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World Markets Outlook and High Spot Review for Q3 2004


The 19th century belonged to the U.K., once the richest and most powerful nation on earth. The 20th century belonged to the U.S., but the 21st century will belong to China. The Chinese are some of the most capitalist people on earth. And it's a different capitalism to what you might have thought. In China, they save almost 20% of their incomes, compared to 2% here in the U.S. Besides that, the Chinese people are very hard working people, they don't worry about how many vacation days they might get, no, they worry about how many days they are allowed to work.

China's emergence as a leading world economy has put more demand in natural resources and basic commodities. China needs lead. It needs nickel. It needs tin...and rubber and copper and cotton and petroleum and sugar. There's nothing that can change the basic demand for these commodities over the medium to long term. Nothing. And what this means is that in the coming decade the price of these commodities will go up.

US Dollar Market

In this other front, Americans owe $8 trillion to the rest of the world,situation that will probably get worse in the next four years. The dollar is now fundamentally a fragile currency, and still has a long way to fall. The dollar closed Friday November 12/04 at $1.2972 versus the euro, having made a new intraday high at $1.3004 earlier in the day. The euro has never before traded as high. The dollar of course is not on some permanent downward path. It will eventually find a bottom, probably ridiculously low, the trade deficit thing will get sorted out and then the dollar will start to rise.

Gold Market

Gold is hitting a fresh 16-year high, gaining $4.50 on the week to close at $437.90. Some Natural resources are still cheap and plentiful too. However this will change in the coming years. Certain opportunities are exceptional, for example in Alumbrera, a world-class copper mine where copper is mined cheaper than anywhere in the world. Literally, the net cost of production is zero, or (unbelievably) less... thanks to gold being a byproduct of copper production.

"Existing mine output is falling," says Merrill Lynch. Gold bears expect central bank selling to make up the difference - and more. European banks have been selling their gold for years. They agreed among themselves not to sell too much in any given year - the Washington Agreement. But now it appears that they're becoming reluctant to sell gold at all. Usually, they replace gold with U.S. dollar assets, which have been losing ground against the euro at the rate of about 15% per year...and against gold at about the same pace. Why would they want to shift from an appreciating asset to a depreciating one?

Gold is a good investment at present. Not that we know how things will turn out, but there's less of a penalty for being wrong. Could gold go down? Yes, but it is practically impossible to imagine a situation in which it would go down a lot, without also imagining that other things - such as the Dow - could go down a lot more.

Oil and ther Markets

Oil fell over 5% last week, closing at $47.32, providing a boon for the stock market. The Dow is now in positive territory for the year, having gained 151 points last week. The Industrials Index closed at 10,539. The S&P and the Nasdaq were also higher. The Nasdaq gained 46 to 2,085 while the S&P closed up 18 to 1,184. Silver is at $7.47.


World Economy Report
November 2004

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