Jim Trippon: China’s overall government strategy of piling up additional energy and other resource assets while consolidating certain industries is ongoing. China watchers know that this has shifted into high gear in the last couple of years, with China’s major oil and gas companies Read more…

Joseph Hogue: Chinese search engine giant Baidu.com Inc. (NASDAQ:BIDU) is scheduled to report earnings on October 29^th, with expectations for a net of $1.29 per share on $1.0 billion in revenue. Read more…

Investors are certainly aware that the Chinese economy is affected by and participating in the global slowdown, as there’s no shortage of such coverage in the financial media. What’s less well covered, but has sometimes been mentioned as a corollary or simply on its own, Read more…

John Persinos: It’s clear to see: Ophthalmic surgical equipment is a booming business. The graying of the world’s population is fueling long-term demand for the treatment of eye disorders, while technological breakthroughs are allowing ophthalmologists Read more…

Jim Trippon: With Chinese iron ore prices recently sagging to around $100 per metric tonne due to what has been a sluggish demand for steel, iron ore producers and steelmakers globally are finding the results pressing on their bottom line. Steelmakers such Read more…

Jim Trippon: With the recent announcement that China’s major electronic advertising and display company, Focus Media Holdings Ltd. (NASDAQ:FMCN), was entertaining an offer to go private, observers are asking whether or not this will be the beginning of a stampede Read more…

Frank Holmes and the co-managers of the U.S. Global Investors Global Resources Fund (PSPFX), Evan Smith and Brian Hicks, participated in a special webcast for the Peak Advisor Alliance last week. Here are some candid portions of the Q&A:

Q. How are interest rates currently affecting commodity prices?

A. The magic number for real interest rates is 2 percent. That’s when you can earn more than 2 percent on a U.S. Treasury bill after discounting for inflation. Our research has shown that commodities tend to perform well when rates fall below 2 percent.

Take gold and silver, for example. You can see from this chart that gold and silver have historically appreciated when the real interest rate dips below 2 percent. Additionally, the lower real interest rates drop, the stronger the returns tend to be for gold. On the other hand, once real interest rates rise above the 2 percent mark, you start to see negative year-over-year returns for both gold and silver.

Whether you are Republican, Democrat, Independent or Agnostic, it’s important to realize that it’s not about politics, but about policies. During the 1990s when President Clinton was in office, there was a budget surplus and investors could earn more on Treasury bills (about 3 percent) than the inflationary rate (about 2). This gave investors little incentive to embrace commodities such as gold, and prices hovered around $250 an ounce. Now under President Obama, there is a large budget deficit and we have negative real interest rates, and gold is in great demand.

Interest rates in the U.S. have been near zero since 2008 and we don’t see the Federal Reserve increasing them until at least 2012. The U.S. economy remains in intensive care: Stimulus efforts have been unable to stimulate significant job growth and unemployment remains near 10 percent. In addition, the existing home sales figures released last week reminded everyone that housing is still on life support.

Even though there has been a lot of talk about reducing deficit spending and the U.S. House of Representatives voted against raising the debt ceiling this week, we don’t see any desire from the Federal Reserve to raise interest rates. The government realizes it is extremely dangerous to pull back the reins right now.

Q. How do the financial troubles of European countries such as Greece and Portugal affect gold prices?

A. The market has definitely been more volatile as some of the financial problems started to pop up again in Europe. The re-emergence of these issues is just another example of how many developed economies around the world are overleveraged and heavily burdened by their debt.

Some of the weaker countries, particularly Greece, could end up ditching the euro as their main currency. This would obviously be a destabilizing event for the euro and would result in some short-term strength for the U.S. dollar, thus providing a headwind for commodities. However, the U.S. dollar is plagued by the same problems as the eurozone; i.e., a weak economy and higher unemployment.

Meanwhile, central bankers in emerging markets have excess reserves and are looking for ways to diversify away from these paper currencies. To protect themselves from paper currency devaluation many of them have turned to gold. Last year was the first net positive year for central banks’ buying of gold since 1985. They’ve chosen to own gold over trying to guess whether Portugal or Greece’s debt is the best investment.

This isn’t a completely new phenomenon. Russia announced that it was going to diversify roughly 5 percent of its reserves into gold back in 2005 when gold prices were at $500 an ounce. The tipping point came in 2009 when India purchased 200 tons of gold from the International Monetary Fund (IMF), which effectively set a floor under gold prices at $1,000.

Since then, we’ve seen countries such as Thailand, Bangladesh, Vietnam, Venezuela and the Philippines add to their official gold reserves. Earlier this year, Mexico purchased 100 tons of gold to boost its reserve holdings.

This trend should continue.

Q. With oil prices hovering around $100 per barrel, what is the outlook for oil prices for the next two to five years?

A. We remain bullish on crude oil for one simple, fundamental reason: Demand is greater than supply. We don’t see that changing in the foreseeable future.

One big driver is a rapidly growing demand for cars and automobiles in emerging markets. There’s also rising demand for oil due to urbanization and rising per capita incomes in emerging economies. As their economies grow and their populations become more prosperous, they want and can afford to upgrade infrastructure and other construction projects which require oil to be produced.

