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(HEDGE FUND RADIO), (RSX), (FXI), (EPOL), (TUR)
Market Vectors Russia ETF Trust
iShares MSCI Turkey Investable Market ETF
iShares MSCI Poland Investable Market ETF
iShares FTSE Xinhua China 25 ETF
1) Dr. George Friedman of STRATFOR on Hedge Fund Radio. China is in serious trouble. That is the conclusion of Dr. George Friedman, president of STRATFOR, a geopolitical strategy consulting firm. While it has had a great 30 year run, that performance will not extrapolate 30 years in the future, as many China (FXI) bulls believe. Of the Middle Kingdom’s 1.3 billion citizens, only 60 million earn a $20,000 middle class income, while 440 million make $3-$6/day and 600 million take in under $3/day. The people’s liberation army, which is manned predominantly by the under classes from the hinterlands, could move the country away from its modernizing trend at anytime, especially if a recession leads to starvation in the countryside.
The problem is that the Chinese are investing their massive reserves anywhere but in China, which they fear may lead to an overheating of the economy. Are they aware of risks invisible to foreign investors? The future direction of the country may be decided by its next election, the first open one in history.
Dr. Friedman much prefers investing in Japan (EWJ), which has the benefit of a stable society, immense industrial plant, advanced technology, and the largest military force in Asia. Demographic challenges can be met by offshoring labor intensive industries in China, which they have been doing aggressively for three decades. Japan is a classic case of a nation with strong fundamentals, but lousy management, which can be solved with a simple change of government.
The largest threat to the nascent global economic recovery is a breakdown of back channel negotiations between the US and Iran, which could lead to a blocking of the Straits of Hormuz. This would cause oil to spike to $500 a barrel, trigger a global depression, lead to widespread sovereign debt defaults, and send Western governments toppling. That’s why neither the US nor Israel will bomb the rogue nation’s nuclear program, which in any case can only produce impractical, unusable weapons.
The greatest threat to US power would be the coalescing of a pan Middle Eastern super power. US policies that triggered a Sunni/Shiite civil war can be viewed as a success in that they prevent this from happening. A trillion dollar price tag is a bargain as long as we can still buy gas at home for $3/gallon.
Russia (RSX) is moving towards a stable economic platform built around its resource riches, moving on from the kleptocracy of the nineties. It is creating integrated energy majors, which are establishing a global footprint and present a potent oil weapon. Monopolies in wood, grain, and diamonds are moving in the same direction.
Dr. Friedman started out life as a refugee from Hungary, his parents rowing him across the Danube in 1949 under glaring searchlights. He obtained his BA from the City College of New York and his PhD in government from Cornell. He then spent two decades teaching political science at Dickinson College in Pennsylvania. Dr. Friedman has recently published a New York Times best seller entitled The Next 100 Years: A Forecast for the 21st Century. To buy this entertaining tome at a discount from Amazon, click here.
Where would Dr. Friedman focus his investments now? In the US, which with a 25% share of world GDP and the most powerful military in history is in an ideal position to dominate the global economy for another century.
To listen to my interview with Dr. George Friedman on Hedge Fund Radio in full, please go to my radio archives by clicking here, and click on the ‘PLAY’ arrow. Or, you can download it to your IPod or pc. You can learn more about Dr. George Friedman and STRATFOR by visiting his website at http://www.stratfor.com/