September Strategy Meeting

Dog Chewing on BoneThere comes a time when it is necessary to take a step back and draw a deep breath. This enlightening exercise was suggested over a recent breakfast by a long time client. “Let the bone go”, he said. There is profound wisdom in these four words.

Since 2003, when a chilling Congressional Budget Office report was released detailing insurmountable dangers to the USA banking and financial system, ACM has made exhaustive efforts to read and research just about anything of credible provenance and then delineate what may go wrong, how, and when. While it is sometimes early, the strategy can be summed up as The Freight Train Theory. This silly sounding theory was gleaned from real life experience in a small Alaskan town where the railroad tracks led to bountiful riches of fish, meat, and adventure. “If you see or hear a freight train, get off the tracks.” These are truly words to live by – for those that did not, died.

As has been reported amongst these lines, roughly 46% of the world grew last year – a year when the headlines screamed deep global recession. This growth was footed in the so called developing and emerging economies. Their continued robust growth in 2010, while the developed world remains mired in a debt induced haze, confirms that this “Great Recession” is at least navigable. After all, the developing and emerging world has seen this before. Some periods of economic contraction have been deeper than others. One might even say that the most recent super contraction is coming to a merciful end – at least for China. It’s all about perspective (chart, below). This contraction began in 1859.

Is China Returning to its Historical Global Economic Position?

The age of colonialism from the 1500s to the 1900s brought prosperity to Europe and the Americas, yet contributed to catastrophic upheaval in the Far East. The period saw raging economic destruction and tens of millions in human casualties in India and China during the 1700s and 1800s. In the compressed timeline above, it can be seen that for at least 1,850 years China and India combined to account for roughly 55% of annual global economic production. If China continues its current trajectory, it will be the first time in recorded history that a once great nation became great again. But I digress.

The 46% of the world that has the right stuff is calling to people with capital to invest. These regions share an ‘Elixir of Growth’: Growing populations combined with a good saving rate and good capital investment rate generally leads to significant wealth creation. This is where the railroad tracks of the USA and Europe are left behind and the ol’ gnawing bone is thrown into the trees. Now is the time to focus on what is right in the world.

In the coming months, I will be reporting from the burgeoning areas that have been central to ACM investment strategy for much of the past decade. The primary effort is to fundamentally understand what is occurring at the ground level in these regions. Headlining the broadest areas of research are railroads and agriculture. There are numerous additional areas of study that will also be detailed here. We sincerely hope that you will find these missives informative as well as revealing. Best regards.