In 1982, early in my Management Consulting career with Deloitte, a Big 4 (Big 8 at that time) Accounting and Consulting firm, I made my first to trip to China. I was on an engagement in the Middle East at the time and our client was Saudi Arabian Airlines. I was based in Jeddah, Saudi Arabia however worked with clients and traveled extensively throughout the region.
As part of the project, I had the opportunity to visit Hong Kong and Beijing however every one told me to avoid Shanghai as it was dreary and in the dumps. Today, Shanghai is not the kind of city most expect to see when they visit the world’s largest Emerging Market.
Amazingly, the Pudong area, which is ground zero of the hustle and bustle of Shanghai and representative of the China Dream, did not even exist 20 years ago.
Construction on the New Open Economic Development Zone, which has grown to become China’s pulsing financial and commercial hub, only really began in the early 1990s, right around the time the nation’s economy embarked on a two-decade long, double-digit annual growth rate transformation.
This (the unapologetically capitalistic city seems to scream out) is what, Made in China, built for us.
While the Developed world spent the better part of the last few decades buying knick-knacks they didn’t need with money they didn’t have, China Inc. got busy both producing those same products, and lending the world’s consumers the money with which to buy them. The result is one of the largest trade imbalances in modern economic history. At a staggering $2.4 trillion, the Middle Kingdom’s foreign reserve stockpile is by far the largest in the world. And, although a not-insignificant $900 billion of those reserves are held in steadily depreciating greenbacks (not to mention a large euro holding), the Chinese are wasting no time converting those paper cash piles into tangible asset stakes.
Also, China has been on a resource-buying binge over the past ten years, inking deals with major mining companies from Africa to Australia, South America, The Middle East and all over Asia.
Just last month China signed more than $8.8 billion of new commercial and mining deals with resource giant Australia, despite its southern neighbor’s onerous new resource profits tax laws. The Middle Kingdom’s voracious industrialization inhaled around $41.7 billion worth of Australia’s minerals in 2009, including almost $20 billion of iron ore and concentrates.
Last year China also became Brazil’s number one trading partner when it agreed to lend $10 billion to Petrobras in return for guaranteed oil supply over the next decade. I invite you to read here my recent article “Energy is One of the 5Es of the Evaluation Framework” that contains a discussion about this transaction between Brazil and China. Other projects between China and its South American BRIC counterpart included a $5 billion steel plant at the Acu port in Rio de Janeiro. This deal represents China’s largest ever investment in Latin America’s richest resource economy and its biggest foreign steel-plant investment.
The world’s fastest growing economic superpower is also looking closer to home in an effort to feed its unwavering appetite and to divest itself of paper promises.
“Central Asia is rich in mineral resources, particularly rare metals, copper and gold that China needs for economic growth,” President Hu Jintao announced on a recent visit to Central Asia, where he signed gas and nuclear agreements and promised cooperation in port construction and transportation infrastructure. I invite you to read here my recent article on China and rare earths.
Conspicuously absent from these and a slew of other high profile deals were the “emerged” markets. While the Petrobras deal was going down, for instance, politicians in the US were eagerly handing out hundreds of billions of other people’s dollars to Goldman Sachs (via AIG), and bribing its citizens to purchase new kitchen appliances, most of which were probably made in China anyway.
Of course, all this stimulation comes at a terrible cost. Not only must the US economy swallow the opportunity cost (of the goods and services that might have been produced had those trillions not been siphoned off to bailout the nation’s failed banking, insurance, and auto industries), it must also contend with seemingly uncontrollable debt loads.
Barely 9 months into the current financial year, the US in the past few weeks, passed the $1 trillion annual deficit mark. Though marginally smaller than last year’s total at this point, such a figure is hardly a cause for celebration.
The world’s most indebted economy – on a gross basis – is also notching up a worrying tally of single day records.
The Washington Times reports:
- The largest one-day increase in USA national debt was on June 30 (circa 2010) and it totaled $165,931,038,264.30.
