Finding new major investment themes (page 1 of 4)

The fact is that there is a huge pool of money slashing around the world. This pool increases in size with the credit expansion and the increase in money supply, for which the central banks around the world under the guidance of Alan Greenspan are responsible.

And whereas we may debate whether this artificial stimulus by the monetary authorities is healthy or will lead to further unimaginable problems down the road, the fact remains that this pool of money in a free market economy and in absence of foreign exchange controls will flow somewhere and boost economic activity temporary, and lead to inflation or a bull market in some asset class at least somewhere in the world.

To better understand this process, visualize a gigantic flat bowl, full of water, about three times the size of the world, standing on top of the earth, perched on a very large bamboo pole, which is continuously supplied with fresh water that comes from a huge water tap and is controlled by the world's central bankers. Under what economists might call 'equilibrium' (which does not exist in the real world), the water would continuously overflow from the bowl evenly unto the earth and, therefore, economies around the world would expand and all asset classes would appreciate at about the same rate.

However, the bowl being so large, relative to the flexible bamboo pole, onto which it is perched, is highly unstable and will lean toward the one or the other side depending on which side of the pole investors will lean. If collectively, investors are bullish about America, they will lean against the bamboo pole in such a way as to let the water (money) overflow into the direction of the American continent.

If they are optimistic about the NASDAQ, the bowl will be tilt to overflow into the high tech, telecommunication, media, and biotech sector, and so on. In short, the direction of the overflowing water will depend on the expectations of investors, which in turn can be manipulated by opinion leaders, the media, analysts, strategists, politicians and economists.

Again think of the investment community at large as being very powerful due to its total size - similar to a herd of elephants - but not very sophisticated when it comes to financial matters. The elephants, being rather docile animals will listen to the commands they receive from their mahouts, and when the keepers tell them to do something they will obey and so, with their strength and weight, they can bend the gigantic bamboo pole for quite some time in the one or the other direction.

The mahouts themselves are not particularly sophisticated either - in our case a group consisting of fund managers, stock brokers, economists, strategists and so on - but they have a keen interest to boost the productivity of their elephants and to make as much money out of them as possible and, therefore, they will from time to time give them new instructions, as to which side of the bamboo pole they should lean on.

Therefore, each time the elephants receive new instructions, the gigantic water bowl perched on the bamboo pole will overflow into a different region, industrial sector, or another asset class altogether. The point is simply this. As long as the water bowl is continuously refilled with water coming from the water tap, which is controlled by central banks and as long as the perch is buffeted around by the elephants, which are driven by the mahouts, there will always be some assets which will appreciate while other lose their momentum, depending to which side the water bowl is leaning.