So last week when Microsoft founder Bill Gates and Warren Buffett showed up at a town hall meeting with students at the Columbia University, there was huge excitement among students.
They spoke and spoke well — of the United States of America that is struggling to battle an infamous recession which has laid off millions of people across the world and is showing only sputtering signs of recovery.
Gates and Buffett, introduced as self-made billionaires and the world’s two greatest capitalists, have invested in and become rich from the Great American Dream that now seems under threat of dissipating, roiled by what Buffett said was an “economic Pearl Harbour”. At the meeting, Buffett declared the financial panic over and said that the US economy that was sputtering is only “sputtering some”.
America is in deep trouble but Buffett, the great investor that he is, strongly believes that investing in the US would not only help the world’s biggest economy recover, it would also provide a much-needed impetus to other ailing economies fighting their own battles.
Indeed, there has been some reason to cheer in recent weeks, with figures showing that the US economy actually expanded in the third quarter — the first three-month period of growth since the second quarter of 2008.
Buffett’s confidence in the US economy, that has helped him become the world’s second-richest man, is strong and it was amply reflected when his Berkshire Hathaway Inc bought a 77 per cent stake in a railroad company for more than $26 billion. He has a point. There is a need to reactivate the world’s biggest consumer, failing which global demand would continue to slack and dither and its unemployment rate — currently at a 26-year high — would not fall.
And looking at what is happening there, with valuations and markets way off their peaks, it just might be a good idea for those outside the United States to start looking for opportunities there. Gates agreed with Buffett, and not necessarily because they are buddies.
“The US benefits as the globe benefits. You are not going to have a case where the rest of the world does poorly and the US does well. Our fate is tied to open trade, innovation everywhere,” he said when asked whether there were more opportunities in the United States than elsewhere.
That’s a thought I would take home if I were an investor. Right, many with high exposure in the US have been burnt and burnt badly but let’s be honest: to keep capitalism alive we have to ensure that the American economy does not have a cardiac arrest.
The way I look at it is that if two gentlemen with the most dollars are willing to put their money into an economy that at least one says is still sputtering, there has to be good reason behind it. And Gates did highlight them when he said that while a complex financial system meant mistakes could be made, fundamentals such as innovation, ability and intention to take risks and invest and creating new companies means that the US example still works well. It has worked despite large-scale government intervention in companies and financial markets, which was necessary to stem the rot that would have otherwise destroyed the economy.
Indeed, a big government, job losses, a weak dollar and even tens of thousands of home foreclosures doesn’t seem to have stopped Americans from innovating and inventing.
Gates was succinct when he said: “I will bet there are some inventions that took place in that fall in the darkest hour. People were working on new drugs, new chips, new robots and things to make life better for everyone in the decades ahead.”
Since the darkest hour last fall when Lehman Brothers went into the history books forever, the world has teetered on the brink of an economic collapse that is only now beginning to settle. Bits and bobs of good news escaping from various parts of the world gives us hope that the worst might be over and that we may be entering into a far more stable period. Both greed and fear are in control, and that’s sort of good news for the moment, because they make human beings irrational.
China and India are two examples of how large economies can weather economic turmoil — first by taking prudent steps to counter the threat and then quickly massaging the gains into a more permanent feature.
India’s control over interest rates and its booming real estate market, and China’s quick steps to provide the right stimulus to its economy and a looser monetary policy meant both countries managed the downturn far better than highly leveraged US and European economies.
There is good news from the Eurozone too, with the region’s worst recession since the Second World War officialy ending though the recovery is believed to be fragile. The eurozone and the European Union have both posted growth. Britain is still a laggard though.
Whatever steps others have taken to return to growth, it doesn’t mean that the American experiment has failed. It is still a successful system that needs to be followed, if only because it — as Buffett said — can unleash huge human potential.
“What drives the American system is the quality of opportunity in a market system and the knowledge that when you get out of here, you’re going to enjoy the fruits of the knowledge you have gained. And it will keep working,” said Buffett, the investor.
It just might be time to listen to the words of one of the most successful investors of all times and get into a market that’s just ripe with the right opportunities. The Oracle from Omaha is seldom wrong. Also, the global economy is not distant from that of the United States.
We are, whether we like it or not, all part of a system that is still driven by the great American dream.
Rahul Sharma is Editor of Khaleej Times. He can be reached at rahul@khaleejtimes.com
US EXPORT COUNCIL PROVIDES ASSISTANCE TO US COMPANIES SEEKING ACCESS TO HIGH GROWTH MARKETS OVERSEAS. http://usexportcouncil.com/
