We Are the World

The Beijing Olympics ended last weekend with a bang. As the summer competition ended, the host country, China, took a well-deserved bow (and I think the final show was mostly real this time).

How could you not be impressed? For two weeks the spotlight was on Beijing with world media providing coverage that went way beyond the games itself. As is the case with the Olympics, the time of the competition is one big opportunity to advertise a nation and its assets.

In this regard, China did not disappoint. They had plenty to show and spared no expense in doing so, highlighting the incredible progress of the last decade. The entire effort was to prove how well collectivism had done in brining prosperity to its citizens.

Despite some issues regarding human rights, pollution and limits on individual freedoms, the Chinese government was determined to prove to the world that China was a force, an economic force, to be reckoned with. I was personally struck by the enormity of it all, and frankly, as a student of capitalism, I was just about drooling! (see also, “How to Profit from Emerging Markets“)

Emerging Global Market Place

I’m not sure if this is what Adam Smith had in mind, but it sure has to be close. The world is now one big foreign stock market and the opportunity to sell one’s goods and services into that market is a very good thing. This large world market increases choices for consumers, raises revenues for corporations, and improves job prospects for the global workforce. The bottom line is that we are all tied together in a way that we have not seen before.

This coupling of the global market has been strengthened–not weakened– as some would have you believe. For those in the U.S. our fortunes are tied to goings on around the globe and vice versa.

From an investment perspective, we have heard much regarding the concept of decoupling. Previously, many had begun describing a new paradigm whereby the world economy could operate irrespective of the condition of the world’s largest economy, the United States.

The old saying that if the U.S. catches a cold the world sneezes, would be reserved for a history book of old clich�s that no longer apply. At the beginning of this year, with the U.S. clearly in a state of flux, this was the hope of those pushing for investors to hold tight to foreign stock positions.

In hindsight, we now know that… decoupling was simply a story to be told by those selling false hope. When the U.S. sneezes, the rest of the world does indeed catch cold as we are now seeing.

The Olympic Games proved that we are all interconnected in ways not yet fully understood. To me, the most compelling storyline of the Olympics came in the gymnastics competition.

Here we saw so many plots and subplots unfold night after night. For the United States, we had a gymnast from Des Moines, Iowa, coached by a U.S. immigrant born and raised in China. We also had a U.S. competitor born in Moscow to parents of USSR Olympic participants and medalists.

If that doesn’t tell you we are all connected, I am not sure what will! As an investor, we need to take heed.

The Golden Economics of an Interconnected World

Looking forward, we are seeing the benefits of an interconnected world. The rest of the world is now experiencing what we saw in the United States earlier in the year. That is to say growth is slowing around the globe (see also, “The Safest Way to Invest Overseas“).

That means, interest rates globally can be expected to drop, just at a time when the U.S. may be raising rates to fight inflation. Such a state has helped strengthen the dollar against other foreign currencies.

That strong dollar pushes oil and commodity prices lower while pushing stock prices higher. That is the trend that is now firmly in place, and I expect the market to trade accordingly for the next few months.

Congratulations, China, on a job well done. We enjoyed the show!

This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insights like this, go to: www.InvestorPlace.com.