A whopping $50 trillion was wiped-off world financial markets just last year. That’s a sum almost beyond comprehension. It’s equal to entire world’s economic output for a whole year.
And it drives home one major fact: this isn’t just another recession. This is a full-blown financial revolution.
A new global financial system is going to take shape. And that means fantastic investment opportunities are emerging.
Why 2 April will be a turning point for the global economy
The bulk of those $50 trillion losses have been in developed countries. They know that they can’t solve this global crisis without the help of the big developing economies. That’s why Gordon Brown is hosting the G20 Summit here in London on 2 April.
The summit isn’t going to be some financial hippy love fest with the whole world coming together as one. This is an act of capitulation by the developed countries. They’ve been forced to bring emerging economies on board to save their own skins.
But the Western powers aren’t going to get what they’re hoping for. Because, as we’ll see in a moment, Western countries need to adjust to a lower standard of living very quickly if they want to avoid long-term financial ruin. Instead, they will probably try and use the G20 summit to prop-up the current financial system that has allowed them to live beyond their means for so long.
Instead the G20 summit is a going to mark a global turning point. Because this is when the Western consumer’s life support system is going to get switched-off.
Let me explain.
The great financial merry-go-round is breaking down
The big Asian manufacturing economies like China, Japan, Korea and Taiwan have been accumulating huge foreign exchange surpluses from their exports over the last two decades.
But a lot of that money has ended up back in the Western countries. That’s because these emerging economies invested it in Western government and corporate bonds.
China is now the biggest foreign owner of US government debt. At the end of 2008, it owned $728 billion of US Federal Government debt. That’s almost equal to Barack Obama’s entire economic stimulus spending plan. Chinese money is just about the only thing holding off a complete meltdown of the US economy right now. So the US government has been busy trying to persuade the Chinese to keep on buying its debt to keep the American economy going.
As long as that great money merry-go-round kept turning, the Western economies were able to keep humming along despite huge trade and budget deficits. It is this recycled money from Asia that allowed consumers in the US and here in Britain to keep ramping-up their spending even while household savings have kept falling.
That’s what has allowed us to enjoy a standard of living that really can’t be supported by the real economy of this country.
But that whole system is now breaking down.
Here’s where to make real profits as the global economy tanks
And things won’t be so easy going forward. This morning, China’s prime minister said that he wants “guarantees” that his investment will be safe. The Chinese are getting very nervous that the US will simply print money to pay off its colossal debt. That would drive the value of its investment down sharply.
So they are planning to diversify their investments. The head of the country’s biggest Sovereign Wealth Fund, the China Investment Corporation, says he wants to invest in undervalued commodities instead.
At the same time, China and the other Asian economies are launching stimulus plans of their own to boost economic growth. That means a big chunk of the money that has been funding Western standards of living is now going to stay in the developing countries.
That’s why you should start putting some of your money into the emerging markets. That’s where the capital is. And these are the countries that will drive future global economic growth.
And the other big investment opportunity right now is in the commodities that the emerging economies need in order to keep growing. Commodity prices have fallen sharply since they peaked in the middle of last year. That gives you a brilliant opportunity to invest on the cheap.
Our top commodity investment right now is oil – for one simple reason. Global oil supply is dominated by the OPEC oil cartel. And they look set to act this Sunday to drive its price back up. Click here to read our brand new report on how you could profit from their latest moves.
Best regards,
Manraaj Singh
For The Right Side
Editor’s Recommendation: Manraaj Singh is the editor of the Profit Hunter service. The major theme he is playing right now is the huge coming oil boom. Manraaj believes this boom will kick off this Sunday – but he’s found a way you can get in on it now.
MARKET NOTES
Gold’s meteoric rise in sterling
BY SHIVVY ARORA
Gold has gone virtually nowhere in the past year.
At least that’s what dollar investors would say. But looking at its value in terms of the pound, you get an entirely different picture.
Our chart today shows the price of gold in both dollars (blue) and sterling (orange line) over the past year. We have rebased prices to a value of 100, so that the comparison between the two currencies is clear.
