Survivor Heroes vs. Villains - Russell just does not get it!!!

I’ve been watching Survivor for the last 20 seasons spanning back more than 10 years when Richard Hatch won the first Survivor series and pocketed a cool $1 million. I’m a bit disappointed that after ten years the prize money is still $1 million but then again the hard core Survivor fans will argue that it’s not about the money but the challenge of a game that has changed the whole landscape of reality TV forever. The last time I watched Survivor I watched it alone and was chastised by my family for spending too much time with “Amanda Kimmel” and not enough time with them and if you’ve seen Amanda you won’t blame me at all. (I hope Amanda reads this!) Anyway my point is that this season the kids and wife just happened to watch a few of the early episodes and have been hooked ever since. The kids stayed up late last night to watch the finale which unfortunately was aired 9 days after the live feed from the US. I’d been weary to read any news or facebook status updates that may have given it away a mistake which unfortunately I made last season when Natalie won.

This season though may have been one of the best ever but don’t we say that about every season? The villains took the honours as Sandra was the eventual winner and the final three were all villains. Colby Donaldson was the hero that went the furthest being placed fifth.

Jeff Probst: Long time host of Survivor


You can’t argue with the eventual winner Sandra though when she said that every step of the way she tried to help the heroes eliminate evil Russell but the heroes just kept killing their own self by going back to Russell and telling him. What kind of strategy that was you’d have to ask? Only the brilliant minds of our esteemed heroes can reveal such puzzling game play. Sandra put this out during the last tribal council and I think this was what eventually won it for her as the sure bet before this was Parvatti who was going to win because of her strong game play and challenges.

The award for the dumbest move was when JT, a hero won an immunity idol and gave it to Russell because he thought that the villains tribe had an all girls alliance going on and wanted to save Russell’s butt in the hope that this would get Russell aligned with the heroes. Now JT made this analysis based on the fact that the last few eliminations were men, not enough info to draw such a conclusion if you ask me. Also, this coming from a past Survivor winner who was well aware that Russell was the biggest snake in Survivor history. Russell ultimately used this to eliminate JT who couldn’t disappear fast enough due to embarrassment. I’m no Survivor player but even I know that once you get an immunity idol you don’t even give it to your mother to save her life. The likes of Erik will attest to that when he gave away his prized idol on the night of tribal council only to be voted off immediately after that. By the way, Erik’s stupidity was also in the running for dumbest Survivor move ever only to be pipped on the line by a stupider JT.

Now let’s see why Russell got to the final three and let’s analyse why Russell is not as good as he thinks he is. Russell got to the final three based on some skill (very little), a lot of good luck and even more stupidity from the people that he had a hand in voting out. JT’s stupidity is well spelled out above but whom else?

The most stupid of all if you ask me is Candace. She was in the heroes’ alliance and for some unknown reason changed her vote with the villains whom not only sent home her hero tribe mate but put her on the chopping block next. It’s not that she made any strong alliance (in fact any alliance) on the villain’s tribe to be so eager to vote out her friends . In fact Sandra asked her “who you want to vote out?” in her Puerto Rican accent and for some stupid reason she decided to vote Amanda out and not Parvatti as the heroes would. Imagine Sandra a villain was trying to convince Candace a hero to vote against one of Sandra’s own tribe mates but as stupid as Candace was she decided to vote out Amanda her own tribe mate!! At least in the heroes tribe she was somewhere in the pecking order but over to the villains tribe there was bottom of the barrel and Candace was three rungs below that. Go figure!

Stupidity was also never far away when Coach was around. He complained and cried that his main alliance Boston Rob was voted out by evil Russell but actually put Courtney’s name down on the night of Tribal Council. You go figure that one out!! Coach had the opportunity to write Russell’s name down hence send him packing but he wrote Courtney’s name down hence effectively sending Rob home and eliminating Russell’s biggest and only threat in the villains tribe once and for all. Without Rob, the rest of the tribe were spineless, useless people who would do anything Russell wanted them to do, Jerri being the worst of them all. If Russell would have said jump, Jerri would have said how high. He then later complained that Russell had sent his friend home and started crying!! Boo Hoo Hoo! If you can further make sense of this then please enlighten me as I’ve given up trying to understand anything that Coach says.

Boston Rob: The biggest threat to evil Russell

Amanda didn’t play very well either. Danielle found a hidden immunity idol clue but placed it on the floor at the bottom of the bed to hide it from Amanda and Colby while the three of them spent a reward challenge together. Amanda suspecting something, manoeuvred towards the clue and took it off the floor. Danielle seeing this decided to snatch back the clue from Amanda and they were locked in a tussle to see who could wrest the clue. Stupid Colby being the gentleman that he thinks he is told Amanda to give the clue back as Danielle found it first. Why would Amanda listen to such a senseless, idiotic directive by Colby, but guess what she did. She let go and Danielle took the clue and the villains had the upper hand from then on.

Evil Russell was not smart. He did not play the game well. He had people without spines under his pocket and he had the heroes bending down to him so he could chop their necks off. That’s why he went as far as he did but he did not win. He also had a reputation that made people afraid to outwardly challenge him and that reputation came from his previous game in Survivor Samoa. Without that reputation, he could have been out so much earlier in Samoa if not for him being extremely lucky. Even in Villains vs. Heroes he was extremely lucky. He was lucky because he got to play with a bunch of spineless dumb asses.

