Beware The End Of Savings Glut

The late 1990s were an aberration, we're told. Money flowed into emerging markets and then abruptly flowed out, a disruption that, at the time, seemed a big crisis.

The 2000s, we're told, were an aberration. First the tech-stock bubble burst. Then emerging-market governments, seared by the late 1990s, built huge war chests of U.S. dollars in what Federal Reserve Chairman Ben Bernanke dubbed 'the global saving glut.' Along with easy money and short-sighted regulation in developed countries, that capital fueled a borrowing binge and housing bubbles in the U.S. and elsewhere.

The last few years, we're told, were an aberration. The end of the credit and housing booms ended in a once-in-a-century bust. Governments rushed to the rescue, and central bankers pushed short-term interest rates very low. Investors rushed to the safety of U.S. Treasurys, helping keep long-term interest rates down even as the U.S. borrowed heavily and, now, the Fed is keeping them from rising.

What next? What will happen when the U.S. economy recovers, as it surely will some day? One likely outcome: a reversal of the global saving glut and an end to the abundance of cheap capital.

Looking beyond the next few years, McKinsey Globe Institute, the think-tank arm of the consultancy, foresees a surge in investment by emerging markets, particularly China and India, at the same time as those countries begin to save less. Business, banks, consumers, investors and governments 'all will have to adapt to a world in which capital is more costly and less plentiful, and where over half the world's saving and investment occurs in emerging markets,' McKinsey says in a new report, 'Farewell to Cheap Capital.'

As a whole, the world economy can invest only as much as it saves. A farmer in the old days divided his crop between corn that he'd eat or sell (consume) and corn that he set aside (save) to plant next year (invest). The same goes for the output of the global economy. Turning history on its head, much of the increased saving over 25 years has come from China and other poorer countries and flowed to richer countries, particularly the U.S.

Thrifty Chinese workers and peasants put money in the bank. The banks lent to the government which lent to the U.S. Treasury and mortgage giants Fannie Mae and Freddie Mac. And it ended up financing cheap mortgages in the U.S. before the crash and the big Obama fiscal stimulus after the crash. Government, companies and households in China accounted for a remarkable $1 in every $4 of global saving in 2008.


Copyright (c) 2010 Dow Jones & Company, Inc.McKinsey says all this is bound to wane in the next several years, as China and India pick up the pace of investment. 'China,' it says, 'plans to build new subway systems, highways and high-speed trains in its top 170 cities.'

170! To keep pace with urban population growth, China needs to add one New York City's worth of residential and commercial space every two years; India, one Chicago's worth every year. With so many Asian factories producing close to capacity, predicts Hong Kong-based HSBC economist Frederic Neumann, a surge in business capital spending is likely. Based on the consensus forecasts for global growth, McKinsey projects global investment -- which amounted to a bit more than 22% of world output before the financial crisis -- could reach nearly 25% by the end of this decade, a level not seen since the early 1970s.

But China, and particularly its consumers, are likely to save less, if history and the Chinese five-year plan are any guide. The still-thrifty Japanese are likely to save less, too, as a growing number of retirees tap their savings -- though the dearth of promising investments in a country with a shrinking population means Japan will keep exporting savings to others.

So where will the saving come from? If all goes well, much of it will come from the U.S. Americans, chastened by the past few years, probably will save more. The federal government probably will shrink its deficit (which economists, who like making up words, call 'dissaving') even while spending more on health care and pensions. If U.S. and U.K. households continue as they are today, global saving rates would rise one percentage point and partially offset the fall in Chinese savings as its consumers spend more of their incomes, McKinsey says.

But only partially. The global saving glut could easily become global savings dearth. And that would mean substantially higher interest rates.

If long-term rates, adjusted for inflation, returned to the 40-year average, McKinsey estimates, they would be 1.5 percentage points higher, a big jump from the current 3% or so yield on 10-year Treasurys. And rates could go up more if emerging markets try to step up infrastructure and other investments faster than U.S. and other rich countries increase their overall saving, which could be an unwelcome brake on global growth.

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Historical facts

Numerous early Christian martyrs were named Valentine . The Valentines honored on February 14 are Valentine of Rome ( Valentinus presb. m. Romae ) and Valentine of Terni ( Valentinus ep. Interamnensis m. Romae ). Valentine of Rome. was a priest in Rome who was martyred about AD 269 and was buried on the Via Flaminia . His relics are at the Church of Saint Praxed in Rome, and at Whitefriar Street Carmelite Church in Dublin, Ireland.

Valentine of Terni became bishop of Interamna (modern Terni ) about AD 197 and is said to have been martyred during the persecution under Emperor Aurelian . He is also buried on the Via Flaminia, but in a different location than Valentine of Rome. His relics are at the Basilica of Saint Valentine in Terni ( Basilica di San Valentino ).

The Catholic Encyclopedia also speaks of a third saint named Valentine who was mentioned in early martyrologiesunder date of February 14. He was martyred in Africa with a number of companions, but nothing more is known about him. 

No romantic elements are present in the original early medieval biographies of either of these martyrs. By the time a Saint Valentine became linked to romance in the 14th century, distinctions between Valentine of Rome and Valentine of Terni were utterly lost.

