Saturday, February 20, 2010

Thinking Global From Trade and Tryon

As I sit down to write today it is a beautiful Saturday afternoon in Charlotte, NC. I am sitting outside at Trade and Tryon which is the exact middle of the city, surrounded by tall buildings and beautiful waterfalls.

There are people outside walking around; very happy, coming in and out of hotels, nice restaurants, and retail stores where they just purchased a brand new pocketbook or nice outfit for tonight's dinner out.

It is amazing how well we live in America. Most people, including myself, have never been outside the country and know little about how good we have it.

This past Tuesday I wrote an article titled, "The Future Problem Has Arrived." In it I described how the Chinese, have finally, finally, stopped buying United States treasuries and have actually begun selling in force.

While many will view this as a disaster or "problem" as I described, it is actually the best possible thing that could happen.

The United States over the next twenty years is going to experience a major decline in living standards across the board. Our prosperity as a nation peaked in October of 2007. There is nothing wrong with this, it is part of the natural cycle that has occurred throughout history. The UK experienced unmatched prosperity until the turn of the century in 1900, when the United States took over the role as the global leader.

What concerned me up to this point was that China was refusing to acknowledge this transition and continued month after month to purchase United States debt, essentially throwing precious global resources down the toilet.

If China continued to give the United States money, our leaders would continue to take that money and do very stupid things with it.  This waste of precious global resources only hurts the entire global economy. I have used the analogy in the past of a spoiled child living off the allowance of a rich parent. The child will only change his ways once the free money had stopped, forcing him to grow up.

This is the point we have now reached for our country. The foreign money has now stopped, and it should be time for America to restructure our economy based not on spending borrowed money, but savings and working to create an export driven economy that can be centered on the new wealth in Asia.

That does not mean we have to build factories or cars. We could focus resources on technology or medicine such as cancer research. Exporting medicine and technology to Asia is just as good as sending cars or washing machines.

This was the focus of Richard Duncan's latest book, "The Corruption of Capitalism," in which he said the United States has a brief window to take the correct actions before it went into terminal decline.

Of course, as you know, we are doing the exact opposite.

Our leaders are trying to re-flate the previous bubble economy that was based on borrowing and spending. Up until now they have done it with the world's global savings. This year they will begin to do it with a printing press.

This does not change the final outcome for the country, it will just pro-long the change (maybe a year or two) and make it far, far, more painful.

You will not see a revival of the middle class, it will simply disappear. We will see the greatest transfer of wealth in human history; wealth moving toward the currently wealthy that take action now to put their resources into hard assets such as commodities and precious metals.

It will become a country of the ultra-rich and the poor, and it is very unfortunate because it does not have to be that way.

I think China's announcement this past week of the diversification of their holdings will end up becoming one of the most important story lines of this century, although it will not be recognized as such for a long time.

It is similar to the failing of New Century Financial, the subprime mortgage lender, which at the time seemed like a minor event in 2007. We can look back now and see that was the essential trigger to the credit crisis as the ABX index fell below 1.0 a few weeks later and never looked back. (The ABX tracked the value of subprime debt in the credit markets)

We already see the ultra rich and legendary hedge funds taking their massive positions in the gold market. George Soros last month called gold the ultimate bubble. This week we received word that as he was speaking those word as he added a monstrous gold position to his hedge fund's holdings. His" bubble talk" allowed him to purchase the metal at a far greater price.

The same goes for legends John Paulson and David Einhorn who have been quietly accumulating massive positions in the gold market over the last six months. It is laughable that Paulson, who made $15 billion in profit during 2007 shorting subprime debt, could not raise $90 million from the public for his new gold fund.

The public will never, ever, come in until the very end.  Human psychology will never change due to the lack of finacial education received at public schools in our country.

Until we get to that end, I'm going to enjoy the rest of this beautiful afternoon here in Charlotte. I hope the weather stays nice all week, and I hope I am wrong about everything.

Have a great weekend.

No comments:

Post a Comment