- This one day amount is bigger than the entire annual deficit for fiscal year 2007.
- It is larger than the $140 billion in savings the new health care bill will produce over its first 10 years.
- The one day amount works out to nearly $1,500 for every US household, or more than 10 times the median daily household income.
And now that the future demand has been brought forward, through “Cash for Clunkers” and other government stimulus and spending programs, the USA is struggling to keep its economy afloat. The citizens of the USA have allowed their government to essentially spend their personal savings AND their future earnings.
Meanwhile, China is struggling to cool its own economy down. It is all the government can do to keep a lid on growth at 11.9%, the figure recorded in the first quarter of this year. Stronger domestic demand and a rebound in exports forced the International Monetary Fund to upwardly revise its outlook for China’s 2010 GDP, from 10% to 10.5%. Housing prices are still rising by an incredible 12.4% per month, according to the latest available figures, even after Beijing introduced a series of tightening measures aimed at dampening real estate speculation. I invite you to read here one of my recent blog posts about China trying to cool their economy.
Almost nobody expects China to keep such a breakneck pace. In fact, many are warning of sharp corrections ahead. As many are well aware, nothing moves up or down without (sometimes major) corrections. Straight lines are for geometry classes, not markets. Over the long haul, however, the trend is pretty clear. I invite you to read here one of my recent blog posts about the Chinese economy being out of control.
While it may seem like it is Time to Exit the Dragon, it’s difficult to imagine the emerging middle-class consumers of China returning to the lot of lowly-paid factory workers without a struggle. It is almost as difficult to imagine an American working for less than the minimum wage but it might soon be a reality for the American worker. This situation will probably awaken the Free Agent Entrepreneurial desire among many to consider a shift from a W2 wage system to a 1099 ownership system and lifestyle. I invite you to read here an article about Looking to Retool as a Digital Entrepreneur.
Many still see China as a ripe buying opportunity but this is not the kind of wealth creating opportunity that you are likely to see in the headlines of the evening business news and that is why those who know they need to be savvy with their money, like the insiders, belong to a wealth creating community.
They gain the necessary financial education and they obtain association with, access to, and membership in a wealth creation community to regain control over their financial lifestyle. As a result, they obtain examples of alternative wealth creation strategies such as debt reduction, asset protection, and wealth acceleration with investments in items such as precious metals, water rights, oil, natural gas, potash mines, food commodities, or gold mines … perhaps investments in energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.
I trust this article provides a little more insight into the global economy and while some may say it is Time to Exit the Dragon, others highlight what may be ripe buying opportunities among a handful of Chinese companies that trade in US Indexes, or as ADRs, and have extremely attractive valuations.
It is wise to monitor world affairs and consider alternative wealth generating strategies. I will provide updates in future articles and at my blog over the next few weeks.
In closing, I want to thank Joel Bowman of Agora Financial as he was the source of some of the materials about the breakneck growth in China mentioned in this post.
Showing posts with label Emerging Markets. Show all posts
Showing posts with label Emerging Markets. Show all posts
Tuesday, July 13, 2010
Thursday, March 4, 2010
In 2010, Demand for Commodities is Creating Investment Opportunities
Emerging markets kicked into high gear a few years ago (see previous post on this blog titled “The World’s Center of Gravity is Continuing to Tip in Favor of Emerging Markets”) and this was fully evident in the middle of 2008 as many commodity prices reached all-time highs.
As global demand increased, the prices for commodities like oil, corn, sugar and cotton rose to dizzying heights.
The market cooled off in late 2008 and early 2009 as part of the deleveraging initiated in Phase 1 of the Global Financial Crisis but now commodities are beginning to move back up.
Many commodities have achieved a 50% retracement back up to 2008 highs and this upward movement signals to many a continuing uptrend.
After worldwide demand destruction in late 2008 it appears a solid uptrend is being formed.