In the 1969 revision of the Roman Catholic Calendar of Saints , the feastday of Saint Valentine on February 14 was removed from the General Roman Calendar and relegated to particular (local or even national) calendars for the following reason: "Though the memorial of Saint Valentine is ancient, it is left to particular calendars, since, apart from his name, nothing is known of Saint Valentine except that he was buried on the Via Flaminia on February 14."  The feast day is still celebrated in Balzan ( Malta ) where relics of the saint are claimed to be found, and also throughout the world by Traditionalist Catholics who follow the older, pre- Second Vatican Council

Romantic legends

Saint Valentine of Terniand his disciples.

The Early Medieval acta of either Saint Valentine were expounded briefly in Legenda Aurea . According to that version, St Valentine was persecuted as a Christianand interrogated by Roman Emperor Claudius II in person. Claudius was impressed by Valentine and had a discussion with him, attempting to get him to convert to Roman paganism in order to save his life. Valentine refused and tried to convert Claudius to Christianity instead. Because of this, he was executed. Before his execution, he is reported to have performed a miracle by healing the blind daughter of his jailer.

Since Legenda Aurea still provided no connections whatsoever with sentimental love, appropriate lore has been embroidered in modern times to portray Valentine as a priest who refused an unattested law attributed to Roman Emperor Claudius II, allegedly ordering that young men remain single. The Emperor supposedly did this to grow his army, believing that married men did not make for good soldiers. The priest Valentine, however, secretly performed marriage ceremonies for young men. When Claudius found out about this, he had Valentine arrested and thrown in jail.

There is an additional modern embellishment to The Golden Legend , provided by American Greetings to History.com , and widely repeated despite having no historical basis whatsoever. On the evening before Valentine was to be executed , he would have written the first "valentine" card himself, addressed to a young girl variously identified as his beloved,  as the jailer's daughter whom he had befriended and healed,  or both. It was a note that read "From your Valentine." 

How to Tell When an Employee is About to Quit

Is your employee planning to move jobs this year? With the job market booming and salaries rising, companies can expect to see high attrition in 2011. That's the bad news.

The good news is that managers who know their employees well enough can potentially pre-empt these exits. There are several ways of telling if an employee is dissatisfied with their job and may be thinking of leaving the company.

Here are some signs to look out for:

Less participation: Has your once-enthusiastic employee suddenly turned quiet at meetings? Does this employee avoid get-togethers like group lunches for no apparent reason? Has their overall team participation dipped?

'Indifference towards everythingâ ¦ is the biggest giveaway' that the employee is on the verge of leaving, says Sonali Vaidya, group head of human resources at Alchemy Capital Management, a money management firm. She adds that managers who might be planning to leave might become more lenient and carefree, and less strict about meeting deadlines.

Lower productivity:If a hard-working employee has suddenly become sloppy in his or her work, that should put you on alert. Perhaps the employee is only sticking to what he or she has been asked to do rather than taking initiative. They may also be pushing back deadlines more often than usual. Or he or she might not be well prepared for the week ahead.

'If a person comes to work on a Monday morning without an agenda for the week or even a plan of action for the day, then it surely is a matter of concern,' says Ashok Ramchandran, director of human resources at mobile phone firm Vodafone Essar Ltd.

Office phobia:An employee who is thinking of leaving the company might often come up with excuses to stay away from the office. This could include taking a lot of sick leave or showing up late at work. The employee might not be clocking the requisite number of hours at work and finding excuses to leave office earlier than normal. The employee could also be using the sick days and extra time to meet potential recruiters. An unhappy employee would typically dread the start of the week, so watch out for frequent 'absence from the office on Mondays,' says Dr. Srinivas Kandula, global head of human resources at iGate Corp., a software services company.

Frequent arguments and complaints:Constant disagreements by your employee could be tactics for the employee to bide time before officially announcing his or her resignation. When given a new task or assignment, the employee might say things like 'Let me see,' 'I can't do this as I'm caught up with something,' or 'I don't think it's going to work.' In some cases, employees could even start to complain about work or start 'speaking ill of bosses or the organization,' says Matangi Gowrishankar, director of human resources for Asia & Pacific at BP Lubricants. This could potentially create dissatisfaction among other team-members and thus be harmful for the company.

Comparing companies:If the employee is regularly praising the work culture of other companies and condemning that of your company, that's a clear sign they may be close to quitting. 'A dissatisfied employee will start comparing his company with other companies like a dissatisfied husband â ¦ compares his wife to other women,' says Mr. Kandula. Perhaps the employee talks of former employees and of the 'better packages and benefits that they are getting in the new organization,' says Ms. Gowrishankar.

Appearances matter:Little changes in a person's appearance and behavior in the office could also be a telling. Perhaps the employee has lately been avoiding eye contact. If he or she usually dresses casually but has recently been showing up in formal wear, there is a chance he or she may be heading to a job interview.

If someone is spending an abnormal amount of time on the phone, 'in meeting rooms or somewhere, you know something is cooking,' says Anuraag Maini, head of human resources and training at Delhi-based DLF Pramerica Life Insurance Co.

The person could be talking to potential recruiters during these private calls. To be sure, these and some other signs described above could also be the result of some personal issues, so managers should not jump to conclusions. 'The idea is being alert to any changes in a person's behavior,' says Mr. Maini. When an employee is behaving differently, the manager should talk to him or her to figure out what's going on.

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