He who controls the spice controls the universe! – Frank Herbert, Dune
The Alibaba IPO is moments away as I write this…in fact, I may be able to cite the opening price before I am done typing. It is a good moment to pause and reflect on the nature of trade. In my childhood, it was a point of pride that our automobiles were built in America. Now it is nearly impossible to buy a part made outside of China. In 25 years, China has grown to become the world’s factory. A business that doesn’t take advantage of global prices in parts and labor is destined to fail. And now Alibaba, the B2B equivalent of Amazon, is going public.
Alibaba has empowered ‘the little guy’ to take part in the global merchant trade. Instead of buying from American wholesalers, the small business can get its merchandise directly from China, without having to build a factory there. The merchandise gets added to containers that make their way to ports and onto ships sailing in every direction. The American silk road traverses the Pacific Ocean, landing primarily in Los Angeles, the busiest port in the nation. But the road goes in all directions…unlike the Silk Road and the Spice Trail. The 21st century has witnessed the birth of a new kind of road…made of fiber optic cable and copper wire in one direction, and water in the other. Just as all roads once led to Rome, now all cash flows to China!
The latest indication is 88-90 dollars per share for the Alibaba IPO, which means that the company will raise well over 200 billion dollars some time today. The outflow of capital continues…the US is about to hit their credit limit. Made in America labels are going the way of the pay phone. These are truly interesting times.