Wither The Dollar?

Yes, the misspelling is intentional.

Once you read this article, you'll be checking your résumé to make sure it's up-to-date. A recession in 2007 may be an unfortunate side effect of future interest rate hikes. Said rate hikes are necessary to convince foreign holders of our debt that the US dollar has value and that the US government is serious about its deficits. If foreign banks don't think we're serious, it could lead to a dollar sell off, which would be disastrous.

I got one of those investment brochures the other day. This one was from Global Financial Insight (GFI). They're trying to get investors to pony up to China VOIP & Digital Telecom (CVDT). They cite China's rampant growth and the success of other Chinese IPO's as reasons to invest in this company. The stock closed today at $2.98. GFI thinks that a return of 1900% to 3800% is possible. Sure, if enough people believe them, it just might.

I tried one of these stocks for my speculative investment portfolio. I liked the technology (Lithium Ion Batteries for cars). I bought 20 shares of Whistler Investments. I rode a roller coaster of three 3:1 stock splits, followed by a reverse, a name change (Hybrid Technologies - HYBT), a big rise in stock price followed by big collapse, and then a bunch of stock dividends. I now have 24 shares but the overall value is still 30% lower than my initial investment. So it's not a path one should necessarily follow. "Pump and Dump" I think is the term.

But what about China? Should investors who solidly believe in buying American (when possible) or that the Chinese government is an enemy of the US, slowly bleeding us to death, invest in China? Every week we read about companies investing millions, even billions, in China. Should we invest in China to make money off them and, if the numbers are high enough, use that money to survive the dark economic times to come? Maybe invest those profits in an American venture when the country really needs it? Or is that some kind of hypocrisy? I honestly don't know, but feel free to sound off.

In the meantime, here are some stats courtesy of the GFI brochure:

• China's middle class is 300 million people, the size of the entire US population. I don't know what constitutes "middle class" in China.
  
• China buys 9% of the world's oil, 25% of its aluminum, 33% of is iron ore, and 40% of the world's cement.
  
• The US has 9 cities with 1 million or more people. China has 103.
  
• The US has $40 billion in foreign currency reserves. China has $124 billion.
  
• The savings rate in the US is zero while it's 30% in China.
  
• The US has a $725 billion trade deficit. $202 billion of that is with China. I don't know how old that stat is.
  
• Warren Buffet has $70 million invested in PetroChina.
  
• GM and Ford are investing $6 billion and $1 billion, respectively, in operations in China.
  
• China's VOIP market was 29 million customers in 2005. GFI expects it to grow to 80 million by 2008.

I guess none of this should be a surprise to cyberpunk aficionados. The likes of William Gibson, Bruce Sterling, and Neal Stephenson forecasted the 21st century economic rise of China and the decline of America in their novels back in the 90's. But unlike alot of sci-fi, this is one future that's looking like reality.

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DED