Sandra: The Winner

Evil Russell: The sore loser

He did not win because he did not play the social game well. The social game is a big part of Survivor and he’s either unaware of it or too stupid to know it. In interviews before this season he could not comprehend that the social game was part of the game of Survivor and he’s still belittling Natalie for having a good social game. Even at the finale, he was still arguing that he played the hardest and he had the most control of the game. Yes, but he did not win which makes him a loser! Russell likes to brag that he was always in control but to be honest in his first Survivor experience in Samoa he was almost voted out early on if not for the fact that he found the hidden idol. If he hadn’t we would not even hear of him today. That’s luck and Russell says that he got where he got (top three) without any luck. That’s a load of bull crap from a man who thinks he’s the best at the game of Survivor even though he had two goes at it and never won. His logic is that the game of Survivor is “flawed” because he never won it. Yeah sure, unfortunately his delusion precedes his detachment from the real world. All I see when I see Russell is a man whos ego is too large for his little personality, who cannot get over his losses in Survivor, exhibiting child like behaviour of bitterness and temper throwing over losing to a better player in Natalie in Samoa and Sandra in Heroes vs. Villains. His personality pales in comparison with Boston Rob, his challenges fall short to that of Parvattis' and his integrity is non existent. His lousy bullying personality however is second to none, which unfortunately proved his downfall again. Talk about not learning from your mistakes.

You can’t take anything away from Sandra. You can argue till the cows come home but ultimately the best player is the person who gathered the most votes on the final tribal council and that was Sandra. I can give many reasons why I think Sandra played better than Parvatti and Russell but why bother? She got the most votes at the end and that is why she won. There are many facets to the game of Survivor and when you put them all together, collectively she did the best and that was reflected in the votes cast. That’s how Survivor works and Russell doesn’t understand that. Russell can never win Survivor. He’s not equipped to win the game of Survivor because of his lack of understanding of how the game works. As Rupert put it perfectly, “to be honest and integral in the game of Survivor is hard, to be a manipulative, scheming liar is easy and you (Russell) took the easy route”.

Resources Rent Tax - Why On Earth Kevin???

Now I don't pretend to know much about the Resource Rent Tax that the Rudd government has ambushed the Mining Industry with and I'd be very surprised if anyone reading this does. It's such a convoluted tax system that only a person with a triple Masters degree in bullshit will ever understand it and the general electorate will never be able to and this smacks the face of the government who have for years been trying to "simplify" the tax system by engaging Treasury's Ken Henry to study ways to do it.

The simple explanation of the Resources Rent Tax is that the government is lifting the effective tax of the companies because they are making too much money, according to the government. They cite extraordinary prices in resources and the great demand from China above what the mining industry are traditionally used to. The government argues that the minerals in the ground belong to the Australian people and they should be compensated accordingly by the mining companies. Conversely as I understand it, if the mining companies lose money the Commonwealth government will pay the miners back for their losses.

Now I hope the above explanantion is simple enough for you to understand because unfortunately that's all I can gather from days and days of listening to our esteemed politicians argue over it on the airwaves and in the newspapers. We hear mining company bosses saying they'll need to review their investments in Australia and may have to move them to other countries where the tax implications are not as disadvantageous as in Australia. The government on the other hand have dismissed the miner's grouses as having one thing in common "not wanting to pay more taxes" so says Kevin Rudd in parliament yesterday. My goodness, such simplistic analsyis from what I understand to be an intelligent man.

What we have to understand is that the mining companies take huge risks to make huge profits for their shareholders. If you don't believe me, go back in time and try to find the financial page from the financial times from 20 years ago. I'll bet my bottom dollar that no less than 30% of the mining companies listed in 1990 are no longer in existence. Gone from the face of the earth or more likely gone under. They invest huge sums of money and the huge profits are not guaranteed. They have to get the relevant permits, invest in expensive machinery, hire geologists, engineers, labourers and many other skilled and semi skilled resources just to see the project take off the ground. They need to build infrastrucure like rails, ports and accommodation camps to facilitate their mine sites. They create employment not only for the people who work directly for them but also for the support industries like restaurants, shops, cinemas and brothels (dare I say) etc. They need to sell their resources to someone who is willing to buy it at a price that will make their venture worthwhile. The government then takes a royalty from the money made from crown land and finally they get taxed at the company tax rate. Now the government is saying we want to tax them more because they make too much money and the resources belong to the people of Australia.

Let me ask you if the government gave you the resources in the Pilbarra, what would it be worth to you? Nothing!! Just some sand and debris as you would need to know where to find the resources, you'll need machines to dig and transport the resources and you'll need someone to buy it from you, then only would it be worth something to you, otherwise it is worth jack shit and the government's argument that the minerals belong to the Australian people is no more than a big fat government spin.

On the surface, it doesn't sound so bad if you were not in the mining industry. Sure, spread the wealth around, we may even have less workers heading up north putting halt to the skills shortage the city is facing. Ok, you may argue that some of these people working in the mines earn ridiculous money and you won't be too far wrong. The minimum skilled wage in the new Gorgon project is reportedly $160,000 p.a. Ok you may argue that is a bit much and I'd tend to agree with you as the average wage in Australia is only between $55k - $60k but what you need to understand is that these people who work up north are highly skilled and the work they do require years of experience, precision and knowledge. Doing their job right or wrong could mean the difference between a mine blowing up, machine crushing a man or not. If you over cook your burger, you just throw it away, no biggie (ok I might get in trouble now by making fun of a Mc Donald's worker but don't everyone do that as well?).

