Thursday, September 29, 2011

Wilbur Ross: Ups From The Market’s Downs?

Wilbur Ross. Via.

Yesterday Wilbur Ross, chairman and CEO of WL Ross & Co. and chairman of Japan Society, sat down with Council on Foreign Relations’ Benn Steil to talk Greed vs. Fear: Making Sense of the Market Crash (watch the full video). The discussion used the August 2011 crash as a springboard to look at the economic situations of the U.S., Europe, China, and Japan, and how they can improve and fix their respective problems.

Reporting from the event, The Wall Street Journal noted that "Ross has to squint to see the bright side":
Wilbur Ross isn’t optimistic. He says he’s not totally pessimistic, but the financier is short on happy thoughts.

Over the course of an hour-long talk Wednesday afternoon at the Japan Society in New York, Mr. Ross voiced just about only one view that was in the not-totally-depressing camp. Stock markets, he says, “have priced in a very bearish scenario. Unless things get truly bad, the worst is probably over for the markets,” he said. 
While WSJ goes in-depth about the more pessimistic points, there were several observations and key takeaways for overall improvement from the discussion:

● The U.S. has gone two years with practically no budget. The lack of Democrat and Republican consensus on what needs to be cut is due to both sides aiming at each other’s "sacred cows". The resulting political inertia is the U.S. economy’s worst enemy. It prevents strong leadership and a lack of bold responses to various crises. The preoccupation with presidential and congressional elections, along with the Tea Party phenomenon, further polarizes the political structure doing little to help the economy.

● Greece has been at the brink of default for some time. The European Union never had preparations if a member leaves voluntarily or is forced to leave, which belies that a single currency means a cohesive political and fiscal union. European nations need to stop applying small fixes to crises and instead apply big changes to the point of overkill as soon as they come up.

● China is doing fairly well for itself despite a major housing shortage. The nation’s recent high economic growth means housing demand can be supplied without too much worry of a crash. Ross said that because of the economic success China is having, he would rather bet on their banks than the European ones.

● The U.S. and Japan both have cash rich economies, but they are not as liquid as they could be. True liquidity should be attained to help stimulate their respective economies.

● Japan, while the response to the recent earthquake was incredibly quick, needs to continue focusing on rebuilding the Tohoku region in order to help revitalize the economy. The cultural avoidance of change is also not helping progress, leading to further depression and low growth. Due to the labor shortage, Japan needs to incorporate more women and immigrants into the workforce.

● It would be most logical for Japanese companies to make more foreign investments especially while the yen is so strong. However, there is seemingly no push for that move, unlike in China where natural resources are in small numbers so they have dipped into Africa, South America, and even the U.S.

● Finally, there is a self-correcting mechanism in the economy that will only activate when governments decide to be more decisive with their actions, be more willing to invest, and generally be much bolder.

--Sean Tomizawa

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