This uptrend is a combination of fundamental factors with the most important driver coming from markets like China and India.
These emerging markets consume everything from oil to orange juice, and after the sudden fall of 2008, the craving for so-called luxury goods, from the people of these emerging markets, has just started.
Worldwide demand for these staple commodities (fuel for a car, coffee is a new delicacy, and corn-fed meats on the dinner plate) will continue to rise.
After you get past all the investment bank upgrade and market consensus reports, there are plenty of solid reasons that gold is set to rise in the next 12 months.
From a technical perspective, gold has not reached its inflation-adjusted all-time high. For that to happen, gold would need to be at $2,000 an ounce — a 75% increase from today’s price.
In 2010, this could easily happen. However, a more conservative, yet realistic goal would be $1,500 gold — which could very easily happen in the next 12 months.
Other than technical indicators and charts, there are plenty of fundamental reasons to assume the metal will go higher and two of the most significant reasons are listed below.
First and most importantly is that there is an implicit flaw with Western government funding models. Governments like ours here in the U.S., naturally choose short-term fixes for long-term problems (it probably has to do with the lack of term limits for politicians and frequent re-elections). Most likely these features of our government and political system will not magically change overnight, nor will it likely change by the end of 2010.
So the probabilities are high that fears of inflation will remain large and as a hedge, many will demand gold, hence increasing gold prices. And, as the short-term fixes expose more government-monetized debt, prices of the precious metal will also go higher.
The second reason that gold will shoot to $1,500 in the next 12 months is supply related. Many of the gold fields in South Africa are finding it more difficult and hence more expensive to mine the gold that is deep in the earth. With gold being harder to obtain, the price will be higher due to increased mining costs and inevitably, there will be less supply of gold brought to market due to these expensive mining methods and ongoing difficulty in the mining process.
As demand rises and supply is reduced, you can bet that prices for gold will have nowhere to go but higher than the current $1,100 an ounce.
I favor a quote from Steve Forbes. Forbes says that pursuing additional financial education and the resulting increase in our financial literacy will open our eyes to alternative wealth creating strategies and this will be they key to resolving our financial crisis.
As an example of alternative wealth creating strategies … consider investments in precious metals, water rights, oil, natural gas, potash mines, food commodities, or gold mines … perhaps investments in energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.
I trust this article provides a little more insight into the world of the commodity markets and with the raging demand due to the rise in the living standards in many of the world’s emerging markets, there are numerous alternative wealth generating opportunities. This increased demand places commodities in a super-cycle that will likely last another decade. In the commodities world, there are no CEOs on the inside cooking the books nor do you have accounting firms puffing up the profits - you just have prices responding to pure supply and demand. This is why many refer to the commodities markets as the last bastion where there is pure capitalism. It is wise to have exposure to the commodities markets as the world’s economies respond to the emerging markets.
I will continue to introduce alternative wealth creating strategies to consider in future articles and updates at my blog over the next few weeks.
As global demand increased, the prices for commodities like oil, corn, sugar and cotton rose to dizzying heights.
The market cooled off in late 2008 and early 2009 as part of the deleveraging initiated in Phase 1 of the Global Financial Crisis but now commodities are beginning to move back up.
Many commodities have achieved a 50% retracement back up to 2008 highs and this upward movement signals to many a continuing uptrend.
After worldwide demand destruction in late 2008 it appears a solid uptrend is being formed.
This uptrend is a combination of fundamental factors with the most important driver coming from markets like China and India.
These emerging markets consume everything from oil to orange juice, and after the sudden fall of 2008, the craving for so-called luxury goods, from the people of these emerging markets, has just started.
Worldwide demand for these staple commodities (fuel for a car, coffee is a new delicacy, and corn-fed meats on the dinner plate) will continue to rise.
After you get past all the investment bank upgrade and market consensus reports, there are plenty of solid reasons that gold is set to rise in the next 12 months.
