— “Profit Confidential” Column, by Michael Lombardi, CFP, MBA
Newly listed companies on stock exchanges in Hong Kong and China have raised over $50.0 billion so far this year from their initial public offerings. This compares to the less than $30.0 billion raised by companies on American stock exchanges in 2009.
There is no doubt; China’s strong economy, which is expected to grow at a rate of between 8.0% and 10% this year, is turning the tides of capital. In modern times, first it was London that was the financial center of the world. Then New York (Wall Street) took the title. Slowly, the shift to Asia is happening.
Who would have guessed 20 or even 10 years ago that more money would be raised in China than in the United States? It would have been unheard of…until today.
Aside from China being a big buyer of U.S.-issued bonds, aside from China owning over one trillion in U.S. dollars, aside from China’s climbing the ladder to become the world’s biggest exporter of manufactured goods, now you have the country also becoming number one at raising money from companies going public.
At the rate the U.S. is accumulating debt, the next time a major American financial institution needs to be bailed out, it might just end up getting the money from China. (Imagine the headline: “Bank of America gets lifeline from Chinese government.” I’ve seen crazier things happen.)
For years I have been writing about the great growth China has been experiencing and the benefits of investing in China-related companies. American investor portfolios need some exposure to Asia, because that is where the growth will happen in the years ahead.
Yes, I’ve read stories about China’s economy being overheated and about a possible bust. But look at the other side of the equation: Billions of people are slowly coming into consumer-buying mode. Infrastructure is being introduced in China today just like it was a focus here in the 1950s and 1960s. This creates a huge opportunity for companies selling goods and service in the country.
Finally, China is a creditor nation. It owns more than it owes…something like the U.S. used to be. Finally, something very dear to my heart, the Chinese central bank sits on over one thousand tons of gold — the fifth largest hoard in the world.
Michael’s Personal Notes:
This past Saturday, we started to market our “Explosive Mine Stocks” newsletter to PROFIT CONFIDENTIAL readers. The newsletter has an excellent track record picking gold stocks. The editor, Inya Ivkovic, MA, picked 34 gold stocks in 2009 — 33 of them went up, with an average straight gain of 96.4% per pick. It turns out that “Explosive Mine Stocks” was one of our best stock-picking newsletters for 2009.
Why am I telling you this in my column? Because, despite marketing “Explosive Mine Stocks” to our PROFIT CONFIDENTIAL readers on both Saturday and Tuesday, we picked up less than 100 new subscribers to the service…by our measure, a very poor response rate compared to how our other products sell. What does this tell me? It tells me that the great majority of investors still have no interest in gold-related investments!
A lack of interest in gold bodes very well for those investors who have taken the plunge with gold. It is quite amazing that, despite gold bullion moving from $300.00 to $1,100 per ounce, the majority of investors are not jumping into gold. Eventually they will. The crowds always follow. When gold hits $2,000 or $3,000 an ounce, investors will jump in. They are always late to the party.
Where the Market Stands:
On Monday of this week, the Dow Jones Industrial Average opened above the 10,500 level for the first time since October 2008. I looked in all the major newspapers the next day and I couldn’t find one story about the Dow Jones hitting a new high for 2009.
As it stands today, the Dow Jones is up 19.1% for 2009. Can you believe stocks are up about 20% this year? An unbelievable feat considering the doom-and-gloom days of mid-March 2009. But, as usual, the majority of investors (the “herd,” as they are referred to as) missed this move and the profits the rally delivered.
What He Said:
“Many of today’s consumers have purchased properties with very little down payment. They’ve been enticed by nothing-down, interest-only, second and third mortgages. Bottom line: the reduced interest rate environment sucked consumers into the housing market big-time. And that will eventually cause us all problems.” Michael Lombardi, PROFIT CONFIDENTIAL, June 22, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.