing is already showing up in the data, and that China has nothing but massive income inequality and growing unrest in its future. “The vast bulk of the population is extremely poor….China is a very poor country.”Latin America was favored by just about all, particularly Brazil: “Go where your money (investment capital) is most valued. China has tremendous growth opportunities but doesn’t need your money. Brazil has tremendous growth opportunities and does need your money.”“Slower China growth means lower energy and commodity prices, which increases developed world incomes.”“Biggest problem in China is lack of rule of law.” “……I wouldn’t invest a dime in Russia; it’s a kleptomaniac economy with no rule of law.” A different presenter noted that he thought the best investments were in Russia and Japan.“Japan is and will continue to be the real center of gravity in Asia, not China or India. Japan has the human capital, the physical capital, the know-how, and the culture to dominate the region.”“The key to emerging markets is the tremendous pent-up demand for mobile phones, cars, and air conditioning.”“There is nothing in the world for which there is greater demand than low cost housing.”“The next election in the U.S. is the most important in U.S. history and will determine the U.S.’s fate for some time to come.”“Any economic statistic with a decimal point is nonsense. For example, China doesn’t have any idea how fast it is growing, nor does anyone else.”“The Soviet collapse was a defining moment, as is the current crisis in the European Union. The United States, by contrast, is remarkably stable.”“In emerging countries, don’t look at the BMWs and Mercedes. Look at the tires. That will tell you how they are really doing. Always look at the tires.”“China is becoming much more repressive internally.”“China is buying global assets just like Japan did before they blew up (e.g. Rockefeller center)…what happened to the common sense notion of doing what the insiders are doing? The insiders in China are investing everywhere except China!”“India is not one country but several countries…makes no sense to talk about “India” as a single country”
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Jim Kee, PhD, President & Chief Economist
South Texas Money Management
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San Antonio, Texas 78212
(210) 824-8916