However, it is important to manage expectations. As the price of gasoline rises and inflation fears grow, countries such as India have been forced to lower government fuel subsidies. This will cause some demand destruction as consumers adjust to paying more at the pump, a situation not very different from what we’ve seen recently in the U.S. Though it has the potential to spread if inflation gets out of control, we think this dip in demand will only be temporary.

On the supply side, it’s getting more difficult to find new supply and even when large reserves are discovered, they lie deep beneath the ocean floor or in parts of the world where it’s dangerous to operate.

We think these trends appear to be firmly intact and are why we remain constructive on crude oil prices over the next several years.

Regards,

Evan Smith and Brian Hicks,
for The Daily Reckoning

Three Questions About Global Natural Resources originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Three Questions About Global Natural Resources

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Frequent readers of my “Frank Talk” blog and the weekly Investor Alert should be familiar with the story of China’s high speed rails. We’ve previously discussed how China is building the world’s largest network of high speed rails at an incredible speed.

Since opening the first high speed line between Beijing and Tianjin in 2008, the country has laid down more than 4,600 miles of new tracks. This is three times more than Japan, where the bullet train was invented, and this is just the start. Once completed near the end of this decade, the high speed rail system will connect more than 250 Chinese cities, span 18,641 miles and reach roughly 700 million people.

Currently, the high speed rail network connects about one-third of China’s cities. That figure is set to nearly double over the next two years. If current forecasts hold true, 100 percent of the China’s cities will be connected through high speed rails by 2019.

While linking megacities such as Beijing and Shanghai carries significance, connecting the urban East with rural areas of West and Central China is equally as important. This data from Morgan Stanley shows that the West and Central regions of China lag considerably in terms of GDP per capita, urbanization rate and property prices.

Many, including our investment team, believe that connecting these areas of the country could have a similar effect to what took place in the United States when Eisenhower’s interstate highway system linked cities such as Chicago and Philadelphia with their counterparts on the West Coast including Seattle and San Francisco.

The effect this massive buildout can have on commodities is evident: thousands of miles of new track, hundreds of new stations and dozens of new trains will certainly boost demand for steel. But there’s also a corollary effect that can expedite the transformation of China’s economy. More people traveling across the country means there will need to be more places for them to eat, sleep and shop.

Take hotel rooms for example. Currently, the U.S. has just fewer than 5 million hotel rooms spread across the country; China has about half that amount. However, Morgan Stanley forecasts that the two are set to switch places near 2025 as China pushes to offer more than 9 million hotel rooms by 2039. Familiar names such as Wyndham, Starwood and Hilton are planning major additions to their pipelines in China.

Morgan Stanley also says that the high speed rail expansion presents opportunities in areas such as consumer staples, car rentals and tourism. The latter is especially important because the average Chinese citizen is going to be able to explore culturally rich areas of the country that were previously too difficult or expensive to visit. A poll from CLSA’s China Reality Research last year showed that travel remained a top aspiration.

Rail passenger traffic has a strong correlation with instant noodle consumption (79 percent positive correlation) and soft drink volume (86 positive correlation), according to Morgan Stanley. This means that chains such as McDonald’s (1,300 stores in China) and KFC (4,000 stores in China), both of which are largely concentrated in the eastern third of the country, will likely follow the high speed tracks into Central and Western China.

These are all examples of how the dynamics of the Chinese consumer are forever changing. As investors, it’s important to understand these intermarket relationships and how a development in one area of an economy can dramatically affect another seemingly unrelated area of the economy. Being able to spot these trends and developments before they bubble up to the surface is how active money managers can create alpha for their shareholders.

Regards,

Frank Holmes,
for The Daily Reckoning

P.S. For more updates on global investing from me and the U.S. Global Investors team, visit my investment blog, Frank Talk.

Railway Revolution Builds China’s Consumer Culture originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Railway Revolution Builds China’s Consumer Culture

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

My job takes me all over the world.

So far this year, I’ve traveled on your behalf to visit Singapore, Cambodia, Thailand, Vietnam and Brazil. And we’re not even at the halfway point yet!

These trips make up the backbone of my research into the best investments the world has to offer. I pound the sidewalk. Talk to locals. Meet with experts on the ground. And do my best to get “under the hood” of the places I visit.

I always have one question in mind when I travel: What makes this place tick? Sometimes the answer is the polar opposite of the Wall Street consensus. Then I know there’s a real opportunity to profit.

But not all my research is carried out on the ground. I also find myself staying up late at night reading research reports with boring titles, such as the latest one from the World Bank – a 174-pager called “Multipolarity: The New Economic Order.”

Now, I’ll be the first to admit: It doesn’t exactly scream excitement.

And truth be told, I’d much rather have my boots on the ground somewhere exotic than be wading through chapters with names like “Macroeconomic policy disparities, selected actual and potential growth poles among advanced and emerging economies.”

But sometimes these kinds of reports contain invaluable nuggets about the big-picture outlook for the global economy. And the recent World Bank report doesn’t disappoint.

You see, according to the report, by 2025 the dollar’s reign as the world’s reserve currency will be well and truly over.

Or as the economists at the World Bank put it (emphasis added):

The international monetary system is likely to cease being dominated by a single currency. Emerging-market countries [...] will become key players in financial markets. In short, a new world order with a more diffuse distribution of economic power is emerging.