On the surface you could also argue that putting the mining profits back into the community ain't so bad after all. As the government says, if it's the people's resources then the people should enjoy the benefit.....sounds plausible until you realise it's the government talking and it's utter fantastico spin like the mother of all spins. You're not going to see this money! They deficit created by the government will receive the first cheque from the mining companies. The industry that kept Australia out of the last recession will have to pay for all the economic mismangement of the government. The wasted money on the pink bats scheme, the wasted money on the government school halls, the cash hand outs to dead people and the list goes on. They talk about upgrading infrastructure etc. but I'm not buying it. The increase tax will be used to pay off debts and to fuel the Rudd government's insatiable appetite to spend. Rudd doesn't know what a profit means. He's a beaurecrat. He's given a budget and he needs to spend all of it before the year is up and that's how he's judged as to whether he's done his job well or not. He's seen to have done his job if he spends all the money he's given. Ask him to define a profit and I bet you he'll struggle.

Let's not kid ourselves. The mining stocks have tunbled, the Australian dollar has tumbled and there is widespread discourse in the mining industry due to this 'super profit tax', If someone could explain to me what a super profit means I would be so greatful as I must have had thick wax in my ears when I heard the government explain that it was anything over the long term bond rate of 6%!!! Why would you risk all that capital to go into the high risk mining venture only to be slugged a big huge fat tax bill when you can safely invest that in long term bonds with effectively no risk at all?? Boggles the mind.

When an industry has saved you from the last recession and has been your cash cow for the last few decades, why would you sabotage it? WHY?? Would the companies pulling out of Australia due to this 'super profit tax' negate the increase in taxes? You bet it would.

Other articles:

http://www.heraldsun.com.au/business/terry-mccranns-column/when-australians-turst-of-prime-minister-kevin-rudd-turns-to-dust/story-e6frfig6-1225870781697

http://www.smh.com.au/business/both-sides-are-appalling-in-resources-tax-debate-20100524-w83e.html

Australia Prefer Houses to Mines

I just love some of the articles Money Morning's Kris Sayce writes. Here's another one on the governmen't so called "Super Tax" on the Miners.

Well, it looks as though the pathetic mainstream press has started to awaken from its slumber on the Super Tax.

Over the last day or so we've finally seen the penny drop as they realise the Super Profits Tax isn't a tax on Super Profits, it's just a bigger tax.

As our example showed yesterday, it's not just so-called Super Profits that will be stung with the tax, even companies on small profit margins will get slugged with it.

I tell you what, it never ceases to amaze us how governments can get away with false, deceptive and misleading advertising. If Woolworth's or Coles make a mistake with an advertising campaign the Australian Competition & Consumer Commission (ACCC) is all over them like a rash.

Yet when the government claims it's only going to tax Super Profits when the reality is it's going to tax small profits too, the ACCC is nowhere to be seen.

But at least the gutless mainstream media is starting to question the whole Super Profits Tax nonsense. Even if it is three days too late.

But what do you care? You're not a mining company. It's not taking money out of your pocket. Or is it?

For a start, not only is bad news for the resources industry bad news for you, but the odds are that if the Fairy Ruddfather backs down from his Super Profits Tax, it will involve you receiving a direct tax hit rather than an indirect tax hit.

This line from an article in today's Melbourne Herald Sun should leave you with hairs standing up on the back of your neck:

"Mr Rudd said only that he believed the rate was "about right" before attending a private dinner with industry chief executives led by Fortescue Metals Group's Andrew Forrest, Rio Tinto Iron Ore's Sam Walsh, BHP Billiton Iron Ore's Ian Ashby and Woodside Petroleum's Don Voelte."

If there's one thing worse than a government acting unilaterally, it's when a government teams up with businesses to act multilaterally.

In the old days they called it Fascism. Today they call it Public-Private Partnerships.

Because one thing is guaranteed. When they're talking about easing the tax burden on the mining companies, the outcome won't result in the government cutting spending. The outcome will result in the government getting its money from a softer target...

You!

Think about it. Where's your lobby group? Where's your spokesperson? When was the last time you got invited to dinner with the PM to talk about tax?

Believe me, based on the emails we receive into the Money Morning inbox, there are enough government and tax lovers out there who are prepared to vote for a government that taxes the life out of the economy, just so they can get their fair share of someone else's money.

We're still astounded that anyone could think it "fair" for them to take a slice of someone else's hard work.

But anyway, back to the point we left you with in yesterday's Money Morning:

"It's funny isn't it? One industry spends billions of dollars to recover useful and tangible resources. The other spends nothing to create money from thin air in order to ensure the continued expansion of credit, the property bubble, and the terminal indebtedness of the Australian population."

And you need no further confirmation of that than by taking a look at the Victorian State Budget news that:

"An extra $4000 will be available to first home buyers buying newly constructed properties in regional areas, taking their total entitlement to $26,500. Those buying in metropolitan Melbourne will receive $2000 extra, up to $20,000."

Yep, there you go, says it all really. But don't be fooled by the fact that the Super Profits Tax is a federal tax and this home buyers boost is a State tax, because it doesn't make any difference.

What's more important is the flow of cash. Money is being expropriated from productive and useful industries and being given to the singularly unproductive housing industry.

Make no mistake, whatever you may have read elsewhere, housing is NOT productive. It is a consumable.

But something else on the Super Profits Tax is our argument that unless you're an investor in a mining company, or that you're part of a mining company, then you don't deserve to take a share in the profits of the mining company.

