Mario Cavolo

Mario's ITV-Asia Blog

"The rich are richer than ever the world over, with more than enough evidence available to confirm that this is the case. Furthermore, it is so on an unprecedented global scale now that China and her citizens have led the rise of the APAC region to prominence and power alongside the American and European economic blocs. As we shall see, America’s decline is the decline of only one main sector of her economy, along with the rise of others. No, the baby is not going to be thrown out with the global bath water, and there will be no doomsday collapse with one exception: a 30% chunk of the middle class in America whose lives and careers and futures have been decimated."

The above quote is from my recent article published by Wall Street veteran Rick Ackerman at his investment advisory website, and it's point is at the heart of my argument against a severe deflation or doomsday collapse in the global economy. We can easily begin by suggesting that the economic balance of power across various sectors of the global economy are shifting, by both industry and social demographic classes. Meaning, industry sectors such as IT, Energy Services and Healthcare are seeing growth worldwide. While on the demographic sector side, we have the American middle class demographic sector experiencing a serious economic decline; this reality balanced against the Chinese middle class demographic sector experiencing an equally significant rise in lifestyle and economic power.

Threat of Debt Vs. The Joy Of More Wealth

The world is awash in $USD trillions of fresh debt, primarily debt issued by the United States Federal Reserve to avert disaster in the financial markets, and by China's banking system to continue stimulating China's amazing economic growth this past few years.
Yet there is a happy result for some; the world is also awash in wealth, wealth which is primarily in the hands of the increasingly rich and semi-rich of the American, European and Chinese bloc. While deflationists correctly and intelligently point out grave analytical concerns over the stability and corruption of the debt based, derivatives-driven Western banking system including Wall Street, they have discounted too far the power of the world's existing wealth to keep the world humming along. This wealth includes the unprecedented level of new wealth created in China.

Even a conservative look at the middle class housing sector in China reveals 100,000,000 apartment homes which are now worth an average of 5 times greater yet are still priced reasonably. If homes which were worth USD $35-50,000 (250,000-450,000rmb) are now worth a conservative 3 times more, then the total newly created asset wealth is $15 Trillion unencumbered by mortgages. This conservative projection focuses on the broader market of average middle class homes across China, not including the luxury property sector with sky high prices the media focuses on with its concerns about a China "property bubble".
With respect to the complex interconnectedness of the world we live in, China-American relations are at the heart of economic and political stability across the globe. Here we argue that in addition, that Western wealth and China's new wealth together are a force to be reckoned with.

While this wealth is rightfully resented by those millions of people across the globe whose lives have been damaged by the financial shenanigans which continue unabated by the Western banks and Wall Street, this enormous pool of wealth just may be the glue that holds everything together awhile longer, giving our leaders enough time to unwind the underlying mess which continues to threaten the future.

Click Here To Read The Complete Argument and Original Article

Mario Cavolo
Shanghai

This just in at the Mad Hedge Fund Trader's site on China's planned massive expansion of nuclear energy...

"Uranium traders have been stunned by a sudden Chinese effort to corner the supplies in an effort to fuel the world’s most ambitious nuclear program. The once moribund market now suddenly sees buyers everywhere as the Chinese ramp up their purchases to 5,000 tonnes this year, double their current consumption. The emerging nation plans to build ten new plants a year for the next decade, boosting their electricity supply up from 9.5 to a massive 85 gigawatts. That will make China the world’s largest nuclear power generator. Uranium peaked at $136 a pound in 2007, and collapsed during the financial crisis to as low as $26. High prices also brought a flood of new mines, with 27 coming on line in the past decade. Last year, the total uranium market amounted to 50,572 tonnes. China will need a third of that in ten years, and India another fifth..."

Let's start with a core economic premise and build a scenario of supporting premises as we ponder the new reality of the global economy without the rhetorical, crash and doomsday scenarios which almost never play out.

