Dear Nicolas, It's early morning, Thanksgiving day. I just got back from Bangkok after a 19-hour flight over Mongolia, Siberia and the North Pole.
My wife and kids are sleeping peacefully. And this evening, I'll have both sides of my family over for dinner, about two dozen people in all. But vivid images, still fresh in my mind from Asia, are in sharp contrast with the rush of feelings as I return. My simple conclusion: There's No Place Like Home Wherever you go in Asia, the U.S. is the envy of the world. In China, Thailand, Hong Kong and Singapore, Americans are looked upon as kind, gentle, polite and smart. Australians rank a close second. Even in the deep south of Thailand, where I took a three-day holiday and mingled with local Muslims, we are welcomed with open arms. Most Asians love our cars, clothes, music, movies and Hollywood stars. They envy the Microsofts, the Sprints, and the Oracles of the world. They know the names of our top universities, our business icons, even some of our top hospitals. Given the world of terror we live in, all this may seem hard to believe. But for the majority of people in Asia, emulating America is what everyone dreams of. When asked which country they would like to visit most, nine out of ten Asians cite the U.S. It's only among a small minority that envy turns to hatred. And although that hatred can throw the world into turmoil, we should be thankful that the majority has great admiration for America and Americans, despite any disagreement with our foreign policy. Why I'm Thankful and Proud to Be an American As Americans, we often take too much for granted and do too little to show our gratitude. We don't know what it's like to live without air conditioning. Without power. Without a car. Without running water. Without a real toilet. Imagine catching frogs and insects from your yard just to get enough protein to eat. Imagine spending four hours a day collecting food and another 14 to put a few coins in your pocket. No retirement fund. No sick days. No holidays. Miss a day of work, and you're likely to lose your job. We complain about our hurricanes and the resulting inconveniences. But imagine living in similar, or worse, conditions for your entire life! I told my children about what I've seen in Asia. Their response: "But Dad, if you grow up in that kind of environment, you don't know much better. You come to expect it. So, it's not as difficult for them as it would be for us." Perhaps. But don't think for one moment that they are unaware of what they're missing or that they're content with their plight. Most people in Asia would do nearly anything to get ahead to sleep in a bed, to take a shower, have a toilet, drink decent water, eat healthy food, have a real roof over their heads ... a car ... and more. My point is twofold: Be grateful for what you have. And be ready for an even greater acceleration of growth in Asia as they strive tirelessly to achieve something similar. Tapping a Treasure Chest Of Cultural Knowledge The United States is still very young just 229 years old. Compare that to China, which, despite many regime changes, has never changed its name since the emergence of the first Chinese civilization 5,000 years ago: Chu-Kwo, Middle Kingdom. Or consider Thailand, 2,547 years old according to their Buddhist calendar ... or India, where the roots of their civilization go back over 3,500 years. Since the 19th century expansion of the British Empire, the deep cultural knowledge and experience of these ancient civilizations may have been viewed by many as a hindrance to growth. Tradition and modernization were seen as incompatible. Some even denied any value to retaining the former. But if the rise of modern Japan, still firmly rooted in most of its traditions, did not prove that theory wrong, the re-emergence of Singapore ... then China ... and now India and Thailand ... certainly will. These countries are tapping into a treasure chest of traditional social and cultural experience, adapting it, as needed, to the modern world, overcoming most of the conflicts that naturally result, and creating a new kind of civilization. Yes, the U.S. is a melting pot of cultures that are much older than the country itself. But our trajectory is a mere speck of time in the history of the world, especially when compared to Asia. And as fast as our economy has grown in the centuries since the first Thanksgiving ... Asia Is Quickly Catching Up Economists call it the "catch-up effect" or "the theory of convergence." It basically states that poorer economies tend to grow faster than richer economies. Eventually, poor and rich economies converge in terms of GDP, per-capita income and even innovation. New technologies may even allow the economies of emerging countries to surpass industrialized nations. That's what the United States did as Great Britain receded from its empire ... and later handed to America the baton of the world's pre-eminent economic and military power. In a more limited way, that's also what Japan was able to do after World War II in certain key industries, not the least of which was automobiles a "catch-up effect" from which we are still reeling. And now, as was keenly apparent during President Bush's visit to China this week, we see the rise of China. The Catch-Up-Effect In Hard Numbers Let's take a look now at two key metrics and see if this theory of convergence is playing out. First and foremost, even with all the stimulation from some of the lowest interest rates in a half century ... and even with all the capital flowing to our shores ... our growth rate is lower than that of Malaysia, Thailand, Indonesia and Pakistan ... and far lower than India's or China's. Our