No more than I have any right to demand that you give me 40% of your money in return for some undefined product or service I may or may not provide in the future - which is effectively what government taxation is.

Therefore, a parasitic government doesn't have any justification whatsoever to take 40% of anyone's profits. Whether it's a mining company or any other business.

We've received a number of emails telling us that it's only right that miners should give something back to the community. That they're making a lot of money from digging up "our" resources and that the community should get its fair share.

Other arguments have suggested that the tax is no different from a landlord charging you to rent a house or a factory. The house or the factory is on the property owner's land, and in the case of the miners, they are mining on government or Crown land.

Both arguments are not only incorrect, but they are nonsense.

We think we've already answered the first one sufficiently. Mining companies already give plenty to the community. They dig stuff out of the ground, they employ people, they enable other businesses to make stuff from the stuff dug from the ground.

The 'selfish' action of Rio Tinto extracting copper from the ground in order to make a profit ultimately results in an electrician being able to put copper wiring in your home.

Rio doesn't dig up the copper out of some kind of philanthropy. It does it because it wants to make a profit. Its 'selfish' profit motive enables you to switch on a light when it's dark.

What more could they do to provide an important service to the Australian economy?

Let's get this straight, all taxation is theft of private property. It's impossible to argue against that position. Tax isn't voluntary. It's forced on individuals and businesses. There is no choice.

Think of it this way. The money you earn as a wage is your property. You protect it just as you would any other item of property.

If we lined up a wallet full of your cash, your television, your kitchen table (which all families sit around to discuss things apparently!) and your computer, you would say that all of those items are your property.

If someone took one of those items without asking, you would say it is theft.

Yet for some reason, when the government skims 20%, 30% or 40% from people's wages, very few consider that to be theft. But it is.

Let me put it this way. Let's say there wasn't an income tax. Instead there was a personal property tax. So, rather than taking 30% of your income every month, the government forcibly entered your home and took away 30% of your possessions.

How would you respond? I'm sure you wouldn't be happy. And not surprisingly, because guess what, you now have to go out to work in order to earn enough money to buy items to replace what the government has taken.

But don't get too attached to them, because next month the government will be back again, forcibly entering your home and taking 30% of your possessions. And so on it goes, every month...

Show me how that's any different to how the tax system works? I'll let you know if anyone tries to justify it by saying "It's only fair."

If we apply the same principle to the mining industry, imagine if the government didn't take a 40% Super Profits Tax and instead it just took 40% of all the iron ore BHP Billiton produced, or 40% of the copper Rio Tinto produced.

Does that sound fair? Of course not.

And that's where the landlord analogy falls down. Comparing a private landlord to government taxation is perhaps the most ridiculous and incompetent analogy we've come across. In fact, it's an embarrassing analogy.

Typically, if you're renting a property from a landlord you're doing so because they've improved the site. They've built a house on it for you to live in, or they've built a factory for you to do business in.

Quite rightly the landlord will want to charge you for the use of those facilities. The landlord will want to make a return on their investment. No-one (except the socialists) would rightly argue with that.

But what has the government done to the sites it hands out permits for?

Has the government surveyed the area for minerals so the explorers don't have to bother? Has the government turned over a few million tonnes of earth so the miners can get straight to the mineral for no effort?

Of course not. When the explorers and miners turn up to begin work it's just a great big patch of dirt. The government has expended no effort whatsoever on the land before authorising the permit.

In fact, if you look at all the hoops explorers have to jump through, governments actually increase the workload for mining companies by enforcing excessive regulations.

Even if we agree with the idea - which we don't - that the land is Crown land, then the most the government could justify for unimproved land would be a small peppercorn rent.

But the idea that a landlord should take a percentage cut of the company profits is absurd. We've looked at hundreds if not thousands of advertisements for commercial properties and not once have we ever seen a requirement by the landlord that the tenant must hand over 40% of profits.

Have you ever rented a house where the landlord demands 40% of your salary as rent?

I mean seriously, if you're a profitable business or a prospective housing tenant, would you take out a tenancy on those terms?

Which brings us nicely to how the pathetic Super Profits Tax could potentially destroy the Australian mining industry.

Already one Australian company, Cape Lambert Resources [ASX: CFE] has decided that a 40% Super Profits Tax is so burdensome that it won't proceed with the Cape Lambert South Project.

What's it doing instead? Unsurprisingly it's going to develop the Marampa Project in Sierra Leone instead!


Africa a better place to invest than Australia




Sierra Leone for crying out loud. Haven't they just had a civil war?

Cape Lambert would prefer to operate in a former civil war torn country than in Australia. It reckons it can get a better return on capital from dodging bullets and kidnappers than it can from dodging camels and kangaroos in the Western Australian outback.

But that's only the beginning. Sure, not every miner is going to take their bat and go home. But for miners like Cape Lambert that have two comparable projects, it's a no-brainer to focus its resources on the project that will have the better return.

What does that mean for Australia? Well, for all those that are worried about not getting a good deal on "their" resources, this will surely be good news for them. Because rather than Cape Lambert extracting 1.5 billion tonnes of iron ore from the ground, employing hundreds of people on the site and providing work for allied industries, instead the iron ore will remain in the ground for everyone to enjoy.

We wonder how many people will now claim that the iron ore at Cape Lambert South is theirs now. Any takers? Thought not. It seems the bludgers aren't quite so keen on the iron ore when it's in the ground. It only gets their interest after someone has done all the hard work to extract it.

