|Andrew Gordon Reporting: Baltimore, MD Thursday October 22, 2009|
China Can Chew You Up
From my days in international business, I learned that Asia can make you a lot of money. It can also chew you up and spit you out.
I remember as if it were yesterday, hanging out with a couple of my favorite clients, Ben and George, in Singapore. Ben was in the fuel-tank business. He and I would hop over to China to catch some business meetings. George worked for an environmental firm. He was always pushing China with his CEO. He once told me that China would give his company tons of business and make him rich.
After about two years of traipsing back and forth between Baltimore and China, George closed just one tiny project. He had spent a bundle and the CEO wasn't happy. George was fired. Ben's products went viral after the first couple of years.
Crossing the "Great Wall" Barrier
The big difference between the two guys? George never got beyond the "Great Wall" barrier. And Ben did.
What is the "Great Wall" barrier? It's the line of respect and reciprocity.
Until you cross the "Great Wall" barrier, it really doesn't matter how much demand there is for your services or products. It doesn't matter how well funded you are. Nor does it matter how bright your prospects are.
None of it matters until you get the respect and cooperation you need from the Chinese government. Until then your business is completely speculative.
But once you cross this "Great Wall" barrier, your success is almost inevitable. You've been admitted into their system. Instead of fighting you every inch of the way, the bureaucracy has your back. It's like you've been given an official stamp of approval to do business in the country...
Only there's nothing "official" about it. It's invisible to the outside. But if you know how the "system" works, it's obvious when your sales will explode.
So, how do you figure out if companies are on one side of the "Great Wall" barrier or the other? Well, take it from an old China hand, I can tell you when a western company has been "greenlighted" by the Chinese government.
One of China's "Untouchables"
Some companies are too big and important for China to mess with. It doesn't happen very often. Even in such cases contracts aren't signed the first time you show up in China. But the cooperation you get from crossing the "barrier" is evident almost from the beginning. It helps when you're one of a handful of companies in the world that can help the country modernize certain critical sectors.
China is woefully behind the curve in its aerospace development. The Chinese government was more than happy to usher this company past the "Great Wall" barrier to get the help it needed. In no time at all, the company got big-buck contracts to help develop...
The company is Honeywell and it's part of my INCOME portfolio. I have a bunch of other companies in this portfolio which have crossed the "Great Wall" barrier. If you'd like to find out more about my INCOME recommendations, click here.
The Dumbest Thing We've Heard All Week…
We're adding a new segment to IDE. Every week, we're going to feature "the dumbest thing we've heard all week." There are a lot of really bad ideas out there, so we won't have any trouble coming up with content. But we want your help.
The next time you read a stupid quote… a dumb idea… a financial reporter who's totally off base… an investment manager taking on too much risk… or a regulator with his head up his… well, you get the idea. Send the "dumbest thing you've heard all week" to email@example.com
So… What Is the Dumbest Thing We've Heard This Week?
We have been warning you about this for some time. And now it's official. Due to the surge in bank failures, the Federal Deposit Insurance Corporation – the government insurance fund designed to protect consumer bank deposits – is out of money. And it will likely be in the red until at least 2012.
But don't worry! In a prepared statement before the Senate Banking Committee last week, FDIC Chairman, Sheila Bair said, "The problem we are facing is one of timing."
A problem of timing? Hmmm… I've had that problem before. When I was young and broke, I used to run out of money about two weeks before my next paycheck was due. "Don't worry," I told the landlady. "It's just a problem of timing… I don't get paid for two more weeks."
The truth is that a fractional reserve banking system can never be insured. Banks today can loan out $10 for every $1 on deposit. As we have pointed out before, the idea of "deposit insurance" is a confidence scam. It holds up only as long as the depositors have confidence in the system.
How the FDIC Is Solving Their "Problem of Timing"
Part of their plan is to ask the nation's already under-capitalized banks to prepay their deposit insurance premiums for the next three years. In other words, the "insurance company" is asking its own customers for a bailout.
How would you feel about your homeowners insurance if the company that wrote it asked you to pre-pay for three years of coverage… because they were running a little short on funds?
At the end of June, the FDIC had $10.4 billion to insure some $4.5 trillion of reserves. Now the FDIC is broke. That doesn't exactly inspire confidence, especially considering that some analysts – including the Royal Bank of Canada – are predicting another 1,000 U.S. banks will fail in the next few years.
But the US Government Will Never Let the FDIC Go Bankrupt…
They will simply charge the member banks exorbitant fees...
And print up more dollars...
And the taxpayers will foot the bill by way of inflation.
While your bank deposits might be relatively safe… the dollar is not.
The government will print as many dollars as it needs to fund their programs – FDIC "insurance" included.
And that's why you should protect your wealth and savings by holding a percentage of your assets in gold and silver bullion. Bullion is for savings and a store of wealth. To grow your savings, look to the precious metals miners, royalty companies and select exploration outfits. And IDE analyst Rusty McDougal has put the best of the best of these stocks into his Resource Speculator portfolio.