[Editor's Note: The essay that follows was adapted from "Fiscal Hangover," a brand-new global investing book written by Money Morning's Keith Fitz-Gerald. For more information – including details on how to get a $10 discount off of the cover price – please click here.]
As I write this, everyone from Wall Street to Main Street is using the word recovery in every other sentence. But what does a recovery actually look like and why should you care?
And, perhaps more importantly, how can you make back what you've lost in the meltdown? How long will it take? How can you speed up the process? Which sectors and business segments will lead the way? It's tough to admit, but the U.S. economy may take years to recover – if it ever does.
Just look at Japan as an example. Its economy has still not yet recovered from the bubble it experienced nearly 20 years ago. If our government is taking many of the same actions theirs did, why would we think things are going to be different for us?
Remember, Japan is not some backwoods marketplace in the boonies – it's the second-largest economy in the world, which means you can't dismiss what happened there in light of what's happening here and now. Especially when you consider Japan was an export-based economy to begin with. The United States presently derives less than 15% of its gross domestic product (GDP) from exports and fully 70% from consumer spending.
That places tremendous pressure on a group of people who are not only tapped out, but are licking their collective wounds after a 24-month financial meltdown.
Simply put, things will never be the same again.
SUVs no longer grow on trees, home-equity lines do not constitute a personal piggy bank, andare now destined for the financial trash heap.
Looking ahead, you can bet anybody who wants to buy a house will face tougher lending requirements. Credit-card debt will come home to roost and many companies that once existed on the margin will be forced to come to terms with their tricky accounting.
No siree, Bob. We believe that things will be radically different from now on. The rules of money truly have changed.
While this sounds scary, there's a flip side – new rules mean new opportunities. You just need to know where to look to find them.
The $300 Trillion Global Recovery
There is no question that the financial crisis has reshaped the world in ways the average investor is only just beginning to understand. But inasmuch as that's hard to stomach, don't forget that every crisis has produced legendary wealth for those savvy enough to capitalize on the changes it brings.
Using history as our guide, we think the current financial crisis could produce some of the largest gains ever recorded and generate as much as $300 trillion in new investment in the next few years alone.
Unfortunately, we believe that most investors, led by traditional economists, misinformed pundits, and gonzo journalists, will miss it.
Instead of looking at what's actually happening, they'll have their heads in the sand. Not only will they fail to see the new reality that's unfolding right in front of their very eyes, but they'll never set foot in the places where much of this growth is happening.
In other words, they'll apply the same old tired theories to markets that demand different results. And that's hardly a good or profitable mix.
What they should be doing is looking for profits where they're being made right now!
The Biggest Economic Shift in 200 Years
It's ironic: But at a time when economists in the United States and Europe are looking for signs that things are getting better, there's a legion of folks in other parts of the world who are too busy managing real growth to pay attention to our problems.
They are not only watching the beginnings of this $300 trillion recovery, but actively taking steps to capitalize on it right now. They know that 60% or more of the growth they're chasing will come from new global markets whose names most people can't even pronounce yet. That's double the projected growth from established markets like the United States and Japan.
You'll be tempted to dismiss this, and I wouldn't blame you. This isn't for everybody – just those who understand that events thousands of miles from our own borders will set the pace for decades.
Indeed, as Figure A.1 below shows us, the move has already begun. Foreign stock markets, once regarded as fringe investments, are already outperforming our own-and have been throughout the entire financial crisis. Imagine what happens when things really get better!
Most investors have yet to understand that much of this growth is driven by China. There is not an industry or business segment on the planet that it won't completely dominate or substantially influence in the years ahead.
This move, too, is already under way.
Even with the massive sell-off in the Chinese markets that began in late 2007, investors who placed their bets there have dramatically outperformed those who thought they were getting a better deal with the Standard & Poor's 500 Index. Figure A.2 illustrates this in a dramatic fashion.
And if that's not convincing enough, consider how radically the share that each
country contributes to the world's GDP has changed in just five short years.
The United States has seen its contribution drop by 31.57%, while China and Hong Kong have increased their contributions by 217.65% and 79.17%, respectively (see Figure A.3).
Putting a Charge Into Profits
One of the simplest – yet most overlooked – indicators of all reinforces this message. We're talking about electricity demand. In a nutshell, where electricity demand is growing, GDP growth is certain to follow.
