Larry Edelson here, writing on my way to Asia with a quick update on key markets.
As hard as I try, I can’t find fault with my analysis of the markets: Gold, oil, and most other natural resources are about to start soaring AGAIN.
The clues are everywhere …
First, bonds are falling, and long-term interest rates are rising. The typical 30-year U.S. Treasury bond has lost as much as 4% of its value since the middle of January. That means $100,000 worth of bonds in January is now worth about $96,000. Accordingly, long-term interest rates have surged.
Bond prices fall and interest rates rise when investors start to smell easy monetary policies and more inflation down the road. So in my book, the recent plunge in Treasury bonds is a big clue that more inflation is coming.
Second, there’s a huge amount of uncertainty in the markets right now due to Iraq and, of course, Iran. The Iranian crisis is now before the U.N. Security Counsel. But Iran is pressing ahead with its nuclear program, thumbing its nose at the world.
That uncertainty is inevitably going to put upward pressure on oil and gas prices — on top of the supply-and-demand fundamentals that are already driving those prices higher.
Oil is over $61 a barrel. On this next leg up, you could easily see $81, even $92 a barrel, or higher. You could see unleaded gas prices break their Hurricane Katrina highs, with regular unleaded going over $3 a gallon.
Third, copper just hit another all-time high, with the May futures contract trading as high as $2.40 a pound this week.
Think about that. $2.40 a pound. If I just mentioned the price, you’d think I’m talking about roast beef at the deli, or some fine imported cheese.
But this is copper. You can’t build a bathroom without copper. You can’t make an inch of electric wire or Internet cable without copper. It is one of the most basic metals in the world, and it is used in virtually every industry.
Copper is also a leading indicator. So its surge to new highs last week indicates demand is cooking. It’s telling you that there’s more upside pressure on inflation already bursting to the surface.
Fourth, I think the U.S. dollar is ready to tank again, any minute. The chart looks horrible. The deficits, which Martin told you about on Monday, are like a herd of 10-ton elephants sitting on the buck.
If the dollar starts tanking again, as I expect it will, that’s even more inflation fuel.
All these forces are unequivocally inflationary. And I don’t see one force on the horizon that will counter them. Plus, there’s another force that most ivory-tower Wall Street analysts consistently underestimate: C-H-I-N-A.
You’ve heard a lot about China lately. But let me tell you about two major changes in China few people are talking about — changes that can only add momentum to its growth, and the surging demand for scarce resources.
The 2008 Beijing Olympics
Is A Massive Growth Driver
Most people think the Beijing Olympics are going to be like any other. Not so.
The Chinese government knows that the country is fueling one of the greatest global expansions of all time and that it has a staggering 1.3 billion consumers.
That’s the context they see for the Olympics: A once-in-a-century opportunity to shine in one of the greatest global spotlights of all time.
To prepare for the games, Beijing will spend a whopping $42 billion, more than any other city or country in the history of the Olympics.
Beijing has thrown open the development of the games to foreign and domestic companies. That means the biggest corporate players around the globe are going to pour money into China. And that translates to big-time commercial status.
Moreover, to further stimulate foreign direct investment, Beijing is pulling out all the stops: Below-market prices for land, government guarantees to offset risk, plus post-Olympic ownership rights. Estimates call for nearly $17 billion in direct investment to hit the games head-on.
But it’s the ancillary spending that’s even more critical: To prepare for the games, Beijing is going to pour $7 billion into upgrades for its environmental programs. China plans to:
- Boost natural gas consumption by 400% to 500%, building new pipelines and storage tanks.
- Improve electricity distribution … reengineer power supply structure … implement European Standard II automobile emission standards, and … increase its fleet of buses and taxis powered by clean natural gas and liquid natural gas.
- Speed up development of waste facilities, sewage systems and urban waterways.
- Undertake major forestation projects in the mountains and plains near Beijing, aiming to surround the city with a massive greenbelt.
Beijing also plans to invest nearly $4 billion in information technology and infrastructure 
… expand fiber-optic networks … beef-up mobile communications capacity … establish digital capable HDTV transmission … and use GPS technology for transportation control.
It will pump up its high-tech facilities in the Haidian district.
It’s building highways, city expressways, subway lines, and an intra-city light rail. It’s expanding the Beijing airport, installing the latest U.S. traffic monitoring and control systems.
It’s improving water, electric, gas, and heating facilities. Beijing Power Supply Bureau will boost capacity and open a new 500kv power distribution station at Xifenglu, and 15 other 200kv power distribution stations.
The Olympic games themselves are just a metaphor for the massive push to modernization China is undertaking right now.
A New Rural Initiative
For 800 Million Chinese
March 6, 2006 – barely two weeks ago, the Chinese parliament scrapped a centuries-old agricultural tax, freeing millions of rural Chinese from an archaic tax amounting to over $4 billion a year in savings for farmers.
That, in itself will unleash massive development in the rural hinterlands by improving personal incomes, creating new jobs, more wealth, and millions more consumers.
But it doesn’t stop there. In a major new initiative, China will now increase agricultural spending by 14.2 percent, to over $5 billion per year.
China will set an economic growth target for rural areas of at least 8% per year. It will spend over $11 billion per year on rural education, irrigation and medical services in rural areas. And it will invest tens of billions to build 112,000 miles of rural roads. That’s the equivalent of circling the world at the equator more than four times.
All in the next five years.
Imagine the amount of cement, asphalt, tar and steel … the number of bridges, traffic signals, and aluminum signs … plus the myriad of gas stations, motels, hotels, restaurants and thousands more industries that will follow!
Bottom line: If you think that China is already sopping up the world’s raw materials and resources, you haven’t seen anything yet. The new rural initiative in China is going to make the last 10 years of development in that country look like a mere launching pad.
Natural Resource Profits
As Far as the Eye Can See
Despite minor ups and downs, natural resources are the place to be.
For the extraordinary upside potential in the Asia-powered natural resource boom, consider select, high-leverage, limited-risk small-cap stocks. For example, right now we’re looking at:
- A diversified Asian metals miner trading for as little as 14 cents on the dollar. Profit potential: 583%
- A company with $6.4 BILLION in copper and gold in the ground with shares valued at just 2.3 cents on the dollar! Profit potential: Up to 1,000%
- A red-hot uranium company, whose stock I think could QUINTUPLE your money
See Sean’s latest report just published last night, or call 800-898-0819 for details.
Separately, for a nice China play, one of my favorites is US Global Investors’ China Region Opportunity Fund (USCOX).
And no matter which investments you choose, always keep a substantial portion of your nest egg stashed away for safety and income.
Best wishes,
Larry Edelson
For more information and archived issues, visit http://legacy.weissinc.com.
About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Jennifer Moran, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
© 2006 by Weiss Research, Inc. All rights reserved.
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