Here is the premise to explore:

Nothing will crash or collapse. Not the Euro, not the USD, not the stock market of this or that country; not anybody’s entire financial system. Assets will swing wildly up and down, systems will change, sometimes dramatically but doomsday collapse is off the table. People who constantly focus on threats of doomsday this and parabolic that are too addicted to the emotional thrills attached to such moves, or trying to sell you something; rather than applying a more genuine and balanced analysis of the global economic stage which is an increasingly complex, fluid, shifting entity.

Now let us build the supporting premises to see why, keeping in mind the intelligence of an elementary school sixth grader, to paint a picture of the new reality in the present and for the next 10 years.

The global new reality world is a world with unfathomable trillions of sovereign debt over everyone's heads. It is an ongoing reality, a big part of our new reality. This has been rightfully called a crisis of Biblical proportions. However, based on our premise for this essay, it is not. We just accept it as the new normal reality. We accept it and we adjust to it. Assets will adjust to it. The system will accept it and adjust to it. Individual assets in the system will respond to it by swinging up or down 30-50%, creating significant shifts in society and culture. We can't make it go away, anymore than we can change the color of the sky or the rising and setting of the sun.

So then, applying a little commonsense, how will the assets of the world economic system respond to the fact of massive sovereign debt hanging over everyone's heads in the coming years? Let's take a look.

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UPDATE: DUE TO PRESIDENT OBAMA'S RECENT ANNOUNCEMENT IN STRONG SUPPORT OF NUCLEAR ENERGY, WE ARE REPOSTING THIS ARTICLE FROM EARLY JANUARY ON THE SUBJECT OF CHINA'S ENERGY STRATEGY FOR AMERICA INCLUDING NUCLEAR ENERGY...Cheers, Mario

To their peril, there are two critical points still not comprehended by the majority of foreigners, including investment analysts and other supposed gurus chiming in their opinion on China.

First, foreigner's just don't get it regarding the insane amounts of CASH CASH CASH which exists inside this country, both at the government and private sector level. I will not go into further detail on this here because it is not the main focus of today's article and it is a subject I frequently focus on. Suffice to say the recent report on massively increasing imports into China should start getting the world to clue in on what's really going on domestically here in China.

Secondly, and our focus for this article, foreigners should be deeply envious of China's "green" revolution; a commitment with a magnitude far greater than any other country in the world with respect to solar, wind, and nuclear energy sources for the future. Remarkable!

In demonstrating this commitment, they are also sending an amazing message on the future of energy in our world.

We won't need much oil. Here are the three reasons why, with the third being the big surprise.

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The 104 nuclear reactors in operation in 31 states provide only 20 percent of the nation's electricity. But they are responsible for 70 percent of the power from non-greenhouse gas producing sources, including wind, solar and hydroelectric dam.

He's (Obama) now calling for a new generation of nuclear power plants.

This is incredible. Today there are 104 nuclear power plants in the United States and nuclear power currently provides 20 percent of the nation's electricity. Wow! I thought it was more like 2%, not 20%. China recently announced a more aggressive nuclear energy program with plans to build 50 more nuclear energy plants.

From the article:

President Barack Obama is endorsing nuclear energy like never before, trying to win over Republicans and moderate Democrats on climate and energy legislation. Obama singled out nuclear power in his State of the Union address, and his spending plan for the next budget year is expected to include billions more dollars in federal guarantees for new nuclear reactors. This emphasis reflects both the political difficulties of passing a climate bill in an election year and a shift from his once cautious embrace of nuclear energy.

Especially considering the incredible damage to our planet with oil as our main energy source, it seems clear enough that the future of earthly existence has plenty of other options to keep the lights on without making any more oil companies and Saudi princes richer than they already are.

AP Newswire Article at INO

Cheers, Mario

Information in this article comes from sources believed to be reliable. Mario Cavolo does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. The author may or may not hold positions in issues referred to in this article. No representations are to be taken as advice or recommendation by the author to buy or sell any asset. Copyright © 2010, Mario Cavolo. All Rights Reserved.