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Strangely, Wall Street will be even more surprised when the first cold snap hits the Northeast precisely when heating oil is in scarce supply. But where I think the pros are truly missing the boat has nothing to do with either fuel inventories or winter weather. It’s all about what’s happening right here in Asia, where I am right now. Land of Smiles and I’m writing to you from my hotel room in the heart of Bangkok. This is one of the most vibrant cities in Southeast Asia, a sprawling metropolis with 6 million people, densely packed together, at 1,500 per square mile. It’s one of my favorite cities in Asia, an international melting pot of Thai, Lao, Chinese, Vietnamese, Japanese, Indian, Pakistani, Indonesians, Iranians, Russians, Turks and more. Most are Buddhist. But they mix freely with the many Muslims, Christians, and Jews — not to mention 600,000 expatriates from Britain, Germany, the U.S. and Australia. Land of Smiles. Land of beautiful people. And one of the most rapidly growing economies in the region. GDP growth: Humming along at over 6%, with GDP per capita now over $2,500, up 20% in the last four years. Capital Investment in Thailand Is Surging. Money Is
Flowing in from China, Australia, Indonesia, and India Multi-billionaire businessman and Prime Minister Thaksin Shinawatra has transformed this metropolis from a broken-down shantytown in 1991 to one of the most modern cities in the world. In just the last two years, a $2.75 billion subway has been built and a new $2.7 billion international airport will open in about six months. Commercial and residential construction is going crazy, with five new five-star Mortgages, once thought to be available only to the richest Thai investors, are now as accessible as they are in the U.S. Credit cards and ATMs are everywhere, domestic demand is surging and foreign banks are jumping in at a torrid pace. Right here in the shopping center below my hotel, Citigroup has set up a massive display and is dishing out new credit cards like candy. Housing is booming. September’s auto sales were up 4.3%. Thailand’s September trade surplus: $818 million, up nearly 50% from September 2004. Exports, like so many other Asian economies, are still driving Thai economic growth. But so is the huge capital investment and new wave of consumer spending. In the midst of the hot economy, inflation in Thailand is now running at annual rate of 6.2%, its highest level in 7 years. One thing that never ceases to amaze me about the Thais:
They buy chains of gold measured in “baht” weight, with one baht equaling 15.2 grams of 96.5% gold, or about a half a troy ounce. The chains are accumulated baht by baht, stashed away in home safes or safety deposit boxes at banks. An estimated 60% of all Thai savings are invested in gold. Another big gold savings vehicle in Thailand — and throughout Asia — is the small 23k gold ingot in the shape of a boat, a symbol of prosperity in Chinese culture, good fortune, and “smooth sailing.” These fine, attractive gold pieces come in 1/4 ounce, 1/2, 1-, 3-, and 5-ounce sizes and are stashed away typically in a southeast corner in one’s home or business, representing wealth in Feng Shui. Thailand is a country rich with a variety of natural resources: Palm oil. Rubber. Spices. Jasmine rice. Fruit. Gemstones. Seafood. Sugar cane and some successful gold mining in the northeast. What I’m seeing in Thailand is both dynamic and large. But it is just a small microcosm compared to what I’m seeing in China. 1.3 Billion People and the This year alone, Shanghai will complete towers with more square footage of living and working space than there is in all of the buildings in Manhattan combined. Shanghai is now at 17 million people and growing, with 4,000 skyscrapers (defined as 18 stories or higher) — almost double the number in New York. An estimated 4.7 billion square feet were completed in 2004 alone. And another 2,000 skyscrapers are slated to be built over the next 5 years. Across China, it’s said that a city the size of San Francisco (pop. 745,000) is being built every two weeks. That’s in a country that already has 170 cities with more than a million people in each. China expects 75 million more farmers to migrate to cities over the next five years — the biggest mass migration in history. There’s no doubt that what’s now unfolding in China is on a scale history has never seen before. Recently, many experts thought China’s torrid pace of growth would slow down, and Chinese authorities even tried to rein it in with some money tightening. But China’s GDP has defied them all, continuing to grow at better than a 9% clip, despite Beijing’s efforts to cool the economy down. I’ve been warning for years that there is no slowdown coming in China. I’ve been right. And I’ll go on the record again:
This continuing, rapid growth is the key reason China has leaped ahead of the United States in steel consumption. Indeed, China’s demand for steel is off the charts. It now consumes least 150% more steel than the U.S. — a vital fact, which, in itself, is an irrefutable indicator of economic fortitude. China’s rapid growth also explains why the prices of aluminum, copper and zinc are flying to record new highs. China ranks as the single largest consumer in the world of iron ore, copper, thermal coal, steel, coal, and alumina … and the second largest consumer of aluminum, nickel, and, perhaps most importantly, oil. China’s continuing and powerful impact on markets can best be measured, however, in terms of how much it has driven In fact, ALL of the consumption growth in the world for iron ore, coal and nickel can be accounted for by China. And for aluminum and copper, about HALF of the world’s consumption growth is taking place in China. Cement, timber, palm oil, soybeans, wheat and many other commodities and foodstuffs rank right up there near the top of China’s consumption chain as well. In short, Asia is Transforming the World, Asia’s growth is not a one-time event or a momentary trend. It is a megatrend that has both momentum and longevity. With your investment strategies firmly grounded in this megatrend, you look to the future with confidence, knowing that there is very little that can stand in the way of:
