Profit from This 2,000-Year Pattern with Two Unstoppable Trends

Keith Fitz-Gerald Feb 25, 2015
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What if I told you that a two-millennia old economic pattern is about to reassert itself – and you can profit from not one but two Unstoppable Trends by getting in today?

Better yet, what if pundits were almost universally writing off what I am about to share with you, further clearing the way for savvy investors to enjoy the earliest windfalls and potentially the biggest gains, too?

Much of the media and many of the mainstream investment houses are ignoring this country. The IMF and Morgan Stanley are both forecasting dismal GDP growth in the next few years. Just last month, Bloomberg labeled its markets as being in an “amateur hour” phase.

So why is it that the elite are piling in?

For the same reason I’m telling you that it’ll be a winner – because they know like we do that the hoy-paloi is overlooking some key numbers – not to mention basic history. For 18 of the last 20 centuries, this juggernaut has been the world’s largest economy. And with more than 7% growth last year, it’s outpacing the U.S. to reclaim the title. Again.

What we’re seeing is a seismic shift not just of global power but capital – and that will mean enormous profits for people who see it ahead of time.

Analysts are getting it wrong. Now you can profit before they have time to wake up.

Here’s what’s really going on in the world’s fastest-growing economy.

What Analysts Don’t Get About China

Most analysts are absolutely convinced that China’s a nation on the verge of collapse.

Chances are you’ve checked out the ghost city videos on YouTube and heard well-known professional short trader Jim Chanos (among others) going on about what a wreck the country is. If not, go take a look. They’re great entertainment.

Lately the China-bashers have focused on a trifecta of data – rapid business growth, stagnating prices, and rising manufacturing wages that have tripled since 2006 – all of which imply that China’s production costs are going up. The thinking is that profits must go down as a result.

Unfortunately, the logic is based on nothing more than the idea that “if it’s happening in Europe, Japan, and the United States, it must be happening in China, too.” They’re making the most fundamental of all mistakes – applying western economic metrics to an economy that is fundamentally different.

In reality, China’s Producer Price Index – they have a PPI just like we do – has gone down every year since 2011 and may drop another 3%-5% by 2016.

This means that margins and, yes, profits are expanding, not contracting. I’ll get to why in a minute.

Producer Price Index

When I point out this inconvenient truth and other data like it, critics default to the longer term, noting that the PPI is going up over time.  But that observation is meaningless without some context.

China’s PPI has gone up a mere 16.4% since 1996. That’s a drop in the bucket compared to the PPI in the United States, which has increased by 10% since 2010 alone, according to tradingeconomics.com

The key takeaway here is that China is doing a better job of maintaining its cost advantage, especially when you compare it to the United States, as so many analysts seem determined to do.

If China’s rising costs were really impacting production, you’d see China’s share of global market exports dropping. In reality, China’s export growth became the world’s top exporter in 2009 a mere eight years after it was admitted to the World Trade Organization. In 2013, it accounted for nearly 12% of all global exports and more than $200 billion of services a month by 2014. It may hit 15% by 2016.

At the same time, China is becoming increasingly efficient and profitable because of automation – just like every other developed country has over time.  The improvement is so vast that it’s rendering labor price increases moot. Factor in a hungry workforce drawn from 1.3 billion people, and you’ve got the answer. That’s what makes its outlook for growth very different from those of the U.S., Europe, and Japan.

We’ve talked extensively about that as part of two Unstoppable Trends – Demographics and Technology – so I won’t repeat the discussion at length here. But I will highlight the key takeaway… a robot making something or performing a repetitive task costs 10 times less today than it did 10 years ago. Even in China, where labor cost have been unthinkably low by Western standards for years and even though they are rising now.

That’s really important because China has one of the lowest penetration rates of robotics of any nation on the planet. Yet, as Nicolas Musy of China Integrated, a Chinese business consultancy, points out, China is the world’s biggest robotic market and accounts for nearly 20% of global robotics sales.

China Robots

Ergo, China can continue to automate for years and still not see margins trapped the way margins in western countries are by rising labor costs.

So how do you invest knowing what you now know?

First, you line up with our Unstoppable Trends – in this case, Technology and Demographics.

The rising middle class that’s some 600 million strong and the rapid introduction of automated manufacturing technology is a potent combination.

Second, you carefully pick your trade.

I recommended Navios Maritime Holdings Inc. (NYSE:NM) and Yingli Green Energy Holding Co Ltd. (NYSE:YGE) to my Strike Force subscribers as a way to capitalize on China’s demand for raw materials and clean energy needs. Anybody who followed along as directed captured gains on 400% and 200%, respectively.

Now I think we want to shift our focus away from energy and materials to technology.

I think you can capture the best of both with a choice like ABB Ltd. (NYSE:ABB) and Apple Inc. (NasdaqGS:AAPL). The former is a global leader in industrial-scale electricity infrastructure and automation systems while the latter is self-evident.

Or, if an ETF is more your style, try the Guggenheim China Technology ETF (NYSEArca:CQQQ) which emphasizes Chinese tech companies, including more than a few with high manufacturing input.

And, third, you control your risk.

Despite the fact that China remains the world’s last true bastion of growth, it’s not a place where you can just pile in, set it, and forget it when it comes to your money. So take a good look at this article on position sizing that I shared with you a few weeks ago, and make your move.

mandarin (See you next time.)

