(December 8) – “‘I can
calculate the motions of the
heavenly bodies but not the
madness of people,’ groused that
great rationalist Sir Isaac Newton
in 1720. An inveterate day trader,
he had gotten out of an investment
in South Sea Company shares only to
re-enter the market a few weeks
later just as the bubble burst and
lose £20,000, writes Peter Cook in
today’s Globe and Mail.
“For rationalists everywhere,
not much has changed. Consider the
events of recent days. In Seattle,
the rest of the world gangs up on
U.S. plans for extending the
imperial reach of its multinational
corporations. On the day that news
comes out, the Dow Jones index
goes up 247 points. In the currency
markets, Europe announces it will
outgrow the United States next
year, and the euro falls to below
parity with the dollar. Japan’s
economy remains benighted and
becalmed. Yet Tokyo is in a furious
fight to stop the yen rising.
“If rationality is not a strong
point of markets, optimism is. In
the early 1700s, investors were
able to put their money into a
company that had invented the wheel
of perpetual motion and another
company that was “for carrying on
an undertaking of great advantage,
but nobody is to know what it is.”
From there, how many leagues is it
to today’s Internet and concept
stocks and other billion-dollar
initiatives?
“As the heavenly bodies move us
inexorably out of the 1990s and
into the 2000s, optimism abounds
nearly everywhere. Markets in
Europe and Canada and South Korea
are as exuberant as in New York.
That is better than the
alternative. But it begs the
question of whether the financial
markets’ good opinion of the state
of the world, and of particular
countries in it such as the United
States, is justified. Is there a
rational argument for it? And if so
what is it?
“The big encouraging event of
the past year has been that the
world has overcome an Asian
recession and a Western financial
market crisis and is now moving
into a period of moderate balanced
boom. A quick global tour shows
this. Asia is rebounding even if
the prospects for its largest
economy, Japan, are problematic.
Latin America has spent this year
in recession but will grow by 4
per cent next year. Next year as
well, European consumers will
outspend American consumers —
something that has not happened
since 1991 and is a welcome sign
of greater balance in the world
economy. And while the United
States faces higher interest rates
and slower growth, there is
reckoned to be no chance of it
slipping into recession. Instead,
Wall Street is betting that the
Federal Reserve Board will need to
do little to satisfy itself that
inflation is under control and a
record-setting, investment-led
expansion can continue.
“If all of that sounds good, it
is still arguable whether it
justifies the valuations that have
been put on some stocks and some
currencies. However, the key is to
look further into the future and
try to make predictions. After all,
the emergence of a synchronized
boom in the world has not happened
since the 1980s. Initially, it is
obviously to be welcomed.
Only later does it bring problems.
What might a global boom over the
next two or three years do?
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