China Just Made the GUTSIEST Move of the Entire Financial Crisis

Keith Fitz-Gerald Oct 30, 2015
22 

China’s grave dancers have taken great pleasure in convincing millions of investors that the nation will never succeed based on any number of erroneous arguments…

not democratic

…not capitalist

…not worthy of world leadership

Underneath it all, this was little more than a thinly veiled contempt for Beijing’s 35-year-old “one child” policy. Called yousheng, the law has averted an estimated 400 million births over the years in the name of modernization and efficient resource consumption.

Now that law’s been scrapped, and couples will be allowed to have two children.

The White House and much of the mainstream media wasted no time posturing after the announcement. Press Secretary Josh Earnest, for example, noted that the policy is a “positive step” but that “we also look forward to the day when birth limits are abandoned altogether.” Amnesty International said bluntly that the policy change was “not enough.”

They’re missing the point.

China’s policy reversal is the gutsiest move yet in the ongoing global Financial Crisis to date. It’s a game changer of the highest magnitude. Moreover, it’s great news for savvy investors.

Today we’re going to talk about why and, of course, how to align your money for maximum profits.

China Re-Opened the World’s Most Important Window

We’ve talked a lot about China over the years together and, at this point, you should be well-versed in the logic propelling that nation onto the world’s stage. But what we haven’t spent a lot of time talking about what’s driving things behind the scenes.

Today, we’re going to change that with a look at something called the “Window of Opportunity.”

The Window of Opportunity is a little-understood data point that actually drives several of our Unstoppable Trends including Demographics, Medicine, and Human Augmentation.

If you’ve never heard the term before, the “window” refers to the composition of a country’s working age population. While there are some variations, generally that’s people between the ages of 15 and 65. Remember these numbers, by the way, because we’re going to come back to them in a few minutes.

Anyway, the window is “opening” when a country’s population is growing and the number of younger people is declining at a time when the older population is small or in decline. It’s “closing” when the working age-population is in decline at a time when the number of children is growing together with the number of elderly who are no longer working.

The reason why is pretty straight forward.

People live longer. Children and the elderly produce less, yet consume more. The cost of urbanization rises, as does systemic government spending even as per capita output falls to cope with rising dependency on everything from social services to private resources.

Typically, the window is around 30-40 years long and rotates around the world. For example, Japan’s window was opening from 1965 to 1995. Our window was open here in the United States from 1970 to 2015. China’s opened up in 1990 and will continue to open until 2025. Brazil and India will follow.


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I realize that this can be hard to comprehend, so let me put this another way.

In 1975, there were three people living in emerging market countries for every one in a developed country. By 2009, that had changed to 4.7 people in emerging market countries for every one in a developed country. By 2050, the figure will be 7.5 to 1. That’s a huge shift only 36 years from now.

Which means, by implication, now’s the time to act if you really want to make your fortune.

If this doesn’t make sense, consider our own history. The world’s truly pivotal fortunes were made roughly 25 years before the mainstream populace grasped the shift I am sharing with you today. Mellon, Vanderbilt, Carnegie, Warburg, Pincus, Rothschild, Buffett, Templeton… they all put their money ahead of massive shifts in working age populations around the world.

That’s why China’s move is so far-sighted. They’re doing the same thing.

Beijing knew damn well the window we’re talking about was closing and that the one child policy put in place in 1980 to control modernization and resource consumption would have to change, “or else.”

Barring this week’s policy revision, China was on track to surpass Japan and become home to the world’s most elderly population in less than 15 years, with an estimated 400 million people more than 60 years old.

Remember those figures I mentioned earlier?

It’s no coincidence that the demographic window is defined by a working age population between 15 and 65 years of age. China knows that every single child born over the next 15 years prevents the window from closing. If projections hold, we’re talking about another 75-100 million people entering the Chinese workforce by 2030.

And that’s your entry.

A bigger workforce not only drives not just productivity but consumption, too.

China’s middle class is already the world’s largest. By 2020, more than one billion middle class folks there will have consumed more than $41 trillion in goods and services, according to The Boston Consulting Group. By 2030, that figure may stand at $60 trillion. To put that in perspective, U.S. GDP is approximately $17.94 trillion as of mid-2015.