From a technical perspective, gold has not reached its inflation-adjusted all-time high. For that to happen, gold would need to be at $2,000 an ounce — a 75% increase from today’s price.
In 2010, this could easily happen. However, a more conservative, yet realistic goal would be $1,500 gold — which could very easily happen in the next 12 months.
Other than technical indicators and charts, there are plenty of fundamental reasons to assume the metal will go higher and two of the most significant reasons are listed below.
First and most importantly is that there is an implicit flaw with Western government funding models. Governments like ours here in the U.S., naturally choose short-term fixes for long-term problems (it probably has to do with the lack of term limits for politicians and frequent re-elections). Most likely these features of our government and political system will not magically change overnight, nor will it likely change by the end of 2010.
So the probabilities are high that fears of inflation will remain large and as a hedge, many will demand gold, hence increasing gold prices. And, as the short-term fixes expose more government-monetized debt, prices of the precious metal will also go higher.
The second reason that gold will shoot to $1,500 in the next 12 months is supply related. Many of the gold fields in South Africa are finding it more difficult and hence more expensive to mine the gold that is deep in the earth. With gold being harder to obtain, the price will be higher due to increased mining costs and inevitably, there will be less supply of gold brought to market due to these expensive mining methods and ongoing difficulty in the mining process.
As demand rises and supply is reduced, you can bet that prices for gold will have nowhere to go but higher than the current $1,100 an ounce.
I favor a quote from Steve Forbes. Forbes says that pursuing additional financial education and the resulting increase in our financial literacy will open our eyes to alternative wealth creating strategies and this will be they key to resolving our financial crisis.
As an example of alternative wealth creating strategies … consider investments in precious metals, water rights, oil, natural gas, potash mines, food commodities, or gold mines … perhaps investments in energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.
I trust this article provides a little more insight into the world of the commodity markets and with the raging demand due to the rise in the living standards in many of the world’s emerging markets, there are numerous alternative wealth generating opportunities. This increased demand places commodities in a super-cycle that will likely last another decade. In the commodities world, there are no CEOs on the inside cooking the books nor do you have accounting firms puffing up the profits - you just have prices responding to pure supply and demand. This is why many refer to the commodities markets as the last bastion where there is pure capitalism. It is wise to have exposure to the commodities markets as the world’s economies respond to the emerging markets.
I will continue to introduce alternative wealth creating strategies to consider in future articles and updates at my blog over the next few weeks.
Sunday, February 28, 2010
The World’s Center of Gravity Continues to Tip in Favor of Emerging Economies
Oranges were once expensive luxuries in northern climates.
Today, we take for granted that we can eat apples, oranges, and bananas all year round if we choose. It doesn't matter where you live. We can eat strawberries in the dead of winter. In fact, we routinely enjoy goods that come from places very far from our own doorstep.
Televisions from Taiwan, lettuce from Mexico, shirts from China; goods from faraway places are so common it is easy to forget how recent such miracles of commerce are.
Such miracles of commerce have redrawn the economic map. The emerging markets have "emerged" and big opportunities are emerging in something called the Great Convergence.
In the late 20th century, with the gradual spread of the Industrial Revolution to the developing world, the Western world (ex-Japan) represented 90% of the world's manufacturing output as late as 1953. America's economy alone was nearly half of the world's industrial output.
During this time, the economic gap between China and Western Europe grew very wide when viewed in historic terms. But things changed in the late 20th century. The Great Convergence began. From 1950 on, the world economic growth was quite simply astonishing. We enjoyed a rolling wave of "economic miracles" through the decades. Closed economies opened up and trade expanded.
We can point to the success of postwar Japan and then to the surging tiger economies of East Asia. Singapore, Hong Kong, Taiwan and South Korea grew in leaps and bounds. Finally, we saw the opening up of China, India, Russia and Brazil. The once-bottled-up energies of these countries poured out.
Today, we see the handiwork of the Great Convergence taking shape. The distinctions between "emerging markets" and "developed markets" are starting to disappear. Indeed, the terms may already be obsolete.
