The New Normal For Emerging Economies


The Princeton economist Dani Rodrik believes that sustained, meteoric growth in emerging economies may no longer be possible. The great “age of industrialisation” may be behind us.And evidence for this view is coming from at least four directions:
First, machines can perform more and more functions in manufacturing and sometimes even in services. That makes it harder to compete via low wages. Say you run a company in a developed nation and have been automating many of its processes. Because your total bill for employee wages would be low, why not choose the proximity and familiarity of investing in labour in or near your home country? This change would help the jobs picture in the United States and probably countries like Mexico, but it could hurt many other lower-wage nations.  Read more of this post

Bill Gross – The New Normal

Normally whenever I hear some version of why something is different this time over I become a skeptic and start tuning out the person.However I am drawn to the idea of ‘The New Normal’  propounded by the Bond King-Bill Gross of PIMCO and Mohamed El-Erian his Co CIO.This is because they are not so much telling us that economic cycles are bunk but that we are blind to the larger economic cycles.

Bill’s message is anything but easily palatable for a lot of people.It is also true that his timing has been wrong in the past. I won’t go so far as to say every minor detail of what he describes as the ‘New Normal’ will come true but I believe he has gotten the big picture right.I fear that we are in for an extended period when equities might not on an average give the high rates of returns they did in the recent past.Bonds might outperform stocks in this period  and investors will have to re-examine their beliefs.Assumed rates of return on various long term savings might have to be revised. The most successful investors during this period will probably be those with common sense and importantly the powers of intuition, observation, and the willingness to accept uncertain outcomes. And all the talk of countries like India escaping the international turmoil unscathed will be wishful thinking. Read more of this post

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