TSMIE's premise is that "the market is smarter than all of us and knows something is wrong." But what?
"The world," TSMIE tells Wien, "is settling into three major blocs, and only one is especially interesting from an investment viewpoint." The market, in short, is unhappy with the other two blocs from a long-run perspective. The future, contrary to what this column has been saying for years now, may not be like the past.
"The problems in Europe are well known," says TSMIE. "The population is aging, the economy is mature. . . . People put living the good life ahead of working hard." He goes on, "The American bloc isn't much better. . . . The U.S. has grown soft. No politician can propose anything that involves sacrifice. . . . Your manufactured products are uncompetitive, and you don't provide the necessary incentives to expand the knowledge-based industries where you have an advantage.
"The increasing cost of health care and retirement benefits will be a drag on U.S. profitability and will discourage investment. Litigation costs are a terrible drag." TSMIE concedes that, as the dollar declines, U.S. products will become more competitive. He also respects our lead in biotechnology and nanotechnology, but he concludes, "The Western countries, including the U.S., have to face up to the fact that their standard of living will decline."
Of course, we have heard such sentiments before -- in the 1970s and '80s, for example, when scholars, journalists and politicians warned of the rise of Japan and fall of America. That prediction was wrong, and this one may be, too, but I have to admit, the more I travel in Asia and look hard at where America is going, the more I believe Wien's friend has a valid point.
"Asia," says TSMIE, "is only beginning a long cycle of opportunity. . . . Both China and India have an educated population willing to work very hard for modest wages. Every year, China moves further along the curve of manufacturing sophistication. . . . Asian countries provide few health care benefits, and there is no plaintiff's bar. . . . It is a free-wheeling business atmosphere, much as I imagine America was in the days of the Wild West."
The problem with Asia for investors, however, is that, with the exception of Japan, the stock markets "are relatively undeveloped," with widespread unfair trading practices and low liquidity.
This means that risks are high, but then so are rewards.
"Investors have come a long way in understanding the case for international investing over the years," says Jeffrey Everett, president of Templeton Global Advisors, quoted on Forbes.com recently, "but one thing they're still missing is the huge opportunity in picking individual stocks. There are huge inefficiencies that just aren't here in the U.S."
Picking Asian stocks is tough, especially in such high-growth markets as China and the Tigers. You have to put your trust in mutual fund managers, and there aren't many with experience and strong track records. Certainly, the firm founded by the great global investor John Templeton is one. Templeton Dragon Fund Inc. (TDF), for example, is a closed-end fund that trades on the New York Stock Exchange and owns shares of firms based in Asian countries except Japan. It doubled in value in 2003 and has returned an annual average of 14 percent over the past five years.