The Flim-Flam Behind the ‘New Silk Road’

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  • More financial industry BS
  • Fear for the innocent and unwary
  • Plus, a major warning you should heed…

I put the book I was reading down last night.

I thought one thing only: ‘This is mostly BS.’

It was about the new Silk Road — the sweep of Eurasian countries that cross from the Pacific to Europe.

The author trotted out a lot of statistics and facts explaining why this area is the whizz-bang factor of the future.

You should expect to hear a lot about this.

Most of it will be useless drivel. But it will provide a wonderful opportunity for enterprising bores to charge high speaking fees and do book tours.

Today’s Profit Watch sounds the alarm…

Here’s a prediction: The financial industry will come out with a ‘Silk Road ETF’ and perhaps advise an allocation to ‘Silk Road markets’ instead of ‘emerging economies’. There will be conferences and books galore.

It all springs from the growing influence of China and especially its ‘One Belt, One Road’ infrastructure plan. It does, in that sense, contain a grain of truth to drive the gravy train forward.

But…but…but…

After all, don’t you remember the BRICs? (Brazil, Russia, India and China.) It was only about 10 years ago that this analogy was all the rage. Some even threw in South Africa.

I remember attending a conference in 2012 where a consultant — who had built a lucrative business around ‘advising’ on the BRICs — pointed out all the land, labour and capital these countries had.

I still remember thinking that India had possessed a lot of land and labour for a long time, and hundreds of millions of people remained dirt-poor all the same.

Everyone in that room would have been better off if someone had told them to ignore the BS pundits and load up on US tech.

In hindsight, what do we see? Brazil and Russia have hardly shot the lights out in recent times. They’ve dipped in and out of recession.

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China has rolled along without great fanfare, except spooking everyone with its massive debt and empty houses. India is perhaps finally showing signs of life — nearly 20 years after the Goldman Sachs guy coined the BRIC term in the first place. 

And South Africa? Is that even still a country? I haven’t heard lately. Certainly, peak BRIC sentiment crashed alongside the mining bust from 2012 onwards. Once the commodity demand and skyrocketing prices went away, the curtain hiding the Wizard of Oz did too.

Credit is due to investment legend Jim Rogers here. He bulldozed through the BRIC argument in his book Street Smarts. The only country from the lot worth giving a damn about is China. 

Will the next Amazon spring from Tajikistan?

Why bring this up? Such cynicism and nitpicking normally has no place on a Friday. I should leave the grouching to Monday or hump day (Wednesday).

It sprang to mind because Amazon supremo Jeff Bezos just put out his latest annual letter. He talks about how Amazon as a company has taken huge risks to build products that nobody was sure had a marketplace.

You may not like the company. But you cannot deny it has pressed forward with courage when other firms retreat to safety. It has invested and triumphed spectacularly. It has invested and flopped badly. That’s the innovator’s dilemma.

Jeff Bezos is warning his shareholders that, as Amazon gets bigger, so will the failures. The costs of these will run into the billions. But so will the profit on the ideas that work.

It’s not clear to me that the Silk Road countries, outside of China, have the necessary ingredients to foster a company like Amazon.

You may get a lot of big companies built on monopoly power that stems from government privilege. India is said to be a lot like this. But that’s not the kind of success you can export. That won’t lead to something like the iPhone.

There’s also a hidden risk to the Silk Road countries that few people consider. The basis of any successful economy is its legal system.

A good chunk of the world’s wealth resides in those countries that stem from British common law. Think the United States, Canada, New Zealand, Australia and the UK. Investors worldwide know that their property is secure when they invest in these places.

The more you step away from this, the higher your risk level. Eurasia is inherently unstable as a region. For centuries, the people here have warred with each other. It’s not clear to me why this should change anytime soon.

For my money, there’s enough opportunity across Australia and the US to keep me happy and sleeping at night. But I expect to hear a lot more about the potential riches of the Silk Road. The easy sell is on.

It may even be true for a while. I just hope the innocent and unwary don’t get burnt.

One final thing: Keep reading below for a new section as part of your Profit Watch service. We’re calling it ‘ASX Watch’.

If you’re a regular visitor to our Profit Watch website, you’ll notice that each day our new analyst Jonathan Evans has been keeping track of any big moves that happen in the market, and tries to give an explanation for them…along with his take on what you can expect going forward.

So, we figured it would be helpful to publish those each day in the email. As well as being a super smart investor, Jonathan is also a well-heeled technical analyst. You’ll see what I mean below. We hope you find this added benefit of Profit Watch useful.

As always, let us know what you think or if you have any other ideas for what we can offer, write to us here: customerservice@agorafinancial.com.au

Cheers,

Callum Newman,
Editor, Profit Watch

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