From a story printed on dallasnews.com, under Business | Scott Burns. I would post a link, but it requires registration.
The smart money is on China
11:52 PM CST on Monday, November 10, 2003
By SCOTT BURNS / The Dallas Morning News
NEW ORLEANS ? At the end of his tour de force presentation, the audience gave Marc Faber a standing ovation. Speaking at the 30th New Orleans Investment Conference, Dr. Faber gave a quick, Swiss-accented march through a collection of more than 40 economic graphs and drew a detailed picture of a "Post-Bubble Environment."
And what was his broad message?
Say goodbye to low commodity prices. Say hello to the century of China. Change your investments accordingly.
"The beauty of the bubble is the undervaluation it will create somewhere else," he observed. All the money that supports bubble prices comes from other areas that tend to become undervalued.
Also Online
Dr. Faber's Web site
Comparing contemporary China to the United States in the mid-19th century, he pointed out that the completion of the American rail and canal system brought decades of deflation ? declining prices wrought by our ability to move food, goods and materials at low cost from anywhere in the country.
Now, he declares, the entry of China into the world market will have a similar impact on the price of goods ? years or decades of declining prices. The entry of India into the world market, he says, "will have the same impact on services."
More important, this is happening at incredible speed. It took Great Britain nearly 60 years to double per-capita income from 1780 to 1838, during its industrial revolution, Dr. Faber said. It took Japan more than 30 years to accomplish the same thing from 1885 to 1919. But China is doubling its per-capita income every 10 years. More important, as it expands its production, it is increasing its circle of interest in the Pacific, becoming the major consumer of goods and raw materials from the region.
Dubious?
Skeptics should check the stock exchange booms in countries that have commodity-based economies. While the iShares Russell 3,000 index exchange-traded fund (ticker IWV) ? which captures 98 percent of all market capitalization in America ? is up about 21 percent year-to-date, the iShares MSCI Australia Index (ticker EWA) is up 39.9 percent. The iShares MSCI Canada Index (ticker EWC) is up 40 percent. Australia and Canada are considered commodity-based economies.
One particularly striking example: oil. If the growth of China continues on its current path, it will need additional oil equal to the "total current output of Iraq, Kuwait and Qatar," Dr. Faber says. If China grows as the United States did in the first half of the 20th century, its new oil consumption would require "83 percent of total current oil output" by 2015. Message: Enjoy your low-price gasoline while you've got it.
The size and growth of China are so great, he says, that we are only 10 or 20 years away from having world attention focused on housing starts and retail sales in China as a measure of the world economy.
All of this means rising commodity prices, falling bond prices, and a major shift in global market capitalization. Today the United States accounts for 53 percent of world equity values, and Asia (excluding Japan's 8.7 percent) accounts for only 3.4 percent. He sees the United States with 25 percent to 30 percent of the total in the future, while Asia has 30 percent or more.
On the large scale
How does such a big shift happen?
It's the raw population numbers. Dr. Faber points out that Swiss per-capita consumption of chocolate is very high ? but the tiniest increase in Chinese per-capita chocolate consumption would simply dwarf Swiss demand. That's what a small change in a nation of nearly 1.3 billion people does. Ditto lumber, grain, oil, copper, aluminum and just about anything else. Double the per-capita income of a nation that is four times larger than ours in 10 years, quadruple it in 20 ? with plenty of room for continued growth ? and global equity values will shift.
We'll be saying goodbye to hegemony before we learn how to pronounce it.
Scott Burns answers questions of general interest in his Thursday columns. Write Scott Burns,
The Dallas Morning News, P.O. Box 655237, Dallas, Texas 75265, or send an e-mail.
E-mail sburns@dallasnews.com
On DallasNews.com
For a link to Dr. Faber's Web site, go to www.scottburns.com.
The smart money is on China
11:52 PM CST on Monday, November 10, 2003
By SCOTT BURNS / The Dallas Morning News
NEW ORLEANS ? At the end of his tour de force presentation, the audience gave Marc Faber a standing ovation. Speaking at the 30th New Orleans Investment Conference, Dr. Faber gave a quick, Swiss-accented march through a collection of more than 40 economic graphs and drew a detailed picture of a "Post-Bubble Environment."
And what was his broad message?
Say goodbye to low commodity prices. Say hello to the century of China. Change your investments accordingly.
"The beauty of the bubble is the undervaluation it will create somewhere else," he observed. All the money that supports bubble prices comes from other areas that tend to become undervalued.
Also Online
Dr. Faber's Web site
Comparing contemporary China to the United States in the mid-19th century, he pointed out that the completion of the American rail and canal system brought decades of deflation ? declining prices wrought by our ability to move food, goods and materials at low cost from anywhere in the country.
Now, he declares, the entry of China into the world market will have a similar impact on the price of goods ? years or decades of declining prices. The entry of India into the world market, he says, "will have the same impact on services."
More important, this is happening at incredible speed. It took Great Britain nearly 60 years to double per-capita income from 1780 to 1838, during its industrial revolution, Dr. Faber said. It took Japan more than 30 years to accomplish the same thing from 1885 to 1919. But China is doubling its per-capita income every 10 years. More important, as it expands its production, it is increasing its circle of interest in the Pacific, becoming the major consumer of goods and raw materials from the region.
Dubious?
Skeptics should check the stock exchange booms in countries that have commodity-based economies. While the iShares Russell 3,000 index exchange-traded fund (ticker IWV) ? which captures 98 percent of all market capitalization in America ? is up about 21 percent year-to-date, the iShares MSCI Australia Index (ticker EWA) is up 39.9 percent. The iShares MSCI Canada Index (ticker EWC) is up 40 percent. Australia and Canada are considered commodity-based economies.
One particularly striking example: oil. If the growth of China continues on its current path, it will need additional oil equal to the "total current output of Iraq, Kuwait and Qatar," Dr. Faber says. If China grows as the United States did in the first half of the 20th century, its new oil consumption would require "83 percent of total current oil output" by 2015. Message: Enjoy your low-price gasoline while you've got it.
The size and growth of China are so great, he says, that we are only 10 or 20 years away from having world attention focused on housing starts and retail sales in China as a measure of the world economy.
All of this means rising commodity prices, falling bond prices, and a major shift in global market capitalization. Today the United States accounts for 53 percent of world equity values, and Asia (excluding Japan's 8.7 percent) accounts for only 3.4 percent. He sees the United States with 25 percent to 30 percent of the total in the future, while Asia has 30 percent or more.
On the large scale
How does such a big shift happen?
It's the raw population numbers. Dr. Faber points out that Swiss per-capita consumption of chocolate is very high ? but the tiniest increase in Chinese per-capita chocolate consumption would simply dwarf Swiss demand. That's what a small change in a nation of nearly 1.3 billion people does. Ditto lumber, grain, oil, copper, aluminum and just about anything else. Double the per-capita income of a nation that is four times larger than ours in 10 years, quadruple it in 20 ? with plenty of room for continued growth ? and global equity values will shift.
We'll be saying goodbye to hegemony before we learn how to pronounce it.
Scott Burns answers questions of general interest in his Thursday columns. Write Scott Burns,
The Dallas Morning News, P.O. Box 655237, Dallas, Texas 75265, or send an e-mail.
E-mail sburns@dallasnews.com
On DallasNews.com
For a link to Dr. Faber's Web site, go to www.scottburns.com.
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