The belief that companies in the US, Western Europe or Japan are better managed than in emerging markets is also no longer valid. Anyone who has sat through the parade of fraud and corporate malfeasance of recent years in the US will find it hard to argue otherwise.
The list of corporate thieves is much longer in the US and Europe than in the emerging markets. Management teams in the West no longer dominate when it comes to standards of best practices.
Governments in the West are just as bumbling as those of emerging markets. More and more, it is the Western governments that steal too much. Another distinction blurred.
Emerging markets now make up about half of the global economy and not surprisingly, emerging markets now make up 10 of the 20 largest economies in the world. India is now bigger than Germany. Russia is bigger than the UK. Mexico is bigger than Canada. Turkey is bigger than Australia.
In a stock market sense, these places have also grown up. It used to be that emerging markets were not very liquid or very big. It was not that long ago that the IBM shares changing hands in a single day in New York were worth more than all the shares that traded hands in Shanghai or Bombay.
Today's emerging markets are large and liquid. Chinese markets traded more shares than the NYSE; Hong Kong and Korea traded more than Germany; India traded more than France; and Taiwan traded more than Italy, Australia or Canada.
Emerging market companies are also growing faster. In particular, there are wide gaps in the growth rates of sales and profits. The second key distinction worth noting is that of balance sheet strength. Emerging market companies have less debt and cover their debts more comfortably.
All of this is to point out that investors need exposure to emerging markets, or at the very least, they should not shun them for reasons that are no longer valid.
A good way to get exposure to emerging markets is through the back door, so to speak. Invest in companies, wherever they are, that have what these economies need or want, but don't have or can't make.
I favor a quote from Steve Forbes. Forbes says that pursuing additional financial education and the resulting increase in our financial literacy will open our eyes to alternative wealth creating strategies and this will be they key to resolving our financial crisis.
As an example of alternative wealth creating strategies … consider investments in energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … perhaps precious metals, water rights, oil, natural gas, potash mines, food commodities, or gold mines … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.
I trust this article provides a little more insight into the convergence of the developed world and the emerging markets. With the gap between these markets disappearing on many dimensions and with the companies in these regions growing faster, it is wise to have exposure to these markets or at least to invest in companies that have what these economies need.
I will continue to introduce alternative wealth creating strategies to consider in future articles and updates at my blog over the next few weeks.
As a former engineer with General Dynamics and management consultant at Deloitte … I am on a mission to empower individuals by increasing their financial literacy, improve their ability for personal sustainability, and contribute to the program that has a goal of creating 100 Millionaires by 2012.
Until next time, I invite you to:
Meet me at Facebook :
Follow me on Twitter :
Read my Posts :
Watch my Video Channel :
Join me in pursuing financial literacy and alternative business opportunities with multiple income streams at aspenIbiz.
When not traveling for business or pleasure, Mike operates his own Internet Marketing company and consulting firm from his home in the mountains of Colorado.
In closing, if you are a reluctant entrepreneur, a business owner, employed in an 8-5 job, or recently retired, yet still wanting to be plugged-in to the next wave of economic prosperity, you can join me in pursuing the lifestyle you want to live by following the aspenIbiz link provided above.
Today, we take for granted that we can eat apples, oranges, and bananas all year round if we choose. It doesn't matter where you live. We can eat strawberries in the dead of winter. In fact, we routinely enjoy goods that come from places very far from our own doorstep.
Televisions from Taiwan, lettuce from Mexico, shirts from China; goods from faraway places are so common it is easy to forget how recent such miracles of commerce are.
Such miracles of commerce have redrawn the economic map. The emerging markets have "emerged" and big opportunities are emerging in something called the Great Convergence.
In the late 20th century, with the gradual spread of the Industrial Revolution to the developing world, the Western world (ex-Japan) represented 90% of the world's manufacturing output as late as 1953. America's economy alone was nearly half of the world's industrial output.
