Still Opportunity in Emerging Markets – Especially India

China reported consumer price inflation over 8%. Ah yes, dear reader, those happy circumstances that permitted the typical Philadelphian to enjoy Everyday Low Prices at Wal-Mart are gone. Now, inflation has been globalised... along with the labor market, the food market, and the oil market. The Chinese want higher wages. And their inputs - raw materials and oil - are rising in price too.

"Cheap clothes may soon become a thing of the past," reports MoneyWeek.

"Simon Wolfson, the chief executive of Next, warned that clothes prices may have to rise by up to 5% to offset rising costs from China and Europe. The strong euro and demands for higher prices from Chinese manufacturers mean that 'we will begin to see higher costs coming through in spring, summer next year. The way that retailers are going to have to cope with this is to pass the increase on.'

"That 5% may not sound like much, but we haven't seen clothing price inflation in more than 10 years. And once the price of clothes starts going up - well, nothing will be getting cheaper any more."

Well, it was fun while it lasted - The Great Moderation, that is. The United States could emit pieces of green paper without causing consumer prices to go up. Because globalised wages and finished product prices were falling fast enough to offset it.

But inflation is back. Like spring pollen and sulphurous pollution, it is darkening the air in China. And now people in Europe and America are beginning to rub their eyes and sniff, too. Gasoline hits new records - along with the oil price - every week. Food prices are so high that many nations are taking emergency action to control them. Soon, consumer price inflation will be a problem for nearly everyone.

*** Oh... yes... the oil market. Nations don't have friends, said one savvy strategist, they only have interests. And since the beginning of the Industrial Revolution, one primary interest of ambitious nations was securing supplies of energy.

Alan Greenspan told the world that the war in Iraq was largely "about oil." John McCain says that if we didn't have to import oil it would "prevent us from having ever to send our young men and women into conflict again in the Middle East." Sounds like he thinks the war is "about oil" too.

But one thing the war in Iraq has shown is that American cannot control its oil supply - even when it is fool enough to send in armed troops. The price of crude was only $26 a barrel when the war began. It was $126 yesterday.

*** "Yes, there'll be many more crack-ups," said a young hedge fund manager who came over for a drink on Sunday, "but in the long run, the emerging markets are going to grow much more than the U.S. or Europe. That's where I want my money."

He put his money into India, primarily. The results were spectacular - until 6 months ago. Then, almost all the go-go markets went. Still, looking at the big picture, over the long term, he is probably right. The emerging markets are probably a better place for your money than the United States.

The fundamental conceit of Americans over the last 50 years was that the foreigners were so hopelessly incompetent that even if we gave them a helping hand they could never challenge us. But now they are challenging us... and beating us at our own game. They invest more, save more, and produce more than we do - even the communists. Meanwhile, we focus on soft service industries - health, finance, and education - where the actual return on investment is hard to measure and often negative.

Bill Bonner
The Daily Reckoning Australia

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