Guest Blogger

Guest Blogger

July 18, 2005

I was honored when the Squawk Box producers asked me to be the first Guest Blogger on the SquawkBox Blog today. I had a great time commenting on the stories the anchors discussed on the show and did my best to answer questions and comments that our blog readers send in during the show. This beat the heck out of waking up at 4AM to get to the studio for the real show. And I got to blog from the comfort of my home office where, as you can see, I was NOT, repeat NOT, wearing a tie.


Which reminds me to insert a plug for my next chance to be the guest host on Squawk Box on Monday, August 8. Be there or the gods will ruin your crops and your livestock will be barren.

A couple of ideas I have been chewing on over the weekend that I shared with the Squawkblog squawkers: I spent this weekend in Des Moines, Iowa (you mean you don’t take your long weekends in Des Moines?). I was there to give a talk to the National Governors Association annual meeting on importance of high-speed communications networks for economic growth in their states. It’s a pretty big show with all 50 governors in one room along with an army of sucker-uppers.

I told them we have 2 choices, learn to compete for capital or learn Chinese. How to grow your state? Simple: make your state a destination resort for capital and the jobs and paychecks will follow.

The reason we are so rich in America is that, along with Europe and Japan, we own most of the capital in the world. To me, capital means machines, technology, and educated people. Capital makes workers productive. Every farmer knows you can’t eat more than you grow. Same is true for the economy as a whole; you can’t get paid more than you produce. So productivity is the key to higher paychecks and living standards. Productivity comes from educated workers using lots of capital.

Capital today is extremely mobile. Twenty years ago if I wanted to make an investment in China it would take a lot of work, a lot of money, and conversations with both governments. Today I can do it in seconds on a cell phone for 2 cents a share, and neither government knows it happened.

This is a great thing for capital owners and for the stock market, one of the reasons I have been so bullish on stock prices. But it’s not so good for the workers in the U.S. who have had the tools ripped out of their hands and shipped to Asia. The result is political backlash, like we saw last week when the Commerce Dept. embargoed Chinese cotton goods, and like the discussions in Congress about imposing tariffs or forcing revaluation of the Chinese currency.

That’s why I have been cautious about recommending Chinese stocks and commodity investments to our viewers. When investors ask me how they can get a piece of the Chinese growth story I first tell them to check their portfolios. They probably already have more China exposure than they realize, because so many of the large cap U.S. companies have investments there. If they want more China in their portfolios I prefer to do it through ETFs (Exchange Traded Funds) which own the stock markets of countries that profit from China’s growth but have better governance and accounting practices than China. My two favorites are Korea (EWY), and Pacific-Rim ex-Japan (EPP), which owns Australia, New Zealand, Singapore, and Hong Kong stocks. Korea is driven by technology and telecom, the core of China’s growth strategy. Australia and New Zealand feed China’s appetite for natural resources. Singapore and Hong Kong provide them with access to financial markets. Together they are a mirror of Chinese growth. I own both ETFs.


John Rutledge

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