The Myth of America’s Decline Just Died
Take a bow Josef Joffe.
In 2013 he wrote a book called The Myth of America’s Decline.
He called BS on the view prevalent then – and now – that the USA was too bloated, indebted and about to be overrun by China.
Joffe pointed out that pundits wrote off the USA every decade since the Second World War.
First there was the Soviet Union…then Europe…then Japan…then China.
None of them ever hit the top, despite the fretting.
Every week since, Joffe’s call looked smarter as the US economy recovered out of 2008.
This week took it up another notch altogether…
USA to become ‘undisputed’ leader here
The International Energy Agency (IEA) has now come out and said US oil output in the next 10 years will be the strongest ever seen in the history of the energy market.
This is wildly bullish for the USA and will shower the place in money and influence for decades. It’s now on track to become the world’s biggest energy exporter…
That’s a good place to be when global energy demand is set to expand by 30% in the next 23 years, according to the IEA. That’s the equivalent of throwing another China and India into the current mix.
The goodies don’t stop there for the USA. Not only does it get the money, it gets the power as well.
Consider that China is the world’s largest oil importer. It’s dependent on foreign supply.
Right now they call Saudi Arabia the oil market’s ‘swing’ producer. That means it can ramp production up and down to try and manipulate the price to its advantage.
This baton is going to get handed to Washington, in time.
So China’s economy may be dependent on the USA as its major export market, plus its domestic economy might be held hostage by US energy policy too.
They won’t like that idea in Beijing.
China is already trying to diversify its energy supply lines by doing deals with Russia. They might go for a few more for extra insurance after reading the IEA report.
But there’s more to this story than geopolitics…
A billion in sales every hour on 11 November
There’s great potential for a repeat of the China boom we saw last decade thanks to India and other southeast Asian countries growing their middle class populations.
This is good news for Australia. The LNG export market might be soft at the moment, but there’s plenty of demand brewing, right on the front doorstep for us.
The energy projections are one aspect of this. But the expanding middle class in China and India are going to keep businesses busy for years catering to their needs.
I just finished a book called China’s Economy: Everything You Need to Know.
A guy called Arthur Kroeber wrote it.
He brings good credibility. He’s part of a prestigious research house on China and lives there part of the year.
It’s clear from the book that China’s tax and government structure has created some perverse outcomes, including debt saturated state companies.
But Kroeber doesn’t see a major crash coming anytime soon and his reasoning looks ok to me as to why. Admittedly my colleague Jim Rickards markedly disagrees.
You’ll have to read the book for the full story. But part of the takeaway for me was worrying a little less about a China collapse, and spending the time more productively.
And that’s finding companies that can sell to the flourishing Chinese consumer economy. This isn’t going away.
We got a taste of what this can look like last week…
Major Chinese ecommerce player Alibaba just held its famous ‘Singles’ Day’ shopping event on 11 November. This is now the biggest extravaganza of this type worldwide.
The Wall Street Journal ran a story before it happened, suggesting that Singles Day in China this year might suffer from fatigue as slow deliveries and aggressive marketing put people off.
Except…the complete opposite happened!
The results smashed the previous year’s record in about half a day. In total, a staggering US$25 billion of goods and services were sold in 24 hours. This was up 40% on last year.
There are two things we can take from this…
The chronic worries over debt levels in China aren’t showing up in any way here is one.
The second is keeping a sharp eye out for Aussie stocks that have the potential to sell into China. A lot of companies are making a lot of money here as it is.
Here’s an example.
Augend [ASX: AUG] is a company that sells Aussie goods into China.
It’s up over 200% on its original issue price. It listed on the ASX in October.
You can see why it will be interesting to see any Aussie companies that report their sales from Singles Day, once the numbers are confirmed.
Not every company can get a turbocharge in earnings like Alibaba can deliver.
That’s the kind of stock you want to be in.
If you’re interested in my best play on China right now, go here now.
Editor, The Daily Reckoning Australia