national savings, as a percent of GDP, is also far lower. Despite the poverty in Asia, their overall savings is actually stronger. Lastly, consider how fast they are improving the standard of living of their populations, as measured by the growth in GDP per capita: In the United States, where we have already achieved a high standard of living, it's only natural that we improve it at a much slower pace a meager 6.6% over the last three years. In contrast, even a country in Southeast Asian with one of the lowest growth rates Malaysia still surpasses the U.S. in this measure. And in countries like Pakistan, India, Indonesia, and, above all, China, the pace of improving standards of living is double, triple, even four times faster than ours. That's what I call catching up and very quickly. Like the U.S., many of these countries have large external debts and large budget deficits. But none come close to matching the huge pile-up of debts that has accumulated in the United States. The U.S. is, by far, the largest debtor nation in the world, with over $38 trillion in outstanding debt and IOUs debts that greatly exceed our Gross Domestic Product. And that's merely interest-bearing debts. If you include derivatives and other obligations, the total easily surpasses $150 trillion. I love the U.S.A., and I am proud to be an American. But it's clear to me that we have a major challenge ahead of us merely to retain our status as a leading economy, let alone the number one economy in the world. Asia's Impact on the World Is Shattering All Records Along with Asia's rapid rise, the world is being impacted in ways never before seen in modern history. Consumption of just about every imaginable natural resource is flying off the charts. That's the main reason copper prices are at all-time record highs ... aluminum prices are flying ... demand for zinc, lead, nickel, and tungsten is roaring ... the price of uranium has tripled in two years .. oil has zoomed from $20 a barrel to as high as $70 in three years .. metallurgical coal and steel are in the process of doing the same. And look at platinum, within a hair of hitting $1,000 an ounce ... or gold, close to $500 an ounce and going much higher! Even the price of bottled water is rising around the world, up 22% in Thailand in the last three years. Welcome to a Global Natural Resource Boom The Likes of Which You Have Never Seen Before Mother Nature has never before been under such pressure to produce. The problem is, she can't possibly pour out enough resources to meet demand when over 3 billion people in China, India and Southeast Asia are rapidly demanding improved lifestyles. This is what's propelling commodity prices ... and what will continue to do so as far as the eye can see or cannot see. Unlike previous booms in select natural resources that were mostly speculative in nature, or were rigged by the likes of the Hunt Brothers who tried to corner a particular market, this boom has legs, very long legs. It's built on powerful fundamental factors that could last years, if not decades. Right now, the inflation is largely contained within the natural resource sector. But don't count on it staying that way. As more and more companies are forced to pass on their increased costs to consumers, you will begin to see the Consumer Price Index jump wildly. You will see sharp increases in wage demands and in the prices of services. I just saw that in Asia. Last year at this time, a taxi to and from the airport cost about $2.50. Today, it costs twice that, about $5.00 (excluding tips). That's 100% inflation in a critical transportation cost in just 12 months. The minimum wage in Bangkok was just hiked by a whopping 11%. Other costs are also soaring. Don't kid yourself: These are signs of what's coming to the United States. More inflation. Much more. My Parting Words for the Holiday... The rise of China may be a threat in some ways. But be thankful that China is our friend and that the days of the Cultural Revolution, the Red Guard and even ping-pong diplomacy are now far behind us. And more importantly, be thankful for what you have. Then, be sure to protect it. I'm talking about your money, and above all, your health. Keep a substantial portion of your money in safe, liquid, short-term, Treasury-only money funds. Stay away from bonds, no matter who the issuer. The bond markets are soon going to wake up to this new wave of inflation, plus the fiscal imbalances of industrialized countries. Then their prices are going over a cliff. Long-term interest rates will soar MUCH higher. Stay out of traditional stocks. Even though there may be a year-end, seasonal rally, don't be fooled. Too many stocks are now overvalued again, and like bond markets, they have not digested the extent to which they will be impacted by the growing wave of inflation and rising interest rates. The outstanding exception: Stocks that benefit from inflation, especially your gold mining shares, energy shares, natural resource companies and regional mutual funds that take advantage of the growth in countries like India or China. So stick with them! An Important Announcement Tomorrow we're taking a day off. So there will be no Money and Markets for Friday. But be sure to check your e-mail Saturday morning for our next urgent update! Happy Thanksgiving! 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, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others. © 2005 by Weiss Research, Inc. All rights reserved. 15430 Endeavour Drive, Jupiter, FL 33478 ******************************************************* Nicolas Leobold "..just another one of those American gun nuts..." 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