The Money Migration

Kevin Pietersen, the South African-born cricketer who plays for England, said England would conduct a “Bore War” against Australian batsmen, testing their patience. Since we are relatively new to cricket, we won’t risk embarrassing ourselves by commenting on strategy. Right now, we’ll say we like the sport a great deal and find that it has the added benefit of inducing sleep on a quiet Sunday afternoon. But it reminded us of another Boer War… which reminded us of the single most important investment trend of the day.

“The financial ties between the Middle East and Asia are strengthening by the day, creating a phenomenon that the banking giant HSBC calls ‘east-east’ transactions, or deals between the Middle East and what the British once thought of as the Far East: China, Japan, Southeast Asia, as well as India and Pakistan,” reports Heather Timmons in a New York Times article titled “Asia Finding Richer Partners in the Middle East.”

“The Money Migration,” is how we pitched this idea to the publisher of our book The Bull Hunter, back in 2004. “The single most important idea and opportunity investors need to realize,” we recall saying, “is that the East is getting rich and the West is going broke. The world’s economic center of gravity is moving East. That’s where the best investment opportunities are, and will be for the next fifty years.”

That investment thesis is as true today as it was then. And hearing England’s highly-skilled batsman refer to the Boer War reminded us of a conversation we had recently about whether the Chinese care about Iraq.

“Do you think Americans were concerned with the Boer War at the turn of the last century? ” our companion asked us. “Why would they be concerned with a costly war at the periphery of a declining empire? They had other things on their mind, like filling up a continent with people and getting rich as the world’s fastest growing economy.”

“America was the China of its day, a force for deflation in raw materials prices (as a huge exporter of raw materials and later, finished goods). Then, a few decades down the line, Americans had a little money and a lot of credit and became the world’s largest consumers. They’ve been the engine of global growth ever since. All that is changing now, as we speak, right before our eyes, it’s just most people don’t have the wits to see it.”

“What do you think this move in the dollar is all about? You said it yourself. It’s the ‘money migration.’ Americans hardly notice it. And most Europeans and Australians are so overly political that all they can talk about is Bush this and Iraq that. Meanwhile, the great economic story of our times is unfolding, and the Chinese don’t give a damn about Iraq. They want galvanized steel and wheat and iron ore and cement and anything else that can help them manage the greatest internal migration of people from the country to the city in all of human history. That’s where the story is. That’s where the money is. That’s where the future is.

“This obsession with America’s economy and its interest rates…is like monitoring the vital signs of an ageing, overweight man about to undergo quadruple bypass surgery on his heart. His lifetime of bad financial habits is catching up with him. Maybe the doctors can engineer a few more years. Maybe he’s got a few more cheeseburgers in his future, or tubs of chocolate ice cream and burgundy. But he is fat and dying. Those are the facts. He won’t be winning any more footraces, if ever manages to get up out of bed. The Chinese… they never sleep. And they’re always hungry. And always thin. Sell China when you start seeing fat Chinese tourists in Times Square.”

Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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I don’t buy it. China’s going to get old before it gets rich thanks to the demographic legacy of the One Child Policy.

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