Innovate or die.

That’s the theme of this year’s Agora Financial conference held here in lovely Vancouver, BC at the gorgeous Fairmont Hotel (a gigantic step up from FreedomFest’s Bally’s, I must say!).

Like all investment conferences I have attended, so far I’m having a blast at this one (and learning a lot, too!). If you want to take your investing to the next level, I highly recommend attending one of these live conferences—you will meet fascinating people and learn a tremendous amount…there is just no substitute for meeting people in person! The next one I believe is the upcoming Casey Conference in beautiful Carlsbad, California on September 7 – 9…I hope to see you there!

I’ve only been here two days and have already had a wonderful conversation with Bill Bonner, founder of Agora (and an extremely nice man), and lots of drinks and talks with friends and fellow writers including Doug Casey, Chris Mayer, Joel Bowman, Eric Frye, Gary Gibson, and many more…(my liver can’t handle any more conferences!).

Seriously, though, it’s fun to hang out with such an incredible and interesting group of people, and I’m thoroughly enjoying my time here so far. Tonight is the infamous Whiskey Bar Panel, where we all get toasted on whiskey (especially the speakers…) and then partake in a lively discussion on economics, free-market capitalism, and whatever else people want to talk about…I don’t think any topic is off-limits!

I have so much to report to you, but I’ll take it from the top…here’s a bit from Day 1 (with much more to come!).

Day 1: Innovate or Die

Eric Frye, Editor of the Daily Reckoning (and very nice guy), kicked things off and illustrated the conference theme by telling us the story of two famous businesses—Hermès and SC Foy.

In 1837, Hermès was actually a horse harness-making company (who knew?), and SC Foy made saddles, harnesses, collars and whips a few years later in 1854.

Hermès also began making saddles in 1880, but by 1920 one of the Hermès brothers, Adolph, was getting worried about the arrival of the automobile. He panicked and sold his share of Hermès to his brother, Emile-Maurice.

Instead of panicking like his brother, Emile-Maurice was excited. He had seen an amazing invention on one of his travels and in 1922 he secured the European patent for the zipper. In 1924 Hermès began selling in the United States, and the rest, as you know, is history…today it is a well-known world-famous luxury brand.

But what about SC Foy? What happened to the other saddle-making company?

Well, unable to innovate, SC Foy fell prey to what Adolph Hermès was originally so worried about and sadly closed its doors in 1925, soon after the arrival of the automobile.

This is a classic story of “innovate or die”…one company innovated and became a global presence, while the company that did not innovate simply died.

The choice is yours…will you innovate, or die?

Niall Ferguson – The West and the Rest

Next up was Niall Ferguson, Professor of History at Harvard University and a Senior Fellow at the Hoover Institution, Stanford University, and Oxford. (He’s also a best-selling author, economic historian, and noted filmmaker…quite a resume!)

We in the U.S. are faced with this very choice…will we innovate (as has been our penchant in the past) or die?

Niall gave us some historical insight into our current economic predicament, putting up a quote by Francis Fukuyama from his famous talk on “The End of History”,

“What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of postwar history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government…An unabashed victory of economic and political liberalism…the Triumph of the West…the endpoint of man’s evolution…

In 1989, the Berlin Wall fell and we celebrated the victory of winning the Cold War. We thought “the West has won! Long live Western democracy and capitalism!” and yet today, we are a mere four years away from China taking over the U.S. as the world’s largest economy.

How can this be?

How can a one-party communist state be taking over the United States of America? This is certainly not what we thought in 1989 when the Berlin wall fell…nor when democracy was crushed by tanks in Tiananmen Square that same year.

However, in the last 10 years, the emerging markets have outperformed the West by a large margin, and now Western public finance is in crisis—we have a crisis of public debt.

By 2050, assuming nothing changes, ALL of our tax revenues will go to paying the interest on our debt.

This foretells one of two possible outcomes—austerity in the U.S. or a bond market implosion, neither of which are “good”.

The East is rapidly overtaking the West, and Niall termed this “the Great Reconvergence.”

From 1928 – 1978, the average American was 70 times richer than the average Chinese citizen. In 1978 the ratio was 22:1, and has shrunk to only 5:1 today (and Niall believes we will over-correct before returning to “average”).

Why is this Happening?

Niall believes that the East has downloaded the West’s 6 Killer Apps, the keys to Western predominance:

1. Competition

Competitiveness is moving East—the World Economic Forum does a survey of global competitiveness and scores each country, and since 2004 when they standardized their methods, the U.S. score has gone down by 7% and China’s has increased by 14%.

2. Scientific method

Innovation is moving East—there are more and more engineers and scientists coming from China and India than from America today.

3. Rule of law

The Rule of Law is deteriorating in the West, especially in the cradles of Western civilization. Italy and Greece score below China in another World Economic Forum study, and the top two spots belong to Hong Kong and Taiwan.

4. Modern medicine

America no longer has the edge in healthcare…new life expectancy studies show we have fallen to third (and with our “Supersize Me” nation I unfortunately see that falling further…). Here are the countries with the top 5 longest life expectancies:

  1. Japan
  2. Hong Kong
  3. U.S.A.
  4. China
  5. Russia

5. The consumer society

The consumer society is relocating to emerging markets.

6. The work ethic

It is now an Asian work ethic—the average South Korean works 1000 hours more per year than the average German.

 

6 Questions for the Post-Western World

All of these facts lead us to 6 questions for the post-Western world:

1. Can the U.S. solve the clash of generations?

We are so caught up here in America with the 1% vs. the 99%, but that is not the right question…the real question is generational.

How is the current generation or the generation not yet born going to pay for the boomers’ retirement? The pre-voter generation (those not quite yet 18) will see their tax rate more than double that of their parents and grandparents, and yet in the current election campaign there is almost no discussion of this.

2. Can Europe avoid a “Jenga” moment?

Do you remember the game of Jenga? You build a tower from wood blocks and each player systematically takes turns removing one wood block from the tower at a time until a “key” block is removed and the entire tower crumbles to the ground…

Jenga

Choose wisely, grasshopper...

This is the game the European politicians have been playing for the past three years—which country will be the one to bring the entire euro complex crashing down?

If even one country leaves the euro, say Greece for example, the results will be mind-blowing and Lehman-like.

3. Can the rule of law come to China?

China needs property rights or else its citizens will buy apartments in Vancouver instead of in China.

4. Can the Muslim world have a reformation?

5. Can Africa overcome Malthus (e.g. will their population growth overwhelm their agricultural ability)?

The population in Africa (and South Asia) is growing tremendously.

6. Can the resource “curse” become a blessing?

Niall did the math on what the entire world is worth, based on the current-day prices of its essential resources, things like zinc, uranium, tin, tantalum, silver, platinum/rhodium, gold, copper, phosphorous, oil, natural gas, lead, and more…

…and it comes to $359 trillion. Wow.

(The “resource curse” or “Paradox of Plenty” refers to the paradox that countries and regions with an abundance of natural resources, specifically non-renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. This is hypothesized to happen for many different reasons.)

In order to overcome our current economic malaise, we must successfully answer these six critical questions.

Only time will tell if we are able to do so…

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On that note, I’d better get off to the Whiskey Bar! I hear it is not to be missed. Have a great day, and I will bring you much more from the conference soon.

Thank you for reading! Please let me know what you think about Niall’s 6 questions in the comments!

To your financial success,

— Kung Fu Girl