Last week’s column on the fear being stoked online about the coming demise of the U.S. dollar and the reserve “petro-dollar” elicited some strong feedback, some supportive and some critical. I see the topic even creeping into the mainstream financial press this week, and one of the subjects I see often linked to the discussion, and offered as critical feedback, is the topic of the BRICs.
The BRICs is a great topic to explore, and I am happy to provide some opinion on how BRICs developments may end up impacting us as American investors.
BRICs is an acronym coined by a Goldman Sachs research paper from the early 2000s. The acronym stands for Brazil, Russia, India and China (BRIC) and was used to describe these nations and their fast-growing emerging market economies at that time. In the research, Goldman projected these emerging market economies to grow much faster than the developed economies (U.S., Western Europe, Japan) and eventually come to dominate the global economy by midcentury.
Most of the original claims in the BRICs theme have never come to pass, and although I have enjoyed some investment success with emerging markets during my career, any investor who has played on this field knows it is extremely volatile and not for the faint of heart. In short, the BRICs have been a wild ride, but the only one of these emerging economies that ever came close to achieving at the level originally predicted is China, and it certainly hasn’t been a smooth ride. of a main drug used in medication abortion was “not America.”
Which begs the question, why all the attention to this topic now? Well, because the BRICs acronym has evolved to represent more than an investment theme. The BRIC nations themselves took the acronym and ran with it, forming a formal collaborative forum in 2006. This forum and the BRICs term are now being used to describe a scary supposed “new world order” conspiracy that is apparently rising to challenge the global economic dominance of the U.S., which is why it ties into the discussion about the supposed demise of the U.S. dollar.
The new BRICs mythos posits that the collaboration among the large, but still developing economies of Brazil, Russia, India, China and now South Africa is now focused on not only pushing the U.S. to the sidelines, but more importantly on recruiting other developing nations in order to expand the influence of the “rest of the world” over the influence of the developed nations represented in the G7, an economic forum comprised of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, as well as the European Union.
Some of the supposed alarming recruits to the BRICS collaborative forum are said to be Saudi Arabia, Egypt, Turkey, Venezuela and even, gasp, Mexico. As the BRICS continue to collaborate there is talk of trading directly in each other’s currencies (without dollar conversion) and the block has even created a development bank to compete with the G7’s World Bank.
The questions I get from all this are, why is all this being propagated as scary, and further why should we as Americans be concerned about these nations talking among themselves without the U.S. in the room?
My answers would be, I don’t think it's scary, and I think these nations should be talking to each other. The American attempt to maintain a unipolar economic world has been expensive, and in the end is probably not sustainable, and that’s OK. Despite our American obsession with being, well, America, roughly 90% of the people on the planet live outside the developed G7 economies, and these people should be able to pursue prosperity in whatever way they can.
The United States will continue to offer what it always has. We provide the world with a stable democratic government, a steadily growing economy steeped in innovation, a voracious consumer market, a transparent financial system with well enforced regulation, a strong military to support our allies and defend our interests and most importantly a currency that moves around the world securely, is accepted everywhere and functions as the most predictable store of value on the planet.
Can the BRICS compete? I honestly wish they could, but none of the nations on the BRICs list offer even two or more of the benefits offered by the U.S.. If anything, when I look at the BRICs alternative, I don’t see a competitor poised to usurp America, I see the potential for poorly understood systemic risks as countries with less developed financial and regulatory systems create cross currents with each other. Which is why I neither fear the BRICs nor am particularly attracted to investing there. For now, I would prefer to keep my capital at home in America, and I suspect I am not alone.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements; there are no guarantees that these outcomes will come to pass.
Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
