China has already surpassed the US in the global competition sweepstakes and is on track to extend its lead.
No, I'm not talking about some pie in the sky 2030 or 2050 forecast from some hole in the wall research boutique. I'm referring to right now, today, this minute. At the end of 2009, America could boast a GDP of $14.2 trillion, while China's stood at $4.9 trillion.
The Middle Kingdom will grow by at least 10% this year, generating $490 billion in new GDP, while the US, growing at only an average 3% rate, will add $425 billion in this key measure of economic muscle.
That easily makes China the world's largest country in terms of new business activity, and therefore, the most important when gauging the future direction of financial markets.
This is why I have been feverishly pounding the table this year screaming that it's all about China, China, China. It's also why I announced to readers why I'd rather get a poke in the eye with a sharp stick than buy equities. Since then, the Chinese stock markets have been falling, not in a great cataclysmic crash, but in a slow death by a thousand cuts.
Chinese equity PE multiples have fallen from 50, three years ago, to 10 today, and there are still no buyers. Money managers and financial advisors of all stripes only need to make one call this year: when will the Chinese economy turn?
This is harder than it sounds because it means that your entire investment strategy is now dependent on unreliable, contradictory, and untimely data, from a third world nation that only recently moved on from the abacus to measure business activity.
When good data does become available, you can then count on the locals to front run and inside trade the first 10%-20% of the move. That will leave you with the difficult choice of getting in late, or not at all. I never said this was going to be easy.
So I'll give you a head start and tell you when this will happen: the day before the People's Bank of China stops tightening. This is why hedge funds have kept a laser like focus on Chinese bank reserve requirements, which now stand at 17.5%.
When the slowdown does end, every stock, bond, currency, and commodity market will do so as well. Focus first on the things that the Chinese have no choice but to buy.
Just go down their list of largest imports, and you'll find oil (USO), iron ore (VALE), coal (BTU), food (CORN), (SOYB), (WEAT), copper (FCX), and machinery (CAT).
You can also buy the suppliers of these commodities, including Australia (EWA), Canada (EWC), and their currencies (FXA, FXC).
There is a huge buy setting up here, but the overwhelming verdict of the markets is "Not Yet"! While I'm waiting for the big trade, you can find me having lunch at a restaurant on Grant Street in San Francisco's Chinatown, eating chop suey and egg foo yung, pestering the waiters for the names of the next hot IPO's.
By. Mad Hedge Fund Trader