“Unlimited economic growth has the marvelous quality of stilling discontent while maintaining privilege, a fact that has not gone unnoticed among liberal economists.” – Noam Chomsky
If you had invested $10,000 in the U.S. economy 50 years ago, you’d be worth about 10 million dollars today. Maybe more. As compared with every other market in the world, the U.S. economy has been superb — both in terms of overall growth and profits returned to corporate shareholders.
Most U.S. investors, even those who’ve seen a considerable part of their savings disappear since the Internet bubble burst, are still committed to U.S. stocks. And we’d all like to believe that the U.S. economy will continue to outperform all others and continue to provide us with the wealth-building opportunities that growth offers.
And it may. But the big chance for becoming wealthy in the next 20 to 50 years will not go to backward-glancers. The millionaires and billionaires of tomorrow will be people who recognize certain incontrovertible facts:
- Stocks in the United States, at P/E ratios of about 24, are expensive.
- U.S. savings, at the average rate of 2.3%, are abysmal.
- The dollar is falling and may continue to do so.
- Baby boomers — the single biggest slice of the U.S. population — are fast changing from wealth producers to wealth consumers.
- Europe has most of the same problems, not to mention the additional strain of an increasingly expensive social-welfare system and the enormous costs of adding second-tier economies to the European market. Russia is in turmoil.
- Latin America is a mess. Canada, a relatively small economy, is weighed down by the U.S.
So what is left? Asia.
Consider these facts:
- Asian stocks are fairly valued at a P/E ratio of about 15.
- Asia has an astonishingly high 40% savings rate.
- Asian currencies, including the Korean won, Indonesian ruplah, and Thai baht, are all in strong up-trends vs. the dollar.
- Only a fraction of Asians are moving into retirement.
According to many of the experts I read, Asia offers the same opportunities today that the U.S. did back in the 1960s, 1970s, and early 1980s. It has already surpassed the U.S. and Europe as the largest economy in the world. And it has, in addition to its monster demographics, strong currencies, and high savings rate, a gigantic pent-up demand for goods.
Because it’s so big, China is usually cited as the primary country for capitalizing on the Asia boom. But there is plenty of reason to believe that India will be the real superpower, at least in the short run.
India’s major resource is its population, with a middle class as big as that in the United States (more than 200 million) and almost twice as many college graduates as we have. Right now, computer programmers in India make $12,000 a year, one-sixth of what their American counterparts make, but, according to a recent report in The New York Times, that number is growing. A gradually increasing wage scale that is still very competitive in an interconnected world offers great employment opportunities in India, not just for those with “exported” jobs but for all those who service the middle class.
Asia has a large, fast-growing economy. In fact, it’s larger than you might guess if you were to rely only on official U.S. government statistics that put China’s economy at $1.1 trillion and India’s at $500 billion.
Those numbers fail to take into account the fact that the production of commodities (such as cereals, fruits, vegetables, grains, zinc, tin, lead, cotton, wool, and coal) in Asia is so high — and the prices are so low.
If you adjust for these factors, you get a very different measurement. According to Wall Street Winners (www.wallstreetwinners.net), Asia’s gross domestic product, based on purchasing-power parity, is $14 trillion — 46% larger than the U.S.’s adjusted GDP of $9.6 million.
A friend of mine, TG, is leaving for Prague next week. He’s hooking up with a buddy who has a growing business importing Chinese bronzes into Europe. Another friend, MB, has been knocking off name-brand furniture and selling it in High Point, North Carolina (the self-proclaimed “Home Furnishings Capital of the World”). He tells me that a piece of furniture that costs $2,000 to manufacture in England can be copied in Asia and delivered to the States for $500. “I undercut my competitors by half and still make three to four times more on each piece,” he says.
A third friend, AG, has been selling U.S. products into the Asian market for almost 20 years. He struggled for the first six or seven years, eked out a respectable living for the next six or seven, and is now enjoying the best results ever. “I’m onto some really big deals,” he told me recently. “Next time we talk, I might be richer than you.”
The Asian labor force, both the educated and the uneducated, will play an increasingly greater role in the world economy in the next 20 to 50 years. But so will Asian commodities and Asian consumption. And as the world becomes more interconnected, the sheer size of Asia may become an irresistible force.