THE NEW WORLD ECONOMY-----THE TRIANGLE TRADE

In the last few years we have witnessed a transformation in the global arena. World trade continues to grow, but the U.S. is less a central factor. Since the early 1990s, world trade has risen from 19% of world GDP to 28%. Yet the U.S, which accounted for 98% of the cumulative increase in world GDP from 1995 to 2002, contributed only 18% in 2003 and 2004 and 25% in 2005. New international players have emerged in military, political, and economic might, while the U.S. government has lived in a state of denial. These changes create risks for certain investments, yet also create great opportunities for others.

With a budding middle class and populations making up over 30% of the world’s inhabitants, the two biggest players to emerge in the new world economy are clearly China and India. Wall Street has been salivating over ways to put the average investor directly into these two countries. However, what Wall Street fails to recognize (a more cynical investor may say intentionally withholds from the common investor) is that direct investment in these countries can be a very risky venture.

Both countries share long histories of being exploited by the West and have retaliated with a checkered history of returning profits to outside investors that participate in “joint country ventures.” The U.S. had an opportunity to be one of the few Western Nations that did not try to fleece India and China (mostly because we were too young to do so) and could have created wonderful relations. Instead, the U.S. government pushed Enron’s involvement in a major energy contract in India which ended in bribery and corruption. The government also forced an economic policy on China and openly attacked its domestic policy. The resulting clear distrust of the U.S. and U.S. companies has only been exacerbated by our current aggressive foreign policy.

China and India both realize the U.S. military cannot be beaten without a heavy cost to both sides, but clearly the U.S. is vulnerable economically. China and India have both issued cryptic messages to the U.S. stating that we need to get our “economic house” in order, and China has gone so far as to throw the former Secretary of the Treasury John Snow out of the country. With this feeling of hostility toward the U.S., we believe the best way to invest in China and India is through other exporting countries. Just as all roads led to Rome, all trade routes will lead to India and China. Countries that supply the natural resources for India and China’s budding middle class will prosper in the future. Canada, Australia, and Brazil are three countries poised to capture the economic benefits of the new economy and the new trade routes. We do not recommend abandoning the U.S. market. We do, however, see a clear shift in the global economic dynamic. The New England economy started out by making money through shipping…we believe this opportunity still exists today.