Of course, if they don't like it remaining in the ground they could always go and grab their fair share for themselves. By our calculations it's about 68 tonnes per Australian!

They'll need a big wheelbarrow for that. What a joke.

It's the old story isn't it? The thieving government wasn't happy with stealing 30% of company profits, so they thought they'd try and grab a bit more. Except the geniuses in government will soon realise they'll now get 40% of nothing.

No wonder they can't find a job in the private sector with that kind of logic.

But isn't it funny how the pollies and bludgers are complaining about BHP and Rio Tinto having big foreign ownership, and how it's terrible all these profits are heading offshore.

Well, it's hardly surprising is it? Not when you consider that the Australian economy, government and banking sector are too busy funnelling investor's cash elsewhere, namely the housing market.

Perhaps if the government and banks weren't quite so eager to encourage everyone to buy as many houses as possible there might be some cash left over for people to invest in mining projects.

Instead, the banks' loan books are laden with greater than a 50% exposure to the mortgage market. That's easy money. Keep piling in to the giant property Ponzi scheme.

And because the banks know the housing market is on the verge of a catastrophic collapse, they've got to keep piling more money in. And all the better if the governments chip in with the home buyers grants.

We've said it for some time now, so we're not just jumping on the bandwagon, behind the mirage of a strong economy lies the reality of an Australian economy which is doomed to collapse like never before.

The government has become over confident. It truly believes it saved Australia from the global economic meltdown and that it can now micro manage and manipulate the economy to greater wealth.

It can't. It's just manipulating it to the credit-gorged poorhouse.

Australia has been supported by one thing - the demand for resources from China. But with the cracks in China already starting to show, the government will realise that it won't just be Cape Lambert that it will receive 40% of nothing, it will be the same story for the majority of the Australian resources sector.

Of course, on the plus side, at least you'll have a 1/22,000,000th share of unrecovered raw materials, kept securely for you several hundred metres below the surface. Oh, and a house.

Let's see how productive housing is then!

Cheers,
Kris.

When the China Bubble Burst, will you Sink with it?

Excerpts from Money Morning Publication:

Well, today, below, I'll make a radical suggestion: you should entirely re-think the basis of Australia's epic resources bull market.

You can scroll down right now and take a look at exactly why I think this is the case if you'd like – but I'd like to take a minute or two to explain why I'm doing this...

When I brought The Daily Reckoning to Australia some four and a half years ago, I did so because I saw the single most exciting investment market in the Western world – and wanted to be a part of it.

This is where the commodities story met the China story. It was (and still is) ground zero for serious 21st century investors.

I'd watched from my posts in London and Paris as companies like BHP, RIO and Woodside made three figure gains for shareholders in a few short years. I was eager to see firsthand how the thousands of smaller, unheralded Aussie miners and explorers would benefit from unprecedented Chinese demand for Australian natural resources.

As a former small cap analyst, I knew that if you want to make really big money in a boom, going small is the way to do it. It was, professionally and personally, the best move I've ever made.

Back home in the U.S. my friends told me I was crazy. U.S. stocks were rising. U.S. house prices were rising. Why give up all that (and cheap beer to boot) to go croc hunting and koala hugging 'Down Under?'

But having written about the big picture in my newsletter at the time (Strategic Investment), I knew the American economy was a busted flush. The decision to move my publishing business thousands of kilometres to Australia remains one of my proudest (and best-timed) achievements. In investment terms, it was a good trade.

But you probably already knew that. It's been one hell of a ride for Aussie investors over the last decade. For the most part, an upward one. Even the financial crisis that devastated the rest of the developed world hasn't really bitten down hard here (at least not in an obvious way...yet).

And for that you can thank unrelenting Chinese demand.

But after analysing the situation carefully over the last year, I'm ready to make my move. And it is not a half-measure.

If you scroll down you'll see for yourself the specific, urgent action I think you need to take, right now.

I'll be honest with you. When I moved here, it was never my intention to get back in the game of writing actionable investment advice each week.

I always saw my role here as a commentator... to paint a picture for you, one which you can draw your own conclusions from.

That was a good plan, but things have changed in two ways:
First, what I see fast approaching (as soon as this year)is just too important a development to ignore for Australian investors.


Second, I've already started moving my own money to counter this global threat. This is what my recent trip to Baltimore was all about. If it was important enough for me to make a change, I reckoned it was something you might want to know about too.
A major change is coming in the global economy – one that could hit Australia especially hard – and I've personally begun preparing for it. I think you should, too.

And yes, this IS personal.

More than 50,000 Australians read The Daily Reckoning every day. Almost the same number read Money Morning.

That's more like-minds than I EVER thought we'd find here.

Call me old fashioned, but I believe like-minded friends have a duty to share their best advice with each other.

Also – your friends are usually the only people willing to tell you news you don't want to hear.

So that's what I'm doing. And why I'm doing it. I hope you'll take it in the spirit it's offered.

And I really hope you can spare a few minutes right now to have a read of my letter below – then take the action I recommend at the end.

Please understand: I wouldn't be doing this if I didn't think I was right...

My very best regards,


Dan Denning
Publisher



--------------------------------------------------------------------------------


Exit the Dragon


The investments you need to ditch now – or China's 2010 collapse could clean you out


REVEALED IN THIS MUST-READ LETTER...
Why at least ONE THIRD of your private wealth and 107,000 Aussie jobs are under imminent threat: discover why the most basic assumption behind Australia's 'miracle economy' is about to be proven catastrophically wrong... and what you stand to lose when China's real estate bubble bursts this year...


