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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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