Flying on One Engine

The Airbus 380 is an ultra-high capacity aircraft that holds over 800 passengers and can fly over 9000 miles. It has four gigantic engines and requires almost 2 miles of runway.

Now imagine you’re the pilot at the end of a long flight. You’re low on fuel. You need to put the aircraft down soon, but there are only two airfields available with runways long enough. And one of those runways is under repair.

Kind of limits your options, doesn’t it?

That’s where the Chinese find themselves right now. Every month they export $20 billion more to the US than they import. They already have $3 trillion in investments. Prudence would dictate that they diversify, and not just buy US bonds and stocks. But the Euro’s a problem right now, what with the threat of a Greek default, tensions between the core and the periphery, and solvency issues in the financial sector.

That runway is potholed and under repair.

And the other places they might invest—Australia, Brazil, New Zealand—are too small. The entire New Zealand economy is only $126 billion. That’s just six months worth of surplus. They can’t dump that kind of money around without destabilizing those markets. Those runways are too short.

The only choice is to line up for the one runway that can handle the traffic: the US. And hope that the air doesn’t get choppy.

Bigger may be better in some things. But when it comes to trade, it can be a pain.

Douglas R. Tengdin, CFA
Chief Investment Officer
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