Electricity statistics from the Department of Energy's Energy Information Administration (EIA), say it all.
Electricity demand in the Far East is projected to exceed North American demand by 2020 – just 10 short years from now. But we believe this is a conservative forecast, and that it may actually pass North American demand by 2015 – a full five years earlier than analysts expect – which gives us even more incentive to pay attention.
The Death of the Dollar?
The U.S. dollar has been the world's reserve currency for the last 60 years. Many people find it inconceivable that this will change. But it already has.
In 2009 alone, China initiated more than $200 billion worth of swap agreements that allow their trading partners to pay for Chinese goods and services directly, without converting into dollars or having to trade their currency openly. We think the odds are good that the actual (and closely guarded) figures may be more than double that.
So far, most of these agreements have been with smaller economies in Asia and South America, but we don't think it will be long before Western or European countries jump on board.
The point is that while the United States struggles, China and her trading partners are taking matters into their own hands and creating a new global marketplace for currency trading that's outside the traditional currency exchanges used by the West. It's an end-run of epic proportions and serves as one more sign that the world's economic center of gravity is shifting away from the West – permanently.
The Second Coming of China
While most people think the financial crisis is about the fall of Western financial markets, history will view it as critical to the second chapter of China's remarkable rise to world economic dominance.
Unfortunately, 99% of all Westerners don't understand that while we're busy dealing with the fallout, China views what has happened as the mother of all opportunities . . . for them. In keeping with the Confucian concept of yin and yang, China understands that where there is darkness, there is also light. So it is doing everything it can to expand while the competition lacks the resources to act.
Considering that China has the world's largest stockpile of cash reserves – over $2.3 trillion by some estimates – it could create the single-largest liquidity event in recorded history. Bigger than the Internet, housing bubble, and gold combined!
The Biggest Buying Opportunity of Many Lifetimes
We think this represents a buying opportunity of unprecedented magnitude.
History clearly shows that the greatest fortunes are made by those savvy enough to recognize when the rules have changed and to then invest accordingly. Which is why we want to begin investing now, when everybody is too busy looking at the right hand to notice what's going on with the left.
It's also critically important to understand that China (and many of the emerging markets) remains underdeveloped by Western standards. Which, in and of itself, represents another king-sized opportunity in fundamental industries like power, water, and transportation systems that we take for granted.
We've already explored a bunch of these in "FiscalHangover," but there are more out there-and the list of potential investments is growing by the hour.
That's why we invite you to grab your fair share by visiting us at http://www.fiscalhangover.com/.
We think you'll be glad that you did.
[Editor's Note: When it comes to the new realities of the post-financial-crisis global markets, no one has a better perspective than Money Morning Chief Investment Strategist Keith Fitz-Gerald. For more than 20 years, Fitz-Gerald has made yearly sojourns to different parts of Asia, and in the process has created a cache of wisdom that few other experts can match. In recent years, Fitz-Gerald has regularly made those insights available to investors via his columns in Money Morning or its monthly affiliate, The Money Map Report.
Now Fitz-Gerald has pulled all his best thoughts together in a new book: "Fiscal Hangover: How to Profit From the New Global Economy." For investors serious about adapting to the new post-recession realities, "Fiscal Hangover" is a must-read; it even contains analyses on dozens of global companies, detailing which ones should be winners and which ones laggards.
"Fiscal Hangover" has created quite a buzz, but won't be in bookstores for several more weeks. However, Money Morning readers can obtain the book now – and at a savings of $10 off the cover price. For more information, please just click here.]
News and Related Story Links:
The Official Web Site for "Fiscal Hangover: How to Profit From the New Global Economy," by Money Morning Chief Investment Strategist Keith Fitz-Gerald.
How to Order "Fiscal Hangover" With a $10 Discount From the Cover Price.
- Investopedia: .
List of Countries by Gross Domestic Product (GDP).
- Money Morning Special Report:
The Lost Decade: How the U.S. Financial Crisis Resembles Japan's Ten Years of Misery – And How to Play it.
- Money Morning Special Report:
The Five Financial Shockwaves to Expect When China's Yuan Swaps Places with the U.S. Dollar.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.