Playing Defense in Pittsburgh

09/24/2009 9:10 am EST

Focus: GLOBAL

Igor Greenwald

Chief Investment Strategist, MLP Profits

The G20 leaders meeting in Pittsburgh this week should feel right at home. The city's named for a British imperialist, but at least he knew what riles commoners.

"The little I know of it has not served to raise my opinion of what is vulgarly called the monied interest; I mean, that blood-sucker, that muckworm, that calls itself the friend of government," William Pitt the Elder once complained. A quarter of a millennium later, the majority of summiteers share Pitt's distaste, leaving the English speakers with financial empires to defend on the defensive.

As if on cue, the Obama Administration now wishes to discuss the old "global imbalances" head-scratcher with its foreign friends. If this agenda-stealing ploy succeeds, Europe's push for international financial regulation might begin to seem a bit less urgent. A few more such diversions, and the French-led charge might fare no better than this one, Wall Street hopes.

And so what if the oft-maligned global imbalances were nowhere near the cause of the recent financial low jinks, and have been greatly reduced as a result? The Chinese didn't inflate the credit and real-estate bubbles any more than did the Japanese, French, or Saudi buyers of bonds. Most Americans took on just enough debt to maintain living standards while wages stagnated to accommodate cheap Asian labor.

Adding two billion poorly paid Asians to the global labor pool was always likely to cause a splash, and it seems silly to judge the process by the trade balance, unless one really means to limit trade.

And unless one believes that Asians are destined never to catch up to rich-country living standards, the capital transfer now underway between North America and Asia doesn't seem likely to stop any time soon. Nor should it. The planetary current account is balanced. If the Chinese wish to save more so that Americans may spend more, who's to say that the International Monetary Fund knows better?

As it is, heavy US job losses have set the stage for record government borrowing and the inevitable debasement of the dollar. And those consequences are making China rethink its trade policies more urgently than any summit statement ever could.

And in the meantime, when the chips were down, the global trade imbalances proved to be a stabilizing force. China's hoard of foreign exchange reserves paid for a domestic stimulus that sparked the global recovery. China also ensured lower mortgage rates in the US by buying more mortgage debt and Treasury bonds. US consumers quickly boosted their savings rate by sacrificing luxuries large and small. And much of this took place without any help from the G20 or the IMF.

But then the G20 exists to maintain the pretense that, in the crack-up's aftermath, financial policymaking will be shared with the likes of India and France. If a bit of pontificating in Pittsburgh buys more time for the dollar to depreciate without too much foreign fuss, by all means.

The upshot, according to Lawrence Roulston, is that Canadian miners filling the growing Chinese appetite for metals remain cheap. And as industrialization accelerates, so will demand for the technologies and companies that might keep Asia's air and water, if not clean, then at least tolerable. Andrew McHattie writes favorably about a new Asian-equity environmental fund set to list in London.

Foreign wireless carriers offer another attractive hedge against the drooping dollar, and Allan Nichols pegs Canada's Rogers (NYSE: RCI, TSX: RCI-A) as one of the best, alongside France Telecom (NYSE: FTE, Paris: FTE), and NTT DoCoMo (NYSE: DCM; Tokyo: 9437). At six times cash flow, 12 times next year's earnings, a yield approaching 4%, and the draw of the iPhone, Rogers in particular looks like a bargain. The company's Blue Jays baseball team may be cannon fodder, but in the financial arena where it really counts, Toronto stocks have doubled New York's gains this month.

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