Ghost towns, theme parks and enough empty Beijing offices to fill 35,612 tennis courts: Revealed – what's REALLY driving the Chinese property boom... and why you're staking your financial future on bogus demand...


Two 'evasive' investments you need to make urgently: discover the Aussie investments you need to ditch now... and two to move your money into quickly – if you want to shelter your wealth from the fallout while everyone else comes undone...
AUTUMN 2010

Dear Friend,

When any relationship ends, it's painful.

"The worst part," said a close friend at The Lord Cardigan restaurant in Albert Park, Melbourne the other night, "isn't the break-up itself..."

"It's the moment you first realise you've been deceived."

His eyes narrowed...

"You breeze along happily, believing everything's okay, loving everything about your life... and all the while, behind the scenes, you're being duped.

"The moment you find out things aren't what you thought they were – that's what hurts the most. It's the deception. Nothing prepares you for the shock..."

I did what I thought a friend should: I offered words of condolence and support, made sure his glass was regularly topped up, and picked up the bill at the end of the night.

I felt awful: I couldn't warn my friend that the most important relationship in his life was under threat.

But I CAN warn you. You see...


Like my friend, you've been breezing along
in a relationship you think is wonderful

This relationship provides you with great returns on your private share portfolio and your super.

It gives the state you live in money to build roads, offer healthcare and provide jobs. It keeps the value of the dollar in your pocket strong. It saved Australia from a recession last year. And it has underpinned our economic growth for the past decade.

You may not even realise you're in this relationship. You may take all of the above benefits for granted.

But you are in this. EVERY Australian is.

And today I'm writing to tell you: we're being duped.

Things are not as you think they are. This relationship is on shaky ground. And today I want to reveal the extent of this deception to you before any kind of 'separation' is announced.

Because believe me, when that comes later this year, if you're not financially prepared for it, you'll need more than a free meal and a few words of condolence to see you right...

I'm talking about Australia's – and your – relationship with China.

"Ah!" You might be thinking...


"But I'm not in a relationship with China!"


Oh, but you are, whether you like it or not!

Let me show you just how strong your relationship with China is...

Take a look at the pie chart to the right. This is the ASX – the Aussie stock market – broken down into its component sectors. I've circled three sectors for you: Materials, Industrials and Energy. (Source: S&P equity indices)

These three sectors contain the stocks that have benefited most from the China building boom: exports of Aussie materials and energy, and mining operations that dig resources out of the ground to send to Chinese construction firms.

What does this mean to you?

Well, these three sectors make up 39 percent of the entire Aussie stock market. If you're an investor, the chances are that at least 39 percent of your money is being staked on China's continuing growth. In reality, it's probably way more than that.

Resource, materials, energy and mining stocks are what most half decent investment advisers, your colleagues at work, your mates down the pub – even your Granny would urge you to buy right now.

And if you leave your investment decisions to a fund manager (highly likely) your portfolio is more than likely flooded with these stocks, whether you realise it or not.

Now here's the thing about these companies you're invested in:


They are all riding high on the China boom

"Pinning our economy to China comes at a price. We believe [there will be] a slowing in demand for resources over 2010 and as a result prices will come off. Of course, with resource stocks making up almost 40 percent of the Australian stock market, this will mean a bumpy ride."


Paul Winter, Equity Strategist
Investors Mutual Limited

We pile into these stocks because of huge Chinese demand for our natural resources.

Total resource exports to China were worth AU$42,353,000,000 to the Australian economy in 2009.

That's an increase of 31 percent on the previous year.

The only other country that increased its imports of Aussie raw materials in 2009 was India – by a much smaller 7.2 percent.

All other trading partners cut their orders of Australian resources in the same 12 month period.



Look at the graph to the right. See how China has now overtaken Japan as our main trading partner. (Source: Australian Government Dept of Foreign Affairs
and Trade)

A lot of Aussie resource stocks – including many of the ones you may own – have gone up on the back of this Chinese demand. And a lot of people have made a lot of money quickly.

Check out the charts (right).

Look at the 10 year performance of leading Aussie resource stocks BHP Billiton, Rio Tinto and Woodside Petroleum (03/00 – 03/10).

These stocks have gone to the MOON over the past decade (aside from a small but significant blip I'll get to in a moment).

Bottom line: This is why your fund manager is furiously loading up on resource shares on your behalf... maybe even as you're reading this...

My advice today:

Pick up the phone.

Tell him to stop.

Why?


Because these stocks and hundreds more like them will plummet like an anvil in a Roadrunner cartoon when the China bubble bursts

Whoa there just a second...

Why would China stop buying Aussie resources? Don't the Chinese want 400 new cities by 2020? What are they going to build them out of – marshmallow?

I know this goes against the grain. The idea of China suddenly saying: "stop the cranes – we're big enough now" is fanciful to say the least.

But here's my point: I don't think they'll have a choice when their real estate bubble bursts.

My friend, there's much more to China's seemingly relentless growth than meets the eye. And that means one of the most basic assumptions behind Australia's 'miracle economy' could soon be proven catastrophically wrong. If you have even a shred of interest in your future financial security, I urge you to spare me the next five minutes of your time...


You won't read a more valuable
letter in the next 10 years

You may have already figured out what's at stake for your own wealth in the event of a China collapse. If you haven't, I'm about to spell it out for you – so you may want to pour yourself a stiff drink before you read any further.