If you have been following International Living Investor for some time, the idea that the dollar’s days as the world’s reserve currency are numbered won’t come as a surprise.

But the World Bank report sheds new light on the issue. In 2025 – just 14 years from now – the World Bank says the world economy will be run according to a “multi-currency” understanding, one in which the dollar is joined by the euro and Chinese yuan (also known as the renminbi).

It’s no wonder the dollar hit a three-year low versus a basket of other major currencies recently. The smart money sees the writing on the wall for the buck: It’s now a matter of “when” not “if” it will be knocked off its reserve currency perch.

On Wednesday, I recommended you add shares of the Wisdom Tree Emerging Currency Fund (NYSE:CEW) to your global portfolio.

This easy-to-buy ETF gives you exposure to a basket of emerging market currencies, including the Mexican peso, Brazilian real, Chilean peso, South African rand, Polish zloty, Israeli shekel, Turkish lira, Chinese yuan, South Korean won, Taiwanese dollar, and Indian rupee.

If you make one currency diversification play this year, make it CEW.

But if you’re looking for a more targeted play on the new currency world order coming down the pike, consider the Wisdom Tree Dreyfus Chinese Yuan Fund (NYSE:CYB).

This seeks to achieve total returns reflective of both money market rates in China available to foreign investors and changes in value of the yuan relative to the dollar.

As the Chinese currency takes a more central role in global trade, CYB will climb…and provide a great hedge against a weakening dollar.

The new world order is coming. You can either prepare for it now. Or you can watch the value of your dollar-based savings erode over time.

The choice is yours.

Good luck and good investing.

Chris Hunter
for The Daily Reckoning

The New World Order originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
The New World Order

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

The following interview was first published in The Edge Singapore on May 30, 2011 by Assif Shameen.

Richard Duncan, author of the seminal The Dollar Crisis: Causes, Consequences, Cures, an international bestseller that predicted the recent global economic crisis with extraordinary accuracy, commands a lot of respect among Asian policymakers. Armed with a Master’s degree in international finance, the affable American economist is a veteran of the region.

He first arrived in Hong Kong in 1986 to take a job as an equity analyst and later worked as a financial sector specialist for the World Bank in Washington, DC and as a consultant for the International Monetary Fund in Thailand during the 1997 Asian financial crisis.

Bangkok-based Duncan is currently chief economist at Blackhorse Asset Management. His latest book, The Corruption of Capitalism: A Strategy to Rebalance the Global Economy and Restore Sustainable Growth, was published early last year.

He recently spoke to The Edge Singapore on the sidelines of an investors’ forum. The following are excerpts from the interview:

The Edge: The US Federal Reserve is about to end the latest round of quantitative easing, or QE2, next month. The markets are fairly nervous about what might happen next. What’s your take?

RD: When QE2 stops, the US economy will weaken again, the global economy will weaken, stock and bond prices will drop. So, interest rates will go up, commodity prices will drop. The US economy will start moving back towards a recession and, around the end of the year, we’ll have QE3 or another round of quantitative easing, and then everything will spike up again — equities, bonds, commodities, all sorts of assets.

The Edge: So, you are predicting another speculative bubble in commodities and other assets? Can the US afford it?

RD: Sure it can. It doesn’t cost anything to print money. Yes, I believe inflation will move higher. But, before we get there, when QE2 stops next month, we will probably see a significant correction in commodity prices that will be disinflationary. That will help alleviate inflationary pressures long before QE3 starts.

There are really three different kinds of inflation. The first, what the Fed looks at, is consumer price index, excluding food and energy. That’s been trending downwards for years because of globalization. The marginal cost of labor has dropped 90% or 95%.

In the past, if you hired someone to produce car parts in Michigan, you might pay US$200 a day. You can hire someone in Chennai for about 5% of that. In China or Thailand, you’d pay a little bit more, but still far cheaper than Michigan. This represents an unprecedented collapse in the cost of labor.

Nothing like this has ever occurred in history. If it wasn’t for this — all the paper money that is being created by central bank easing — it would have created hyperinflation.

There is also asset price inflation like stocks or real estate. The whole purpose of QE2 was to create asset price inflation. The Fed wanted stock markets to go up, bond prices to be higher, so interest rates were lower and that worked out very well. Since QE2 started, stocks have surged 25% from where they were just before it was announced. That created a wealth effect supporting US consumption, driving the US economy and, with it, the global economy.

The real problem is the third kind of inflation or commodity price inflation, including food, which is now a serious global issue. You have two billion people who live on less than US$3 a day. As food prices rise, they become hungrier.

That’s what North African revolutions have been all about. Egyptians and Tunisians didn’t wake up one morning and decide they wanted more democracy. They woke up hungry because of food price inflation, which was a consequence of QE2.

The Edge: So, you see a global economy in turmoil?

RD: I believe that the global economy is a very sick patient that is being kept alive by life support primarily in the form of budget deficits. The US deficit has reached 10% of GDP, or US$1.4 trillion ($1.7 trillion). It looks like the US economy might still grow more than 2% this year, but if it weren’t for the 10% budget deficit, the growth rate might actually be minus 8% or far slower.