Best regards,

Keith

11 Responses to Profit from This 2,000-Year Pattern with Two Unstoppable Trends

  1. Stuart says:

    I have Canadian funds to invest, do you have any stocks on the TSX that fit your model. Thank you.

  2. H. Craig Bradley says:

    INDIVIDUALS FROZEN-OUT OF CHINESE MARKETS ??

    I too have been observing China grow and invested in a mutual fund that invests primarily in Hong Kong and China way back in 1993. I was too early to the party. Personally I would rather buy directly into Chinese companies, if I can. This is the rub, as far as I know, U.S. investors can not buy stocks directly that are not listed on OUR markets ( NYSE) or as ADR’s. Many Chinese companies are not listed in the U.S.

    My guess is unless you are an Alibaba, its not worth the (increasing) trouble unless you need to raise billions in cash from IPO investors, like Jack Ma did successfully last year. We are no longer the “only game in town”. Still, the home team ( field ) bias lives on in this bull market. I can see why too. In contrast, large institutions ( mutual funds, hedge funds, investment banks) can easily gain access to foreign markets while most individuals must buy Emerging Market or foreign stock mutual funds by proxy. Not fair!!

    One reason why Chinese companies that do list on U.S. Markets as ADR’s often go for very high valuations ( P/E) might just be related to the scarcity of available AND accessible Chinese companies for U.S. retail investors to buy and the growing demand for them. There appears to be a current shortage of them over here and it might just be intentional, as well.
    Here are two Chinese conglomerates I would like to buy into but don’t know how ( except opeing a brokerage account in Hong Kong or Singapore). Its getting more difficult since 2010 for U.S. citizens to open bank accounts overseas, say in Singapore or Hong Kong. The passage of FATCA ( Foreign Account Tax Compliance Act of 2010 ) has caused major problems for many American expats recently and is well reported. Foreign banks don’t want U.S. Citizens as customers any more. I read it as possibly a “canary in the coal mine”, as each country moves towards capital controls of some kind, be it exclusion or otherwise. 1930’s again.

    Anyway, how do you buy individual Chinese ( Hong Kong) companies not listed on U.S. Markets? Not in U.S. ADR’s? Two Hong Kong Conglomerates come to mind here: Jardine Mathison, a 61.3 Billion in Revenue company listed on the Singapore Stock Exchange under symbol JM SP ( in U.S.D.). Conglomerates appear to be valued lower than other companies in Chinese markets, for some reason. ( Value Plays ).

    The other Chinese conglomerate of interest is: Cheung Kong Holdings ( My tongue is twisted now ). They are into everything from auto sales to real estate and own shipping/Port company Hutchison Whampoa, as well. How do you buy their shares directly when you only have brokerage accounts in the U.S.A.? My local stock broker does not know how to do it, as the symbol does not come up on his computer. Again, look at how things are structured and regulated and you might see just how the ” home field bias” is not just a market sentiment. Its intentional.

    • Keith says:

      Hello Craig.

      As usual, a number of great observations and terrific questions. Investing in China, for example, is not as difficult as you would imagine. There are a number of funds, for example, that invest in Chinese mainland shares like the Morgan Stanley A Share Fund (CAF) and they’re available via U.S. brokers. More are coming online daily as China’s financial markets mature.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

    • Julia says:

      Look into Interactive Brokers to open an account. You can trade through them on most international exchanges. Their fees are reportedly low. I do not trade with them or have any business dealings, just going on their reputation.

  3. Ted Zawacki says:

    Thank you for your communication. I really need and apreciate it.
    Please comment on pdli.
    Also could you let us know when the calender stop dates are in the MMR portfolio.
    Thanks again.
    Ted

    • Keith says:

      Hello Ted.

      You bet. Please check your Money Map Report weekly alerts where I post those updates regularly.

      Thanks, as always, for being part of the Total Wealth & Money Map Report Families, Keith 🙂

  4. Peter says:

    Good article but worry about the way it is done. Automation will be like in Japan 30 years ago, increase production and lower the cost, but still leave a country full of unskilled labor and these people will find it more and more difficult to join the middle class. How many graduate students are still looking for an adequate job? Where will support the people who are going to be victims of automation? We had systems in our economies in the West which are not yet in place in China.

    For me there are two questions: How to control the corporate and local government debt which is still influenced by the enormous underground banking, too large to tackle at once. The second question will be the treatment of the rising number of unemployed, victims of modernization. Just sending them home will not solve the problem in the long run.

  5. Gorham Cowl says:

    If you look at the number of unoccupied :”ghost cities” in China it is scary stuff. These construction projects have
    provided a lot of construction jobs but there are no residents or retail businesses. Yet they keep building more
    empty cities for millions who probably never come. It is scary stuff!!

  6. Harrison Kornfield says:

    A TERRIFIC ARTICLE – SHOULD BE REQUIRED READING FOR EVERY INVESTOR. ONE OF YOUR REPLIES CONCERNED “DIRECT INVESTING” IN CHINA A SHARES VIA A MUTUAL FUND, CAF. I HAVE USED AN ETF FOR THE SAME PURPOSE, ASHR. IN GENERAL, I BELIEVE THAT ETF’S ARE BETER THAN MUTUAL FUNDS. I AM INTERSTED IN YOUR OPION OF THIS AS WELL AS YOUR EVALUATION OF THIS ETF AND OTHERS IN THE OF THE SAME ILK. THANK YOU, SIR.

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