How to Front-run the Chinese, Legally By Brian Hicks | Wednesday, July 21st, 2010

"The 19th century was the century of the UK, the 20th century was the century of the US, the 21st century is going to be the century of China." — Jim Rogers

"China is going to be an enormous force that will make the Japanese threats of the seventies and eighties look like a water pistol." — former CE CEO, Jack Welch, 2001


Dear reader:

According to British author and soldier Sir John Bagot Glubb’s book The Fate of Empires, the seven stages of an empire’s life cycle are as follows:

1. The age of outburst (or pioneers)

2. The age of conquests

3. The age of commerce

4. The age of affluence

5. The age of intellect

6. The age of decadence

7. The age of decline and collapse


It’s not hard to figure out where the United States stands in this life cycle.

We just experienced the greatest housing and credit bubble in history… when homeless people were given mortgages.

We’re also experiencing epidemics in obesity, heart disease, and debt.

The U.S. finds itself in stage #6: decadence.

That’s right, we’re in decadence. At what phase of decadence, I’m not sure...

But decadence will soon turn to decline… if we haven’t already fallen off the cliff.

Nothing proves this point more than the following chart from the International Energy Agency (IEA) that shows that China now consumes more energy than America:

You can draw a circle around where the two lines intersect and write “Historic!”

This chart represents an epic shift in global power, both economically and politically.

Wall Street Journal broke the story on July 18th:

China's ascent marks "a new age in the history of energy," IEA chief economist Fatih Birol said in an interview. The country's surging appetite has transformed global energy markets and propped up prices of oil and coal in recent years, and its continued growth stands to have long-term implications for U.S. energy security.

The Paris-based IEA, energy adviser to most of the world's biggest economies, said China consumed 2.252 billion tons of oil equivalent last year, about 4% more than the U.S., which burned through 2.170 billion tons of oil equivalent. The oil-equivalent metric represents all forms of energy consumed, including crude oil, nuclear power, coal, natural gas and renewable sources such as hydropower.

For many energy and China observers, this wasn’t a surprise — although it occurred much sooner than expected.

But, dear reader, this is a mega-trend that will continue for decades.

And the investment potential is mind-blowing.

You see, later in the WSJ piece…

Mr. Birol, previously an economist at the Organization of Petroleum Exporting Countries, said China is expected to build over the next 15 years some 1,000 gigawatts of new power-generation capacity. That is about the total amount of electricity-generation capacity in the U.S. currently, and the construction of all those gigawatts occurred over several decades. "This demonstrates the major growth we are talking about" in energy demand and capacity growth in China.

Now, China has been all over the world inking deals with oil sand firms in Canada, resource rights in Africa, Australia… and Mongolia.

They’ve been doing this for years. This is not new.

They’ve also been hoarding resources to supply their infrastructure build-out for years to come.

This brings me to the point of this article.

If you know what resources the Chinese will need to maintain their rising energy consumption, you can buy now, sit on the investment… and let the Chinese buy you out.

Chris DeHaemer has already shown you how to front-run the Chinese. He’s done this with a Mongolian gold stock and Mongolian oil.

In fact his latest home run — a Mongolian oil stock — has rallied over 700% this year alone. His readers are making money hand-over-fist.

And that’s just the beginning...

Imagine buying Suncor Energy (one of Canada’s largest oil sands companies) when it went public in 1993 for just a $1.08 per share!

Today Suncor trades for $33… a gain of 2,900%.

That’s what you’re looking at with Chris’s Mongolian oil play.

Mongolia is in an ideal situation. It borders a nation with a voracious appetite for resources… coal, oil, natural gas, etc.

Think about it like this...

Canada is a resource-based economy. Its GDP for 2009 was $1.287 trillion. Canada is in an ideal position because its neighbor to the south still has the #1 economy in the world. So, Canada essentially ships all of its resource production to the U.S.

Now look at Mongolia. It’s also a resource-rich nation. It too has a huge neighbor that needs its resources — China.

And the thing about China is that it appears to be in stages 2 to 4 in the empire life cycle.

China has more millionaires now than the UK and France.

And like energy, it’s only a matter of time before China’s overtakes America in that economic category as well.

Profitably yours,

Brian Hicks

Chinese stocks surge 5.1%

The contrast couldn’t be more striking: Yesterday, the S&P 500 declined one-third of a percentage point ...

But overnight, China’s Shanghai stock exchange was up as much as 5.1%.

Why? Because while the U.S. economy continues to struggle through our worst recession since the Great Depression, the Chinese economy is exploding before our very eyes!

Almost nobody was prepared for this. As Europe and the U.S. fell into recession and our economies began to contract last year, demand for Chinese exports cratered. Many feared that the West’s economic malaise would cause Beijing’s economy to shrink as well.

It never happened. China’s economy continued to expand even as ours withered — and for a fascinating reason: China doesn’t have to depend on exports to grow its economy anymore — Chinese consumers are taking over as a major driver of economic growth there!

Hundreds of millions of new middle class and wealthy consumers are transforming China into a world-class IMPORTER of goods and services — both from Asia and all over the world!