The budget deficit has kept the economy from collapsing and is being financed in large parts by quantitative easing of US$600 billion over seven months, or roughly US$3 billion a day. That’s new money that the Fed is creating from nothing and using it to buy Treasury bonds.

The Fed has been buying every new bond that the government has sold over the last few months, and that has kept bond prices higher and interest rates lower, which in turn has helped support the economy and forced the people who would normally buy those bonds to buy equities, which is why you have stock prices moving 25% higher and helping create a wealth effect that drives consumption.

The Edge: What about China — the new global engine of growth, which is buying raw materials from Australia, and components and materials from Asia?

RD: Where does China get the money to buy those goods? Who does China sell most of its goods to? Mainly, the US. Nearly 80% of the people in China still earn less than US$10 a day and that means they don’t have enough money to buy things like the iPhones they make in their factories.

The remaining 20% or so who have money to spend are earning money from companies that export to the US or because they have access to bank loans.

The US’ slipping into a crisis doesn’t make those 20% Chinese any richer. Indeed, it makes them poorer because those businesses that export won’t be as profitable as before. Did you know that Chinese bank loans expanded 60% over the last two years? When the US slipped into recession and started buying less from China, it almost burst China’s bubble. The Chinese government responded by prodding the banks to lend more.

Can you imagine what would happen to any economy if bank loans grew 60% over two years? It’s like China has been drinking a gallon of Red Bull. It’s so stimulating that it’s shaken China and given it severe heart palpations. It’s only going to lead to a greater property bubble, more and more unnecessary capacity to produce goods that no one wants to buy, and then a crash.

The Edge: Couldn’t China just put off that moment of truth with more stimulus and hope that, in time, the US economy will recover and everyone is busy emptying the shelves at Walmart?

RD: It would be nice if that happened, but the US’ problem is mainly structural. The US economy is no longer viable the way it is structured. The reason it is not viable is that it is fast de-industrializing and losing all of the manufacturing jobs. The reason it is losing manufacturing jobs is that wages in China, India or Vietnam are 90% lower.

Wages in China could double but they’d still be 80% lower than in the US. The Chinese currency might appreciate 20%, but that still wouldn’t change anything. The service economy mostly financial services, real estate, etc — isn’t creating enough jobs. Actually, it just blew up and had to be bailed out by the government. And, some of the other service sectors were only profitable so long as Americans were borrowing in a big way. The US has innovative companies like Google and Facebook but, unfortunately, they don’t seem to employ many people.

The Edge: So, what should President Obama or the Congress do now? Is there a way out or just a steady deterioration from here on?

RD: The US has two choices. The government can spend less and the US will collapse into a depression, from where it will be all downhill, or just spend more wisely. The US needs to spend in a way that actually restructures the economy and restore its economic viability. It looks like the US government will have a US$10 trillion budget deficit over the next 10 years.

If we spend US$1 trillion on solar energy, US$1 trillion on genetic engineering and biotechnology and US$1 trillion on nanotechnology, it will give the US an unassailable lead in these future technologies. We will then be producing things that people couldn’t buy from anywhere else. Like the cure for cancer. We would be able sell our cure for cancer in exchange for Chinese tennis shoes and the trade will then balance.

A trillion dollars into solar technology will mean an America with free, limitless energy. That will immediately cut our trade deficit by 40%. On top of that, we would cut our budget deficit by US$200 billion because we wouldn’t have to defend the Middle East oil that we need. On top of that, the government could tax domestically generated electricity and bring down the deficit even further.

As soon as we start selling that cancer vaccine, it won’t be long before we pay our national debt. We need a strategy to go forward boldly with investment projects designed to solve our problems rather than sit back resigned to fact that there is no hope except cutting spending, which I believe is a road to disaster.

President Obama, in his State of the Union address, said: “This our Sputnik Moment” — meaning that we have to invest in new industry or be overtaken by our rivals, just as Russia forced us to rethink our space strategy with its launch of the Sputnik in the 1950s.

The Edge: And what should China do?

RD: China should agree to a global agreement on increasing industrial wages by US$1 a year every year. We need a global minimum wage so that wages go from US$5 a day this year to US$6 a day next year, tripling to US$15 a day in 10 years. That, in turn, will greatly expand the purchasing power of a billion people at the bottom of the Chinese pyramid, who would be able to afford the sneakers or the iPods they make.

It took 150 years after the industrial revolution before industrial workers in the West could afford to buy the things they were making. When Henry Ford increased wages to US$5 a day in 1915, everyone thought he was insane. Only because wages went up did you have in the US the base of a consumer-based industrial society. If wages had remained low, the West would not have developed to the stage where it is now and Americans wouldn’t be able to afford Chinese-made goods in Walmarts.

The Edge: What’s your take on the sovereign debt crisis in Europe? Will the eurozone break up, with weaker economies such as Greece, Ireland and Portugal dropping out?

RD: I don’t think the eurozone will break up, though it is not impossible that a country like Greece might drop out. Over the long run, we will see some of the weaker economies gradually bailed out by European taxpayers and the European Central Bank.

The Edge: What should Southeast Asian policymakers worry about?

RD: All asset-price bubbles end up in busts, and that destroys banking systems. Southeast Asian banks came out unscathed in the global financial crisis but, if property prices in Singapore, Hong Kong and China keep going up, mark my words, there will be a banking crisis. Just because Asian banks withstood the last crisis doesn’t mean they will withstand the next one.