But first I want to make a very important point:

There IS an exit strategy on the table for you today. That's why I'm writing. You can 'invest your way around' the coming storm – as long as you're a) smart and b) quick.

In this letter I'll explain exactly what you need to do now to protect your wealth from the effects of China's real estate bubble bursting. I've identified two investments that are natural hedge positions against any decline in China's imports of our natural resources. I want to tell you about them today.

Take my advice and you could avoid the hassle and heartache that most Aussie investors will stumble blindly into (because they don't know it's coming). Better than that: you should even turn a PROFIT while everyone else is struggling to make sense of what's going on.

Let me be absolutely clear: you will not get this warning anywhere else. Too many people in the financial services industry have a vested interest in the China growth story. The last thing they want you to do is move any money out of Aussie resource stocks.

But I'm 100% independent, I don't have a vested interest in your cash, plus I have a track record for spotting this kind of thing. I'll explain more about me, and my 'Exit the Dragon' strategy in a moment. First, you need to know:


Why much of the demand for Aussie resources you've built your investment strategy around is BOGUS

I said earlier that one of the most basic assumptions behind Australia's 'miracle economy' is about to be proven wrong.

The assumption is that China is hooked on economic growth.

It isn't. If you take only one thing away from this letter, let it be this: China's expansion is POLITICALLY – not economically – motivated. This is NOT about economic growth; it's about political stability... stability at ANY cost.

"It [has become] rational for [Chinese]state and non-state actors to spend much more effort on politics and much less effort calculating market risks and rewards."


Robert Gottliebsen
Business Spectator

This finally became clear to me on 12th February this year. The Chinese showed their hand – and the alarm bells began clanging. Right now they're clanging louder than the chimes of St. Peter's Basilica at midnight on Christmas Eve.

My message to you today is clear:

You are gambling your returns – maybe even your retirement security – on the political whims of an irrational overseas communist government.

This bogus demand for resources has created a real estate bubble in China.

James Rickards, former general counsel of hedge fund Long-Term Capital Management calls it "the greatest bubble in history with the most massive misallocation of wealth..."

Stephen Green, an economist at International Bank says: "We believe we now have a bubble in many [Chinese] cities, particularly the big ones..."

Jim Chanos, President of Kynikos Associates says: "I see all the signs of a credit induced real estate bubble that I think is going to be a doozy..." Worryingly, he concludes: "I'd be very leery of companies who are exporting materials to China to build up this construction bubble..."

These are strong words – and here are some strong images to back them up:


China's 'ghost towns' expose the myth of economic growth

Watching the Chinese New Year celebrations in Shanghai earlier this year, you'd assume the fastest growing nation on earth to be a thriving place, full of energy, excitement and hope for the new decade. But that's the China they're happy to show off.

What about the other China – the one you don't normally get to hear about? Places like...

Chenggong

Ordos

Thames Town

New South
China Mall
Chenggong – where there's no one home... Construction of this city in Yunnan province started in 2003. Seven years later this shiny new metropolis teems with pristine high-rise apartment blocks, marble tiled government buildings, state of the art high schools, a large university campus, and a CBD filled with shops, banks and municipal offices. It's got everything except for the one major ingredient a thriving city needs: people! (image source www.ft.com)


Ordos – which is deserted... Full of fancy buildings and abundant infrastructure, this Inner Mongolian city was built from the ground up in just five years and meant for 1 million inhabitants. Today, the streets are deserted. Residents of Old Ordos, 35km away, are largely unimpressed with the gleaming new city they didn't ask for and have decided to stay put. (image source: www.nytimes.com)


Thames Town – which is uninhabited... this English-themed 5bn Yuan development on the outskirts of Shanghai is a collection of Georgian and Tudor-style townhouses, low rise apartments and gated complexes, designed to house 10,000 people. The development opened in 2006. Four years later, despite a huge marketing effort, the town is uninhabited. It's now a place Chinese couples visit for a few hours to have wedding photos taken. (image source: www.psfk.com)


New South China Mall – which is empty... Opened in 2005 in the city of Dongguan, this 9.6 million square ft behemoth is the biggest shopping mall in the world, with room for 2,350 stores. It has seven 'zones' modelled on various cities and regions of the world. It also has a 25 metre high replica of the Arc de Triomphe, a 2.1 km internal canal complete with gondolas and a 553-meter long indoor-outdoor roller coaster! Trouble is, 99 percent of the stores in the so called "Great Mall of China" lie empty. (image source: www.thenational.ae)
Isn't this just the weirdest thing you've ever heard of?

Imagine: you can be walking around in the most populated country on earth and not see a single soul for weeks and months on end? Doesn't this make you just a little suspicious... or concerned?

It certainly raises several questions – which as an investor in all this you have a right to hear the answers to...


But at least now you know what happens to all
that Aussie iron ore, coal and copper!

These recently built multi-billion-dollar ghost towns should be enough to make any Aussie resource investor twitchy. Here is actual physical proof that the companies you invest in are servicing a demand that just isn't there.

But that's just the beginning of it.

I'm guessing you haven't heard about Beijing...

Like me, you probably assumed that China's capital was a bustling commercial city and had completely embraced the country's transition to a market economy...

Well, get this: currently HALF of all the commercial real estate in the centre of Beijing is vacant. We're talking about a space the size of 35,612 tennis courts – just empty.

"It does not make sense for China to build more empty buildings and add capacities in industries where you already have overcapacity. I think the Chinese economy will decelerate very substantially in 2010 and could even crash."

