Mmm . . . Bacon

By, 06/06/2007

A possible story-line for the Simpsons: Homer travels to China with the sole aim of seeing China's strategic pork reserves. After some amusing hijinks (Bart causes an international incident by smuggling fireworks in his sneakers, Lisa proselytizes on the oppressive nature of western democracies) he arrives in a vast room filled with glistening, oinking pigs. He scans the room and says, "Mmm . . . strategic pork."

Much is being made in the media currently about China's explosive economic growth and our "massive" trade deficit with them. Some surmise China will "overtake" the US—that the US is a crumbling empire. (Try Googling "America crumbling empire." Tired Roman references abound!) Our response is, first, that's not too likely, and second, so what if America is overtaken—by China or anyone?

No doubt China's experiencing explosive economic growth, but are they truly poised to supplant the US? Keep in mind, their double-digit economic growth sounds great, but that kind of growth is not unheard of in emerging economies. Also, just how reliable are these growth stats? We have issues with America's governmental accounting—how much more misleading is data produced by a communist government?

Suppose the growth numbers are dead-on—and we hope they are! Good for China! This is still a nation of intense poverty. Yes, China does have an emerging middle class—but a billion people are still barely eking out subsistence living. Foreigners who visit China generally don't see that—all they see is booming growth in the cities. But that cannot be the right story—why else would China's $5,900 per-capita income be a mere 21% of neighboring Taiwan's and 19% of Hong Kong's? Further perspective—that's just 60% of Mexico's and 15% of America's.

China has a long way to climb to rival America's income. The US represents a big 30% of the world's GDP (among nations included in Morgan Stanley's All Country World Index). Japan is closest with 10%. China is not too far behind rank-wise—but still produces under 6% of the world's income. Yet they have over 4 times our population! This is poor advertisement for Communism.

But let's say China—or any nation—does overtake the US economically. So? (Another question: Overtaken how? Luxembourg simply blows away our per-capita GDP—57% larger. Is that bad? The Irish tiger is chasing our tail. Should we boycott Ireland?) If you invest globally as we at the MarketMinder counsel, it shouldn't matter if you can wave a giant foam finger and chant, "We're number one!" If China "overtakes" us—great—you can invest there. If Japan does, or France (yeah right), or even tiny Luxembourg—what does it matter in our global economy?

You can even work for employers in whichever nation supplants America (when/if that happens). Last year, foreign investment to start or acquire US-based businesses jumped nearly 77%!

U.S. Still Luring Investors
By John McCary, The Wall Street Journal (*site requires registration)

First, that tells us the rest of the world doesn't believe America's imperiled—who invests in crumbling empires? Second, if you truly fear the U.S. is done, you can go work for Toyota—in Kentucky! We bet you'd get a discount on a Prius!

China really does have a strategic pork reserve, by the way. They are considering tapping it in light of an epidemic devastating China's primary source of cheap meat—driving pork prices up over 70% since April!

Pork Crisis Sparks China Inflation Fears
By Richard McGregor in Beijing and Jamil Anderlini, The Financial Times,_i_nbePage=74b5583c-d5e4-11da-8b3a-0000779e2340.html

Here's a different way to fathom this: Do we have much to worry from a nation too poor to buy bacon from South America? Another unfathomable: Is your nation's economic health reflected in what it chooses to keep in its strategic reserves? (And no, they're not live pigs, but frozen meat. Frozen pigs just aren't funny.) America crumbling as a superpower isn't a risk to your portfolio. It's not likely to happen and isn't an issue if you invest globally.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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