What about China’s
Supposedly Shaky Banks? For many years, Western analysts have worried about the nonperforming loans of China’s banks. But that, too, is widely misunderstood for two reasons: First, estimates of $500 billion in bad debt in the Chinese banking system include state loans made to state-owned agencies. But in the Chinese public sector, state-to-state transactions are a wash and should not necessarily be classified as nonperforming. Slowly but surely, Wall Street has been waking up to this reality. And as the faulty accounting interpretations have been cleared up, nearly $300 billion of China’s nonperforming loans have been effectively wiped away. Second, Beijing has been using its growing hoard of U.S. dollars — now about $730 billion — to help recapitalize its banks. It has moved the true nonperforming loans off the books and into a “resolution trust” — much like the U.S. did after the S&L crisis of the early 1990s. These loans are then being sold off to Western investment bankers like JP Morgan Chase, Citibank and others. As a result, bad loans at China’s Big Four state-owned commercial banks have plunged in half, to 10.1% of total lending at the end of September. Meanwhile, the bad loan ratio for all commercial banks in China, including listed and private banks, is down to 8.6%. And among the banks traded on the Shanghai Stock Exchange and in Hong Kong, like China Merchant’s Bank and Minshing Bank, nonperforming loans are down to as little as 4.5%. Overall, contrary to almost everyone’s expectations, nonperforming loans at Chinese banks are close to coming into line with international banking standards. Bottom line: It’s giving the banking sector in China a big boost. Witness China Construction Bank’s (CCB) initial public offering in October, the largest ever IPO in the world, raising over $8 billion in capital. In short, China is now the engine of growth for the world. So are many of the smaller countries in Southeast Asia like Thailand. And let’s keep in mind that none of this includes the multiple impacts on the world economy stemming from India, which I figure is about ten years behind China in modernizing, and which I featured in last month’s issue of my Real Wealth Report. But that won’t be the case for long. India is rapidly developing and becoming a dominant player on the world stage. Markets in No-Man’s Land, For the moment, most markets are in no-man’s land. Betwixt and between. You can see it in the Dow’s trading range, which now appears to have narrowed to a 200-point range between 10,400 and 10,600. You can see it in the price of oil, which is bouncing around between $59 and $63 a barrel. You can also see it in gold, trading back and forth between $455 and $465 … along with silver, stuck in a 40 cent range between $7.30 and $7.70. For the markets, this is like a coiled spring. The longer the pattern holds, the greater the subsequent move. And for investors, this is the best time to establish core positions. You don’t have to worry about being overcharged due to unusual volatility. Nor do you have to be concerned that you may be buying near a temporary peak. You can methodically and deliberately set yourself up for the next major round of advances. What You Should First, continue to keep a substantial portion of your money safe in a short-term money market fund. That way your money is liquid, and you can earn higher yields as they become available with rising interest rates. Second, stay mostly out of the stock market, with natural resource stocks the outstanding exception. Most tech stocks are weak. Ditto for most blue chips. In fact, if it weren’t for the stellar earnings from energy companies, both the Dow and the S&P 500 indexes would be substantially lower than they are today. Third, one of my favorite companies for taking advantage of the China oil boom is Enbridge (ENB), a possible target for China’s energy purchases. Or, for diversification, consider the India Fund (IFN). Plus, stay tuned to my Real Wealth Report for new investment recommendations that will be powered by the growth of Thailand, China, and other Asian countries. Fourth, hold tight to your core energy and gold positions. They could explode at almost any time. Fifth, for your speculative funds, be sure you’re ready for the next big explosion in energy, gold, and interest rates. Those trends may be taking breathers right now, but that’s all the more reason to get positioned now for the next round of profits. To capitalize on the next surge in energy, use my Energy Options Alert. We’re preparing new recommendations right now. For rising interest rates and its consequences, use Martin’s Interest Rate and Currency Trader. And for gold, consider my Gold Trader Hotline. Best wishes for your health and wealth, Larry Edelson 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 Marie Albin, John Burke, Michael Burnick, Beth Cain, Amber Dakar, Scot Galvin, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others. © 2005 by Weiss Research, Inc. All rights reserved. |
The Greatest Superboom of All Time
Wall Street was surprised yesterday when the U.S. government reported that distillate-fuel inventories dropped for the seventh week in a row. 
hotels underway … at least 27 new sky-rises in the works … and an estimated 2 million single-family homes and townhouses slated for completion over the next two years. From my hotel room balcony, I can see construction work that continues 24/7.
They don’t trust paper currency — not one iota. They love gold. 
Do not expect China’s growth to slow down anytime soon!
the growth in consumption. China’s percentage share of world growth in these commodities is huge. Previous post: France Burning! What's Next?
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