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Understand one of the 5Es: the transfer of wealth and power from the West to the East
If you are like me, you probably have been hit hard by this financial crisis.
There is a lot of uncertainty in the air.
Conventional wisdom is not working any more.
Many are seeking to understand this turmoil and are wondering what they should be doing to not only survive, but thrive, during these turbulent economic times.
I recently published an article where I introduce a framework, called the 5Es, as a way to understand the magnitude and drivers of the change underway in the global economic landscape. These changes are causing stress and anxiety for all of us along with the feeling that a financial rip tide is sweeping us out to sea.
As Steve Forbes likes to say, increasing our financial education and the resulting empowerment from this improved financial literacy are the keys to a recovery from this financial crisis.
In that spirit, I am going to describe one the 5Es, “the transfer of power and money from the West to the East” … use this description as a way to understand a key driver of the turmoil being experienced by many in the West and as a way to have your eyes open to the new alternatives that can be used to create wealth.
Let me start by providing an excerpt straight from my previous article … “from west to East … there is a transfer of wealth and power underway to the Asia Pacific region, especially China. The USA is currently the world’s largest economy however it is estimated that China will be the world’s largest economy by the middle of this decade. A lot of churn and turmoil is associated with this change.”
Some examples of this transfer follow.
From an auto market perspective, China and India caught and passed the US, the European Union, and Japan in 2008 as the world’s largest auto market. And, the gap has even widened during this recession … while the heads of the US auto makers were in Washington pleading with the US Gov’t for a bail out
Cars don’t run in a vacuum. They need roads, gasoline stations, and gasoline … all of this requires a lot of building materials and oil. Just think about oil for a minute (as a reminder, Energy is another one the 5Es in the evaluation framework).
The U.S. consumes up about 25 barrels of oil per person per year. The oil consumption in China and India is tiny compared with the consumption in the US. China is at 1.5 barrels of oil per capita annually. And India barely registers.
So one can only imagine that as these economies grow and take up more of a share of the global economy, their oil consumption will rise exponentially.
Although China already has more than 160 cities, with each having a population of greater than one million (the U.S. has nine, the U.K has two), it still consumers half of all the world’s cement as it strives to build 97 new airports, 500 additional coal fired plants, and 30 nuclear plants in the next decade.
As a result of this build-out, just imagine what it takes to house, feed, and cater to the needs of China’s 1.3 billion people … it is no small task.
Commodities that are in demand in China, yet in short supply in China, include agricultural commodities like soybeans and potash, copper, natural gas, uranium, bauxite (important in making aluminum), chromium (a steel additive) and manganese (important for making stainless steel).
As far as keeping your eyes open to alternative wealth creating strategies, it boils down to investing in what these economies need, but don’t have.
In previous articles, I wrote that many of us are evaluating alternative wealth creating strategies outside of the US Dollar … outside of dollar-denominated assets … perhaps emerging markets … perhaps energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … perhaps precious metals, water rights, oil, natural gas, potash mines, or gold mines … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.
I trust this article provides a little more insight as to why emerging markets with a demand for things that are in short supply (such as oil, food, water, precious metals, and potash mines) represent alternative wealth creating strategies.
In addition, a good book to read would be “Asia Rising” by Jim Rohwer. This book provides a good read as to the economic success of the East and Southeast Asian countries and some insight as to lessons the West can learn from this prosperity in terms of breaking the paralysis of special-interest politics.
The world is changing dramatically and the emerging markets will potentially provide some light at the end of the tunnel.
I will continue to build upon the “transfer of wealth and power from the West to the East” theme of “the 5 E’s” framework, and the other Es in the framework (these are Energy, decline of (USA) Empire, Experiment with paper money, and Economic cycle) in future articles and updates at my blog which is at http://aspenIbiz.blogspot.com .
About the Author
Early in his career, Mike was an engineer with a large aerospace company. For many years, he was with a “marquee” consulting firm where he worked extensively with clients all around the world and became know as an American globalist. Most recently he has been providing technology, business, and management advisory services as a self-employed entrepreneur.