Gold’s still in a bull market for UK investors 
Source: Bloomberg
While stock markets have crumbled in the last 12 months, gold has lived up to its “safe haven” reputation by holding its value. In dollar terms, gold has fallen only 7%. That’s not too impressive until you consider that the stock market has fallen by more than 40%.
But gold’s rally in pounds is striking – up 37% over the year. This is due to the pound falling against the dollar. When the pound falls, dollar-denominated commodities like gold become worth more in sterling.
Gold is likely to remain strong thanks to its credentials as a “store of value” in an uncertain world. And given the bleak economic outlook for Britain and the pound, it should do even better for sterling investors.
The Daily Reckoning – The Daily Reckoning Plan to Save the World
BY BILL BONNER
Paris, France
Friday, 13 March 2009
Hate thy neighbour? Giveth his children money; that will fix them all.
Few things are as costly as free money.
When the Spanish Galleons came back from the New World with cargoes of gold and silver coins, the Spaniards thought they’d hit the jackpot. All of a sudden, Iberia had plenty of money. Historians report that the Spanish neglected their fields and their manufactures; now they had easy money to spend. Prices rose quickly. Then, when the treasure ships stopped coming, the Spanish were broke. Spain – and Portugal too – went into a decline that lasted 4 centuries.
In the late 1990s, America got in the habit of getting shiploads of stuff from Asia – and paying for it only with pieces of green paper. Pretty soon, Americans too neglected their own factories – though not their fields. Let the Asians sweat, they said. We’ll think!
Not much serious thinking has taken place in the United States of America for the last 20 years. Instead, people preferred comforting illusions and conceited claptrap. We have the ‘strongest, most dynamic economy the world had ever seen,’ they congratulated themselves.
Of course, you don’t need to think – not when you ship is coming in. But now that the ship is sinking you’d expect people would put on their life jackets and their thinking caps. Nope. Now they look to the government for the free money. Yesterday’s news told us that Congress is now spending away $1 billion per hour.
We’ll come back to that in a minute...
First, some treacherously good news: the Dow rose again yesterday... up 239 points. We’re still withholding judgment, but it looks as though this might finally be the long-awaited rally. Stocks worldwide lost more than half their value without a single major rebound. We’re overdue for one. Maybe this is it.
Oil rose too – to $47. It seems to be getting ready to slide back over the $50 mark.
And the dollar may have topped out. The euro rose yesterday to $1.28... while gold recovered $13 to close at $924.
As near as we can tell there is no good reason for stocks to rally. Unemployment is still rising and sales are still falling. Until those trends flatten out, there is no reason to think business will improve.
Au contraire, business conditions are worsening and companies are cutting dividends faster than any time since the Great Depression. How can stocks go up in price... when sales and earnings are falling? The only possibility would be an increase in P/E ratios. But who wants to pay more for corporate earnings now?
No one we know. Instead, investors are becoming more and more wary. Why? Because even the biggest, strongest companies in the world are reporting problems. The agencies knocked down GE’s rating the other day. “What’s it worth now,” asks a headline. But the same question could be posed to almost any company on the planet – conditions have changed; what’s it worth now?
Last autumn, Warren Buffett commented on the solidity of his own company: “If Berkshire [Hathaway] isn’t Triple A, I’m not sure which company would be.”
But yesterday, Fitch took Berkshire down a notch... noting that the company had financial exposure in its insurance division that could be troublesome. Berkshire is no longer Triple A. And investors have to ask themselves: if you can’t trust the best companies, run by the best CEOs, who can you trust?
We won’t wait around for an answer, because there is none. The fact is, the crisis has put a question mark behind all asset values.
Again, you’d expect these question marks to inspire a little serious thinking. If assets aren’t worth what we thought they were worth... well, what are they worth? And what is happening in the economy that makes things so uncertain?
House prices show no sign of reaching a bottom; foreclosures are running 30% ahead of last year. And the press reports that there are 14 million empty houses in the US. What happened to all the people who lived in them? Below... a partial answer...
Read on…
CONTINUED on our website…
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