The Edge: Anything else policymakers in Singapore should worry about?

RD: Derivatives. There is no reason Singapore should try to be a global hub for derivatives. Warren Buffett was right when he said derivatives are financial weapons of mass destruction. Singapore and other emerging financial centers should be wary of derivatives and the damage unfettered use of derivatives could do.

Regards,

Richard Duncan
for The Daily Reckoning

The Global Economy is a Very Sick Patient originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
The Global Economy is a Very Sick Patient

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

The biggest news this past week was not the rape accusation scandal embroiling International Monetary Fund chief, Dominique Strauss-Kahn. It was not President Barack Obama’s much ballyhooed Middle East speech, nor was it the historic floods devastating the Mississippi flood plain.

But these were the stories that preoccupied the US press. Whereas all were certainly newsworthy – and a cut above the usual obsession with the purely titillating and violent – the most trend-significant story of all got scant, or no coverage from the mainstream media.

While the downfall of Strauss-Kahn shattered his hopes to run for the French Presidency, the repercussions would be mainly confined to France. His resignation from the IMF, however, would have limited consequences. A new chief will quickly be found to replace him, and regardless of the Strauss-Kahn rape verdict, the IMF will continue raping countries that are forced into accepting their “aid.”

As for Obama’s speech, it was essentially meaningless; many empty words and more vague, unfulfillable promises that will lead to no action of consequence.

Undoubtedly, the devastation wrought by the violent weather patterns will be felt severely by all those directly affected. The physical and emotional toll on the tens of thousands whose homes, businesses and livelihoods were destroyed is incalculable. Nevertheless, the consequences will impact mostly those directly affected while the spillover implications will only temporarily affect the national, and to a lesser extent, the global economy.

Trend Forecast: Should current weather patterns become more a norm than an anomaly, the socioeconomic consequences will prove long-term, far-reaching and disastrous. Farming, shipping, seafood, food supplies and petroleum refining will be among the foreseeable casualties, accompanied by massive population displacement. But the ensuing chain reaction (inflation, shortages, unemployment, etc.) will claim many other victims, which, at this time, are unquantifiable.

The 800 Pound Gorilla in the Press Room

Strauss-Kahn, Obama’s speech, tornadoes and floods notwithstanding, the biggest news with the greatest implications was the story with the least coverage. If you watched the Sunday night network news (ABC, CBS, NBC, etc.) you wouldn’t have seen it. If you read the front page of The New York Times, America’s self-described “Paper of Record,” it wasn’t there either.

The most prominently placed story with the biggest photo, that was obviously intended to catch the reader’s eye of the flagship Sunday edition, also bore testimony to what the Times considered the news most “fit to print”:

The Gossip Machine, Churning Out Cash Appetite for Dirt
Fuels a Growing, Round-the-Clock Industry

To satisfy the Times’s own insatiable “Appetite for Dirt” it devoted some 4000 words to an imbecilic, inconsequential, lowest common denominator, supermarket tabloid, junk news story on the growth industry of celebrity gossip. Spread across three pages and emphasized by eleven meaningless and superfluous color photos, the Times did what all the mainstream media characteristically do: hawked sleaze and justified it with the reasoning, “This is what the people want.”

Perhaps it was this lust for lust that accounted for the inability of the “Paper of Record” to recognize a megatrend-in-the-making that was already reshaping the global geopolitical landscape. To their credit, however, unlike the networks that ignored the story, the Times at least covered it. According it less than 500 words and relegating it to the Page 12 boondocks, its innocuous headline read: “Despite Ban, Protests Continue Before Spanish Vote.”

Anti-austerity/anti-big bank bailout protests had been sporadically erupting throughout Europe for over a year. But these Spanish demonstrations signaled a major turning point. It was the unrest and discontent in Europe that led us to forecast our “Off With Their Heads” trend that would lead to revolts and topple governments (Trends Journal, Autumn 2010).

But European unrest was overshadowed by the far more violent and widespread Middle East and North Africa uprisings of late 2010 and early 2011. Unlike the Europeans who still believed in the power of their vote, Arabs, with only autocrats, dictators and monarchs in control, had no ballot boxes to divert them. They knew that unless the system changed, nothing would change.

As I had forecast in the Trends Journal and repeated in media worldwide, it would only be a matter of time before Europeans would wake up to the same realization: the system had to change. What distinguished this latest round of Spanish protests from earlier ones in Europe was that very realization; no matter how many votes were dropped into the ballot box, the result would be essentially the same. All the shouting, demands, marches and strikes would accomplish nothing without a responsive government to address them – and this could not be achieved through the current system in which, despite the rhetoric, there was little difference between the major parties.

Trend Forecast: The massive bailouts of Greece and Ireland are already proven failures, and the Portuguese bailout will follow the same path: more debt, higher unemployment, draconian austerity measures imposed upon the people, and a wholesale sell-off of valuable public resources.

Spain, the UK and Italy are next in line to suffer the long-term consequences of the economic “Panic of ‘08” … that has been only temporarily assuaged by the trillions pumped in by the central banks to keep the financial system afloat.

