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-- Posted Monday, 27 November 2006 | Digg This Article
By: George J. Cocalis
When I talk to people about why gold will reach 1,600 and why the U.S. dollar will eventually collapse, people always ask me, “Have you always been so pessimistic about the economy?” and I respond that I actually have been pessimistic only for the past year and a half. They look at me perplexed and I continue to explain to them that I've come to realize quite recently that the structural backbone of America is being corroded with its massive trade and budget deficits. For many, it is perhaps inconceivable that the United States will be reduced to a second rate power, but as Americans we hold a high standard of living. When I look around I do not see an end to our spending anytime soon. Our free credit line will come to an end soon; this is not an opinion but a mathematical fact! With that said, this makes my views that of a gold bug's view, which garners remarks such as “How can you be a gold bug?” with a look of dismissal or “I have done well with stocks and real estate why should I buy gold when it pays no interest?” or “Oh, you're one of them,” in a dreadful tone; all to which I respond, “How can you NOT be a gold bug!?” knowing that never in all of U.S. financial history has a currency been saddled with such an enormous amount of debt and knowing the kind of impact it will have directly on your daily lives, or maybe you just don't know how serious or close the situation really is! People then ask “Well, how bad is it really?” They argue: consumer spending is up; unemployment numbers are not that bad; my 401k is doing quiet nicely and even though real estate is correcting, it will rebound in a year or two; and the Fed is watching inflation very carefully. They continue: obviously, there are some problems, but an economic meltdown anytime soon seems a bit extreme, and besides, they (the Fed) will do something to prevent a meltdown from happening - there has to be some sort of contingency plan, right? These arguments have been made before and some of them are valid, but the problem lies in explaining the sensationalistic facts without being sensationalistic, and what approach to take to drive home the message loud and clear! I decided to start with the phenomenon of China, for the simple reason that the majority of Americans do not know what is transpiring in Asia right before their very eyes. They need to know that this sleeping red giant has awakened and is stretching its enormous arms out and their reach is affecting the lives of every U.S. consumer. China has transformed itself from a destitute communist nation into one of the greatest economic superpowers. I explained that one of the reasons U.S. wages have hit a brick wall is because in China the average daily wage is $0.25 to $1.00 per hour (equally skilled) vs. that of the American worker who is making $15.00 to $30.00 per hour, and there are still 800 million poor people in the countryside who want to live the all-Chinese dream of landing that coveted factory job in the city. This is probably the largest migration in modern history and it is not going to end anytime soon! 
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1. Prestowitz, Clyde. Three Billion New Capatalists: The Great Shift of Wealth and Power to the East. New York: Basic Books, 2005.
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These numbers alone should open a few skeptics' eyes, but to drive the point home I go on to explain a few more facts. According to Ted Fishman's China Inc., China uses 40 percent of the world's concrete and 25 percent of its steel; China has between 100 and 160 cities with populations of 1 million or more (by contrast, the U.S. has 9); there are 220 million “surplus workers” in the central and western regions of China, while the number of people working in the U.S. is about 140 million, and one in ten of those American jobs are at risk of being “offshored.” Fishman continues, “China has more speakers of English as a second language than America has native speakers.” That's the power of 1.8 billion people!
When I overhear conversations about why gasoline prices are so high, I hear the same argument - that the culprits are OPEC and the oil companies are gouging the public - but I interject that China, with its 1.8 billion in population, is the main culprit, guzzling 6 million barrels of oil per day. By the year 2025 China will thirst for 25 million barrels per day. China's voracious appetite for oil has made it the second largest importer of oil and it has surpassed Japan as the second largest consumer of oil as well, according to Clyde Prestowitz in Three Billion New Capitalists. With this incredible growth, oil producing countries are barely keeping pace with today's demand, and this is worrisome for future needs, particularly in the United States!
At this point I can see the slight worry on some of my friends' faces as we are having dinner, and then one of them states, “These issues are all fine and good, but hopefully not in my lifetime.” Of course, I (the grim reaper) interject that if you look closely at current events, you can see China implementing a strategy designed to solidify relationships with oil producing nations that are not allies or friends of the United States. Venezuela's President Chavez just inked a deal with China to increase oil exports to one million barrels a day by 2012. CNOOC, one of China's largest oil and gas producers, has purchased a stake in a Nigerian offshore oil field for $2.3 billion. China needs new allies and privileged access to the oil reserves in the Middle East, and Iran needs a superpower to help build Iran's infrastructure; circumstances which make for a perfect long-term partnership. It's also interesting to note that a Chinese company controls the entrance and exit points of the Panama Canal and that Freeport, Bahamas, houses the largest container port in the world, just 60 miles from Florida. Also, China is getting more involved in the Strait of Hormuz, through which flows the oil to the rest of the world. To cut off this supply would cripple the U.S. and, of course, the dollar. And if you want something more to worry about, I tell my friend that the Chinese consumer wants to live the way American consumers do; in luxury! And this new development will eventually be a problem for the U. S….More to come... ______________________________ 2. Fishman, Ted C. China, Inc.: How the Rise of the Next Superpower Challenges Ameruca and the World. New York: Scribner, 2005. 3. Prestowitz, Clyde. Three Billion New Capatalists: The Great Shift of Wealth and Power to the East. New York: Basic Books, 2005. _____________________________
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George J. Cocalis Biography
Mr. Cocalis has been in the futures industry for over 16 years, starting as a clerk on the floor of the Chicago Mercantile Exchange. He rose through the ranks to floor manager of the largest futures brokerage's S&P, currency and meat desks, with supervisory duties over both retail and institutional accounts. After being promoted to floor manager, he added the responsibility of training and ma naging over 100 employees. Mr. Cocalis joined Brewer Futures Group in 2005 as a Senior Market Strategist and works with his own clients, but also shares responsibility for training new brokers. His views of risk management include trading breakouts on recognizable price patterns and layering different stop points instead of an “all or none” strategy. Mr. Cocalis helps his customers understand that it is not the customer vs. the markets but really the customer vs. himself. Recently, he has embarked on a campaign to educate the trading public as to the benefits of including gold in a diversified portfolio.
George J. Cocalis
Brewer Futures Group, LLC
A Division of Brewer Investment Group, LLC
200 S. Michigan Avenue, 21st Floor
Chicago, IL 60604
(312) 896-3979 Direct Line
(800) 971-2709 Direct Toll Free
(312) 896-3920 Fax Email : gcocalis@brewerinvestmentgroup.com
www.BrewerFuturesGroup.com
DISCLAIMER: Futures, forex and options trading involves substantial risk and may not be suitable for every investor. The valuation of futures, forex and options may fluctuate, and as a result, clients may lose more than their original investment. Seasonal and geopolitical events are already factored into market prices. In no event should the content of this correspondence be construed as an express or an implied promise, guarantee or implication by or from Brewer Futures Group, LLC, Brewer Investment Group, LLC and/or BrewerFx that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Information provided in this correspondence is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.
-- Posted Monday, 27 November 2006 | Digg This Article
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