During this time, the economic gap between China and Western Europe grew very wide when viewed in historic terms. But things changed in the late 20th century. The Great Convergence began. From 1950 on, the world economic growth was quite simply astonishing. We enjoyed a rolling wave of "economic miracles" through the decades. Closed economies opened up and trade expanded.
We can point to the success of postwar Japan and then to the surging tiger economies of East Asia. Singapore, Hong Kong, Taiwan and South Korea grew in leaps and bounds. Finally, we saw the opening up of China, India, Russia and Brazil. The once-bottled-up energies of these countries poured out.
Today, we see the handiwork of the Great Convergence taking shape. The distinctions between "emerging markets" and "developed markets" are starting to disappear. Indeed, the terms may already be obsolete.
The belief that companies in the US, Western Europe or Japan are better managed than in emerging markets is also no longer valid. Anyone who has sat through the parade of fraud and corporate malfeasance of recent years in the US will find it hard to argue otherwise.
The list of corporate thieves is much longer in the US and Europe than in the emerging markets. Management teams in the West no longer dominate when it comes to standards of best practices.
Governments in the West are just as bumbling as those of emerging markets. More and more, it is the Western governments that steal too much. Another distinction blurred.
Emerging markets now make up about half of the global economy and not surprisingly, emerging markets now make up 10 of the 20 largest economies in the world. India is now bigger than Germany. Russia is bigger than the UK. Mexico is bigger than Canada. Turkey is bigger than Australia.
In a stock market sense, these places have also grown up. It used to be that emerging markets were not very liquid or very big. It was not that long ago that the IBM shares changing hands in a single day in New York were worth more than all the shares that traded hands in Shanghai or Bombay.
Today's emerging markets are large and liquid. Chinese markets traded more shares than the NYSE; Hong Kong and Korea traded more than Germany; India traded more than France; and Taiwan traded more than Italy, Australia or Canada.
Emerging market companies are also growing faster. In particular, there are wide gaps in the growth rates of sales and profits. The second key distinction worth noting is that of balance sheet strength. Emerging market companies have less debt and cover their debts more comfortably.
All of this is to point out that investors need exposure to emerging markets, or at the very least, they should not shun them for reasons that are no longer valid.
A good way to get exposure to emerging markets is through the back door, so to speak. Invest in companies, wherever they are, that have what these economies need or want, but don't have or can't make.
I favor a quote from Steve Forbes. Forbes says that pursuing additional financial education and the resulting increase in our financial literacy will open our eyes to alternative wealth creating strategies and this will be they key to resolving our financial crisis.
As an example of alternative wealth creating strategies … consider investments in energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … perhaps precious metals, water rights, oil, natural gas, potash mines, food commodities, or gold mines … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.
I trust this article provides a little more insight into the convergence of the developed world and the emerging markets. With the gap between these markets disappearing on many dimensions and with the companies in these regions growing faster, it is wise to have exposure to these markets or at least to invest in companies that have what these economies need.
I will continue to introduce alternative wealth creating strategies to consider in future articles and updates at my blog over the next few weeks.
As a former engineer with General Dynamics and management consultant at Deloitte … I am on a mission to empower individuals by increasing their financial literacy, improve their ability for personal sustainability, and contribute to the program that has a goal of creating 100 Millionaires by 2012.
Until next time, I invite you to:
Meet me at Facebook :
Follow me on Twitter :
Read my Posts :
Watch my Video Channel :
Join me in pursuing financial literacy and alternative business opportunities with multiple income streams at aspenIbiz.
When not traveling for business or pleasure, Mike operates his own Internet Marketing company and consulting firm from his home in the mountains of Colorado.
In closing, if you are a reluctant entrepreneur, a business owner, employed in an 8-5 job, or recently retired, yet still wanting to be plugged-in to the next wave of economic prosperity, you can join me in pursuing the lifestyle you want to live by following the aspenIbiz link provided above.
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