Economic conditions will continue to deteriorate for most European nations. The worse they get, the louder and more heated the protests will become. Entrenched political parties, unwilling to make adequate concessions or yield power, will intensify their crackdown efforts.

The youth-inspired Spanish demonstrations, sit-ins and camp-outs will serve as a template for the equally disenfranchised youth of other countries. In the absence of an economic miracle, divine intervention … or a fulfilled Doomsday Prophesy (in which case all forecasts are off), expect protests to mount throughout the summer of 2011 and continue into 2012 and beyond.

One wild card that might derail the demonstrations, quiet the discontent and unite the people, would be one or several terror strikes in European cities. Considering NATO’s military actions against Libya, revenge attacks are a distinct possibility.

Regards,

Gerald Celente
for The Daily Reckoning

[Editor's Note: The above Trend Alert is available as part of a subscription to The Trends Journal, which is published by Gerald Celente. The Trends Journal distills the ongoing research of The Trends Research Institute into a concise, readily accessible form. Click here to learn more about and subscribe to The Trends Journal.]

Arab Spring + European Summer = World Winter of Discontent originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Arab Spring + European Summer = World Winter of Discontent

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Beijing-based Dagong Credit Rating Co. is China’s leading credit rating agency and, despite the limited international influence of its ratings, it keeps pumping out sovereign debt downgrades for the industrialized West.

The latest nation up… or down as the case may be… is the UK. It was already cut from its triple-A standing — as indicated by ratings from US agencies — to AA- in Dagong’s first headline-inducing ratings release. Recently, the UK has again been downgraded, this time to A+ with a negative outlook, due to its deteriorating solvency.

According to the BBC News:

“The agency blamed the UK’s sluggish growth, which it said would be stuck in the 1.3%-1.5% range for two more years, hurting government finances. The downgrade from AA- to A+ puts Britain on a par with Chile and heavily-indebted Belgium, and the US, which Dagong downgraded in November.

“In contrast, the big three Western rating agencies all still award the UK – and the US – the top AAA rating. Dagong kept a negative outlook on the UK’s rating, suggesting that more downgrades may be yet to come. ’Obviously this is not one of the main rating agencies that markets pay close attention to,’ noted Sarah Hewin, European head of economic research at Standard Chartered.

“But she said the comments could still have an impact on market sentiment, just because they are a reminder that all is not well in the UK. ‘Although the fiscal side is being tackled, [Dagong] sees relatively low growth and high inflation,’ she explains.

“The Chinese agency forecast that because of the slow growth, the budget deficit would still overshoot the government’s 7.9% to 9% target, despite George Osborne’s best austerity efforts. It also warned that persistently high inflation could necessitate future rate hikes, increasing the UK’s borrowing costs, while contagion from the eurozone debt crisis was also ‘likely to further worsen the government’s fiscal status’.”

The AFP has also pointed out that the UK deficit is “the third-highest in the European Union after that of Ireland and Greece — higher than either Spain or Portugal, next in line at just above nine percent each.” Yet somehow the UK has managed to stay just outside the intensely-heated debt spotlight that continues to sear the European Union’s periphery GIIPS nations.

Of course, Dagong retains little influence on world markets due to the fact that it’s not one of the Securities and Exchange Commission’s Nationally Recognized Statistical Rating Organizations (NRSRO), of which all 10 remain either North America- or Japan-based. Dagong also readily emphasizes the fiscal health of its own home country, with China rated three notches above both the UK and US, according to its standards.

That said, it’s hardly a surprise that it’s having a tough time getting into the NRSRO club… Dagong’s rating perspectives are more or less the opposite of those held by the currently SEC-approved credit rating agencies.

You can read more details in the BBC News coverage of how the UK sovereign debt credit rating has been downgraded by China’s Dagong.

Best,

Rocky Vega,
The Daily Reckoning

Dagong Strikes Again: Cuts UK Debt Rating Once More originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Dagong Strikes Again: Cuts UK Debt Rating Once More

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

“Today is a frankly historic day!” exclaimed German Vargas Lleras, the interior and justice minister in Colombia, this morning

Ordinarily, we take blather from politicians with a 40-pound bag of water softener salt.

But this time, as we have taken a more intense interest in Colombia of late, caught our attention…

The “Victims Law,” the passage of which Mr. Vargas Lleras refers to, aims to compensate people victimized by four decades of violence.

For millions of Colombians, it could mean the return of ancestral lands they were forced to flee. The United Nations refugee agency estimates 3.4 million Colombians – among a population of 46 million – are “internally displaced.”

Drug gangs, the left-wing guerrillas, the right-wing paramilitaries… They’re still around, but we saw firsthand in March, they’re not as omnipresent as they once were.

Of course, sorting out the rightful ownership of 10 million acres of land will take years. But we daresay for Colombians, the passage of the “Victims Law” to which Mr. Vargas Lleras was referring is as big a deal as the end of apartheid was for South Africans.

The Victims Law marks a decisive break with the past.

By way of contrast, we continue to witness the dithering in Washington over a US-Colombia “free trade” agreement.

Today and tomorrow the Senate Finance Committee hears testimony about trade agreements for South Korea and Panama. Somehow, these two have gotten tied up with the Colombia agreement as a package deal in the minds of many Republican lawmakers.