In the first half of this year, China surpassed the U.S. as Japan’s #1 trading partner. In the second three months of this year, France’s exports to China and other East Asian economies soared 18.7% — and overall, exports from eurozone countries jumped 6.3%.

No wonder Citigroup recently boosted its estimate for annual Chinese economic growth to 8.7% for 2009 — and forecasts that China’s economy will expand at a blistering 9.8% next year!

The China Miracle is spreading throughout Asia

China’s transformation from a one-horse exporting nation into a major global importer and consumer of goods and services has also lit the fuse on economic growth throughout the region.

Early this morning, for instance, we learned that South Korea’s economy grew much faster than previously reported in the second three months of 2009 — the fastest since the fourth quarter of 2003!

There’s more:

• South Korean exports jumped 14.7% in April, May and June from the previous three months ...
  
  
• Construction investment grew more than four times faster than was previously reported ...
  
  
• In July, sales at major South Korean department stores rose for the fifth month in a row ...
  
  
• The nation’s manufacturers increased production for a seventh consecutive month in July ...
  
  
• Consumer confidence climbed to the highest level in almost seven years in August, and ...
  
  
• South Korea’s benchmark Kospi stock index was up overnight and has now gained a whopping 43% this year, beating our own S&P 500 more than three times over!

China Stock Index Falls 5.2% After Premier's Comments on Economy

By Reinie Booysen
Aug. 25 (Bloomberg) -- China's stocks slumped, led by commodities suppliers and banks, after Premier Wen Jiabao said authorities can't be "blindly" optimistic about the
economy.
The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 155.34, or 5.2 percent, to 2,838.09 as of 2:01 p.m. local time. It has dropped 17 percent this month, the world's worst performer, on speculation economic growth will falter and the government will curb new lending that rose to a record in the first half of the year.

China Stocks May Drop Further 10% on Loans, Xie Says

Aug. 18 (Bloomberg) -- China's benchmark stock index, the world's worst performer this month, may fall another 10 percent as bank lending slows, said Andy Xie, a former Morgan Stanley
chief Asian economist.
"The current correction is reflecting the tightening in lending," said Xie, who correctly predicted in April 2007 that China's equities would tumble. "We've seen the peak of this market cycle, though there's likely to be a bounce as the government seeks to stabilize the market."
The benchmark Shanghai Composite Index plunged 5.8 percent yesterday, the most since Nov. 18, extending its decline from this year's high on Aug. 4 to 17 percent. The gauge, the worst
performer among 89 benchmark indexes tracked by Bloomberg worldwide, sank as foreign direct investment plunged and Yunnan Copper Industry Co. posted a loss, saying there are "no clear signs" of a recovery. The Bank of New York Mellon China ADR Index, which tracks American depositary receipts, slumped 5 percent, the most since March 2. Prime Minister Wen Jiabao's 4 trillion yuan ($585 billion) stimulus package, coupled with record bank lending in the first six months, helped the Shanghai index more than double this year from the low on Nov. 4. An estimated 1.16 trillion yuan of loans were invested in the stock market in the first five months, China Business News reported on June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council, China's Cabinet.
The equities rally faltered as new loans in July fell to less than a quarter of June's level and the securities regulator allowed initial public offerings after a nine-month moratorium.

Government Support

The government may order the national social security fund to support the market before Oct. 1, when the Communist Partycelebrates the 60th anniversary of taking power, according to
Xie. Other measures that may be taken include halting the approval of IPOs and share placements, he said. "This is not the bursting of the bubble," Xie, who is now an independent economist, said by telephone. "The government will be under pressure to take action because a lot of people have lost money."
Van Eck Associates' David Semple, whose emerging-markets fund is beating 99 percent of its peers this year, said China's yuan-denominated A shares, which trade in Shanghai and Shenzhen,
may rebound on the prospect of government support. "A-share valuations look fully priced but I don't think it's a bubble like we saw with Internet stocks," said Semple, who helps manage about $13 billion in commodities and equities including Hong Kong-listed H-shares at New York-based Van Eck, said in a phone interview. "I wouldn't be surprised if we start
to hear positive comments from the government."

Foreign Investment

Ping An, the nation's second-biggest insurance company, fell 3.9 percent yesterday after first-half net income dropped 45 percent. Yunnan Copper sank the 10 percent daily limit after
posting a first-half loss and the metal dropped by the maximum in Shanghai. In New York, the American depositary receipts of Aluminum Corp. of China, the nation's largest producer of the
metal, fell 7.3 percent to $27.94. China Life Insurance Co., the biggest insurer, declined 4.6 percent to $61.10.
Foreign direct investment fell 35.7 percent in July, retreating for a 10th straight month, as companies stalled expansion plans amid the global financial crisis, the commerce
ministry said in Beijing yesterday. Prime Minister Wen Jiabao said Aug. 9 the government will
maintain its current macroeconomic policy stance aimed at bolstering domestic spending as the nation continues to experience fallout from the global recession. Billionaire Li Ka-shing, who predicted China's stock-market bubble would burst in 2007, said last week the global economy
won't recover this year and told investors to be "cautious" about buying shares, especially with borrowed money.