China’s economy is 25 times bigger now than it was in 1990. By 2035 it could double again, especially when you factor in another 75-100 million people who would have otherwise literally been prevented from being born.

That’s going to drive companies like NIKE Inc. (NYSE:NKE), Starbucks Corp. (NasdaqGS:SBUX), and Apple Inc. (NasdaqGS:AAPL) to levels most investors cannot imagine today. As I noted in this article, that’s going to give those companies a powerful boost and investors plenty of profits.

It’s also going to create a whole host of new Chinese companies at the same time.

For example, companies like Meizu and Xiaomi are mobile handset makers second only to Apple in Asia, even though they’re virtually unknown here. Athletic sporting gear company Li Ning is giving NIKE a run for its money even though it sells 99% of its products within China.

Ping An, Yunnan Baiyao, Shuanghui… these are names completely unknown to western investors… at the moment.

If that gives you pause given China’s well documented and very recent history of stock fraud, manipulated earnings, and questionable accounting, I understand. But, I encourage you to get past that and consider investing in one or both of the following exchange-traded funds so you can get ahead of the “window”:

  • Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap (NYSEArca:ASHS)
  • Guggenheim China Small Cap Index ETF (NYSEArca:HAO)

The former is a broad-based market type index holding the 500 smallest and most liquid Chinese A-Shares, while the latter is much the same but introduces a threshold of $1.5 billion, above which investments are excluded. I have no doubt tomorrow’s winners are among them.

The game here is not instant gains, so don’t pile in thinking you’re going to be living large any time soon. China’s going to be volatile for some time to come, and its financial markets will reflect that exactly as any growing nation’s financial markets do. Exactly as ours did.

Over time, though, things will begin to settle down as part of the maturation process as China’s legal, financial, and economic systems catch up. And that’s when capital growth really sets in.

Ordinarily, I’d encourage you to run a trailing stop to protect your capital but in this case I think position sizing to 2% or less is the way to go. That way you can buy shares, tuck them away, and come back in a few years’ time without worrying about daily volatility.

再会! (zài huì)

Roughly speaking, that means catch you later.

Keith

22 Responses to China Just Made the GUTSIEST Move of the Entire Financial Crisis

  1. Barry Fitzgerald says:

    I understand the logic, but it does assume that because they are now going to allow it that a lot of people are going to do it. That is not necessarily the case. There are plenty of reasons for young people to decide not to have more children and that is not uncommon in this world today. So they may have errored by doing one child only in the first place. It certainly bears watching.

    • Keith says:

      Hello Barry.

      You raise a very interesting point and one that merits careful consideration. My take, so far at least, is that history will bear the thesis out because there is too much opportunity and, not coincidentally, too much need.

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

  2. ned says:

    Excellent article and I appreciate your thinking . Thanks Ned

  3. Thomas says:

    The White House and much of the mainstream media, Josh Earnest, Amnesty International…They’re missing the point

    LOL…when have the mentioned cast of nitwits done anything else?

    • Keith says:

      Good morning Thomas.

      Cast of nitwits… indeed! I suspect our country would not be where it is had the nitwits gotten a lot of points.

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

  4. Cierra says:

    It’s a pilot program for those with one child.

    • Keith says:

      Good morning Cierra.

      I’ve heard that it’s both…a total removal and a pilot program at once. As always, though, precise details are hard to come by in China but I’m hearing that it’s being put into place across the board.

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

  5. Friedl Mey says:

    Thank you Keith for this article. Until now the European refugee crisis had me worrying about the possible outcomes. According to your arguments, this crisis could prevent the closing of the window in Europe, too, provided we Europeans are willing and able to integrate these young and strong refugees successfully into our aging society.
    Best regards, Friedl

    • Keith says:

      Good morning Friedl.

      You’re welcome and you raise a very interesting point. The window can theoretically be opened by birth or immigration. The trick, of course, is how immigrants blend in or remain isolated. I submit that the current refugee crisis is unlike anything the world has seen because of the huge numbers of people flooding into Europe with no stated intention of blending in. Time will tell but there are some very important decisions that are going to have to get made with regard to tolerance, native languages, laws, etc.