Meanwhile, the White House is holding off on submitting the treaty to the Senate until lawmakers agree to fund a “job training” program for people who would supposedly be thrown out of work by this agreement.

Oy. We have our own qualms about a “free trade” agreement codified in hundreds of pages of documents; the section on “intellectual property” alone runs 33 pages, for example.

But really, what’s so bad about a deal that allows the textile maker we met in Medellin to ship his jeans to the United States tariff free in exchange for getting American cotton tariff free?

Seems like a good deal for everyone.

Why else has the US government spent billions trying to help the Colombians fight the FARC? What other interest would the gringos have in a motley gang that started out as a left-wing guerrilla force and morphed into drug-running thugs?

“Plan Colombia” started as a key front in President Clinton’s prosecution of the “War on Drugs.” The US sent in planes to spray coca crops and US Special Forces to work alongside Colombian police and soldiers.

Among the program’s illustrious accomplishments…

• Coca cultivation largely fled Colombia…only to shift to Peru
• US street prices of cocaine were nearly unchanged
• Colombia became the No. 3 recipient of US foreign aid, after Israel and Egypt.

The authors of Freakonomics examined the evidence and wondered aloud if Plan Colombia amounted to “a $5 billion failure.”

Perhaps.

But folks on the ground in Colombia attribute the military aid given them by the US and intelligence handed over by the CIA and Mossad, the Israeli intel outfit, with helping to rout the guerillas and restore relative calm after nearly 40 years of fear.

Yesterday, the Colombian military rescued 100 people the FARC had taken hostage three days before. The hostages, it turned out, were guarded by all of three guerillas.

When we were in Bogota in March, the FARC kidnapped 23 oil workers. Twenty-one escaped on their own within hours… the two others were rescued by the end of the next day.

Developments like these give the folks we’ve met along the way confidence that the security situation is increasingly in hand. And the passage of the “Victims Law,” redistributive as it is, Colombians are getting their rebuild on right quick.

Hence, for a short time, the opportunity in “perception arbitrage” we see developing in the land of El Dorado.

[Ed Note: At the Phnom Penh shareholders meeting of Leopard Capital last Thursday, the firm laid out plans for the first-ever agriculture fund in Colombia, targeting, to begin, palm oil production in the rich valley south of Cartagena before the northern spur of the Andes rises toward Medellin. The idea is new enough their plan hasn’t even graced the pages of the Leopard website yet.

In the meantime, we recommend you check out the two Colombian plays – both easily available to US investors – we discuss in the most recent issue of Apogee Advisory. Get your copy (along with Ron Paul’s “lost” gold bible) right here.]

Addison Wiggin
for The Daily Reckoning

The Winds of Change: Colombia Passes the Victims Law originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
The Winds of Change: Colombia Passes the Victims Law

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

The World Gold Council (WGC) released its quarterly “Gold Demand Trends” report last week and, as always, it was filled with fascinating data on the strength of the global gold market. Gold demand grew 11 percent to 981.3 tons during the first quarter of 2011, worth $43.7 billion at quarter-end’s price levels.

The increase was driven by a significant rise in demand for gold as an investment, up 26 percent from a year ago, as emerging markets look to protect their assets from rising inflation. Demand for gold bars and coins was up 62 percent and 42 percent, respectively.

A slight pullback in prices during the middle of the quarter and “persistent high inflation levels” pushed China into the position as the world’s largest market for gold investment. Chinese citizens devoured nearly 91 tons of gold bars and coins, more than double the amount of a year ago.

This isn’t exactly a new phenomenon in China. From 2007 to 2010, investment demand grew at a compounded annual growth rate of 68 percent, according to the CPM Group. The firm forecasted Chinese investment demand to increase 34.7 percent during 2011 but based on this new data, it may need to adjust its forecast.

Song Qing, director of Shanghai-based Lion Fund Management, told Bloomberg news that, “Gold has taken on a new role in China amid concern about inflation…Just imagine the total wealth in China and even a small percentage of that choosing to buy gold. This demand is going to be enormous.”

The “Love Trade” was also in full swing during the first quarter. Led by India and China, jewelry demand rose 7 percent on a year-ovr-year basis. Combined, the countries accounted for roughly 67 percent of world total jewelry demand.

For the first time, the demand for gold in China was so strong it outpaced the combined total of the developed West during 2010. If you lump together the gold demand of the U.S., France, Germany, Italy, Switzerland, the U.K. and other European countries, the sum of these countries is still outpaced by China. That’s despite triple-digit increases in demand from France, Germany and Switzerland.

The CPM Group says the origins of this milestone in China’s gold market can be traced back to the late 1980s when the government began lifting restrictions on gold ownership. This led to the establishment of the Shanghai Gold Exchange and other ways Chinese citizens could put a portion of their wealth in gold.

Then in 2001, the government lifted its final controls on the gold market, igniting one of the greatest booms in gold demand history. From 2001 to 2010, China’s annual consumption of gold grew at a 7.5 percent compounded annual growth rate.

This chart shows how China’s demand for gold jewelry has increased from just over 500,000 ounces in the late 1980s to over 12 million ounces at the end of 2010, in spite of gold going from $200 to $1,000 and now $1,500 an ounce.