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

  6. David says:

    Love it.
    LOVE IT!

    • Keith says:

      Morning David and thank you!

      It was a fun article to write and I cannot wait to see the ongoing developments because the creative force driving capital there is being created in front of our very eyes with this policy.

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

  7. ron goddard says:

    a very good article. we must remember that china has in the past been world leaders in astronomy, dating back to 860b.c.
    you may not know that a chinese ‘armada’ of some 2,200 ships of all sizes sailed from china to venice in the year 1434 and kindled the rennaisance as we historically read. also they mapped america, north and south long before christopher columbus and magellan made their notable voyages…in fact both notables had maps given them by the authorities of spain and portugal so that their voyages were to succeed..maps drawn by chinese cartographers and given to venetian merchants and nobility as a gesture of goodwill in 1434. strange how these factors never made our ‘history’ books. the chinese armada was as a result of marco polo’s journey across the asian continent to china in 1205(?) whatever. on the armada of 1434 were thousands of slave girls garnered from the south western parts of china and taken on board for whatever imaginable reason i cannot discuss here. many of them died (overuse?) but many thousands escaped to the cities of the dalmation coast and into venice itself where they became maids to the nobility and many a young nobleman found these young girls very attractive lol . having been to south and south western china i can vouch for their beauty. china, after that voyage closed its ‘doors’ so to speak and became isolated to world developments until last century. now of course they are almost leading the way again in technology; they are the world’s best hackers, and have the largest most sophisticated aircraft carrier on the oceans of the world. i saw a pic of it over a year ago//it is a floating city..it is ginormous..the tauranus rex of the seas. i have no doubt that if china develops as is expected we shall see many great things indeed. you may verify the aforementioned facts if you purchase or download the book named ..just..’1434′ by gavin menzies a most notable international author and his wife marcella. so i guess its all true. more power to true literature and truth in reporting and historical facts. cheers, ron

    • Keith says:

      Good morning Ron and thank you you for the kind words.

      As usual, you make some really terrific points. I’ve actually visited the shipyards in China where Zheng He had his at least part of his treasure fleet built. Assuming documents are correct (as they appear to be) the fleet dwarfed European ships of the time. What’s really interesting though is that much of the wood that archaeologists have found at the Nanjing shipyards is from Southeast Asia. That means shipwrights of the time were familiar with the different strengths of various wood types and had established far flung import networks to bring in the materials they need.

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

  8. DONALD MACK, MBA says:

    Outstanding LT investment Fitz.

  9. DONALD MACK, MBA says:

    Great idea Fitz

  10. Edward Kelly says:

    I think this is one of the most intelligent analysis and brake down of the economic situation in China happening right now.Your reporting on the Chiniese opening up the restriction of a one child per family has tremendous implicacion for that country as well as investors.You are one of the sharpest minds out there and I would call you a visionary in predicting future devepolments in China and it’s impact in world economy and for investors to realize it’s potential for making serious money.Mr.Fitz-Gerald you are ahead of the game.Brillant.!!!

    • Keith says:

      Dear Mr. Kelly,

      Thanks very much for the kind words. You made my day and I will do everything I can to ensure that I continue to earn your trust.

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

  11. yngso says:

    I already own some China assets and an India ETF, but am waiting for the upturn in Brazil. The numbers are clear, the emerging world is where it’s going to happen in the next decades!

    • Keith says:

      Good morning Yngso.

      Sounds like you are well on your way. Brazil is certainly an interesting choice right now and one of the next logical leaders.

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

  12. Johnathan says:

    back in June 2005 when I stayed in Shanghai, China for 12 days finishing an international marketing class, one day while I spent time shopping at a state-owned shopping center and then later at a flea market, I asked a couple young ladies who tried to sell me t-shirts and jades about the one-child policy, they smiled broadly and told me that if you lived in a rural area and bribed the local officials, you could have more than one child. It was an interesting point to learn but it certainly goes with an old saying that my mom used to say “the local laws beat out the king’s laws.”

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