The rise in gold prices and consumption has coincided with a dramatic rise in China’s per capita incomes. The chart on the left shows that per capita incomes in China have risen from around the $3,000 level in 2000 to roughly $7,000 in 2010. This means that the average Chinese citizen has over twice the income he or she did in 2000. Today, China is second only to the U.S. with a middle class population of 157 million people, according to the Organization for Economic Co-operation and Development (OECD).

The chart on the right shows, at least in part, what many have chosen to do with that additional money—buy or invest in gold. On a per capita basis, per capita consumption of gold in China has more than doubled since 2005.

Despite this strong rise in per capita consumption, an analyst from Standard Chartered Bank said that there is still much room to grow, “In terms of gold consumption per capita, there is no doubt that [China and India] have a lot of catch-up potential and the impact on gold prices could be dramatic.”

One way China’s per capita consumption can catch up is if investors continue to seek safety from inflation in the yellow metal. Demand for gold as an investment has grown at a 14 percent annual clip since the Chinese government deregulated the local gold market in 2001.

This chart, courtesy of my friend Adrian Day, shows Chinese citizens’ gold investment as a savings. Similar to the other charts I presented, it shows how much China’s gold market has changed over the past 10 years.

The total amount of household savings invested in gold has grown from about $200 billion in the late 1990s to $1.2 trillion in 2010. In fact, the total savings invested just during the first quarter of 2011 is equal to the total amount invested in 2004, and more than the previous six years.

Recently, the government and state banks have encouraged citizens to purchase gold and initiated gold purchasing programs. In February, the Industrial and Commercial Bank of China (ICBC) and the WGC launched the “Only Gold Gift Bar” program which offers gold bars weighing 10, 20, 50, 100 and 1000 grams. In less than three months, this program has already generated orders totaling 1.8 tons, according to the WGC.

The first quarter of 2011’s demand trends leads me back to the two drivers I’ve highlighted before and are captured in the new report – Two Key Drivers of Gold Demand: Fear Trade and Love Trade. In the U.S., the Fear Trade, a factor of negative real interest rates and increased deficit spending, is driving demand for gold. In China, India and other emerging markets, the Love Trade, a combination of rising incomes and a cultural affinity for gold, is driving demand for gold.

Together the two are powering gold demand to new levels.

Regards,

Frank Holmes,
for The Daily Reckoning

P.S. For more updates on global investing from me and the U.S. Global Investors team, visit my investment blog, Frank Talk.

Asian Tiger Sinks Teeth Into Gold originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Asian Tiger Sinks Teeth Into Gold

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

It’s “risk off” as a new week begins. Markets are jittery about the eurozone again…

• S&P downgraded its outlook for Italian government debt from “stable” to “negative”
• Spain’s ruling Socialists got clobbered in regional elections yesterday, casting doubt on the future of Spanish austerity measures
• Greece is scrambling to sell off unspecified assets (the Parthenon?) to stave off a “restructuring” (read: stretching out the payments) of its debt.

Ten-year Greek bonds yield 16.98% as of this writing. In the credit default swap market, traders now give Greece a 68.7% probability of defaulting in the next five years.

At the moment, the market impact looks like this…

• The Dow and the S&P have both tumbled a little over 1%
• Oil is off more than 3%, to $96.90
• Yields on 10-year U.S. Treasuries are down to 3.1%… their lowest all year
• The euro clings to $1.40… while the dollar index has moved decisively above 76 for the first time in a month.

Gold, however, is holding its own in the face of this action. At last check, the spot price was $1,513 – virtually unchanged after Friday’s run-up. Silver is likewise steady at $35.15.

In euro terms, gold has reached a record of EUR 1,080 an ounce.

This will be interesting to watch. We could be entering a period much like the first half of 2010 – in which the dollar index ran up 19%… but gold did not fall accordingly. Indeed, it rose 11%… before powering up another 13% by year-end.

The Shanghai Gold Exchange plans to launch exchange-traded funds to help meet demand for precious metals. No timetable yet, but no doubt the exchange’s managers have noted overwhelming demand for overseas gold ETFs – which Chinese first got access to in January.

As we noted last week, China is now the No. 1 source of investment demand for gold – surpassing the longtime leader, India. And the Chinese central bank has a long-term aim of growing its gold reserves eightfold.

Maybe the new “gold as money” law in Utah will have a little more impact than we first thought.

Earlier this year, the legislature passed and the governor signed legislation affirming gold and silver’s status as currency. The only practical effect we saw at the time was precious metals became exempt from state capital gains taxes.

Now along comes an entrepreneur named Craig Franco, who plans to open the Utah Gold and Silver Depository next week. He has no website yet, so we’re left to rely on an Associated Press account that says, “The idea is simple: Store your gold and silver coins in a vault, and Franco issues a debit-like card to make purchases backed by your holdings.”

“I expect a wait-and-see attitude,” Franco says. “Once the depository is executed and transactions can occur, then I think people will move into the marketplace.”

Based on this, we’re not sure how the “debit-like card” is supposed to work… or how it differs from other efforts like those of our friends at GoldMoney.com. But we’ll keep an eye on it.

Addison Wiggin
for The Daily Reckoning

Keeping Up With Chinese Gold Demand originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Keeping Up With Chinese Gold Demand

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.