Marc Faber
Bloomberg Television
11/02/10

According to Jack Rodman, of Beijing Law firm King & Wood, 500 million square feet (46.5 million square meters) of commercial real estate has been developed in Beijing since 2006.

That's more than ALL the office space in Manhattan, New York City – thrown up in less than four years!

Rodman says it would take 14 years to fill the vacant offices – provided occupancy rates returned to what they were in the peak years of 2004-2006.

Now get this: in spite of the fact that half the office blocks in Beijing are empty, the Chinese authorities are adding a further 1.2 million square metres of NEW commercial space to the CBD this year!

Rodman says this 'defies logic'. He warns of a 'massive amount of oversupply' and is convinced the Beijing real estate market is about to tumble because of it.

Hedge fund manager Jim Chanos warned in January, after the Dubai debt crisis came to light that "China is Dubai times a thousand" and that "the [China] bubble could burst sooner rather than later..."

Which prompts the question:


What will happen to the Aussie firms supplying these resources to China if this real estate bubble bursts?

Right across China, vast areas of land are being made available by authorities. Construction firms are winning lucrative contracts to build new cities, communities and commercial centres. Investors are sinking massive sums into these firms and those who supply them with raw materials.

Property speculators are piling into these brand new developments in their millions. The New York Times reported in March that one Shanghai investor recently bought 54 properties in a single day – that's two and a quarter every hour!

Shanghai advertising executive Andy Xiang says: "the speed you buy a house here is faster than you buy vegetables..."

This buying fury has pushed land prices up fast. According to Standard Chartered, the average land price in China increased by 106 percent last year. That includes more than 200 percent in Shanghai, 400 percent in Guangzhou and 876 percent in Wenzhou.

"Last year a record $560 billion of residential property was sold in China, an increase of 80 percent from the year before, according to government statistics that are widely considered reliable."

David Barboza
The New York Times
March 4th 2010

Right now, apartments in the luxurious Tomson Riviera development in Shanghai sell for US$2,300 a square foot.

By comparison, the average luxury apartment in Manhattan sold for around US$1,900 a square foot in the last quarter of 2009.

This all looks impressive on paper.

But if there's no real economic need being met – isn't this just inflating a huge real estate bubble?

Professor Yu Yongding, recently retired director of the Institute of World Economics and Politics believes so. He says:
"Chinese demand just cannot keep up with the supply being created by over-investment". Worse, he says that "the Chinese government response has been to invest more money in projects that will only create even more over supply... this is an unsustainable process... [the authorities are] producing too many things the population is not demanding."
This fake demand has also pushed
Aussie stock prices up and up

Earlier I showed you the 10-year share price charts of BHP Billiton, Rio Tinto and Woodside Petroleum. You could overlay the performance stats of a hundred other Aussie resource firms and you'd see exactly the same picture over the same period – huge growth. You may have benefited from this.


Look at the bar chart on the right. Over the same period, Australia's exports to China have rocketed almost FOUR-FOLD (Source: Australian Government Dept of Foreign Affairs and Trade).

There is no coincidence here.

The Aussie economy is joined at the hip, waist and ankle to China.

Sales of raw materials to China alone are worth around $42 BILLION a year to our economy, according to the government.

The Australian resource sector provides hundreds of thousands of jobs (mining alone employs 107,000 Aussies)... good returns for shareholders (to date)... tax dollars for the government... it keeps the currency strong...

"Coal royalties paid to the NSW government have already more than doubled in the past three years, helping to push the budget back towards balance. Mining royalties now rival gambling taxes as a source of NSW government revenue, expected to boost state coffers by $1.41 billion next financial year. Coal royalties make up 95 percent of that."


Jessica Irvine
The Sydney Morning Herald
March 17th 2010

"Any reduction in [Chinese] growth will have significant implications for the Australian economy and share market. Any faltering in China's growth would exacerbate the risk to export income,"


Lonsec
March 1, 2010

Over the past 20 years, the mining sector alone has contributed over $500 billion directly to national wealth. According to The Australian, one commodity (iron ore) from one state (Western Australia) to one market (China) accounts for an incredible 10 percent of our total annual merchandise exports.

China will use this iron ore to create an estimated 880 million tonnes of steel per year by 2015, according to ABARE. That amount of steel would make 16,666 Sydney Harbour Bridges – every year!

Exports grow, money flows back, and it makes Aussies feel rich. The Rudd stimulus that helped us avoid a recession... new roads... healthcare... state budgets...

All of these have been funded by Chinese money.

Robert Gottliebsen in Business Spectator says that the Federal Government's May 2010 budget "has behind it the simple assumption: that the China boom will continue for the foreseeable future..."

He goes on:
"We have a simple blind faith in the China growth story. So far we have ignored most China warnings and we may have been right.

May it continue because we are totally unprepared for the disaster that will befall Australia if the China doubters turn out to be half right."
Michael Stutchbury, writing in The Australian, adds: I don't know about you, but I'm more than a little concerned about all this.

And I get especially nervous when I think back to what happened to the ASX in the immediate aftermath of the 2008 global financial crisis...


The warning shot that nobody heard

Most Aussies were oblivious to the 'GFC'. Australia was the only country in the western world that didn't enter a technical recession, thanks largely to Chinese demand for our resources. Basically, China bailed us out – and as a result, Australia is now entering its 19th straight year of economic expansion.



GFC Causes 37% Fall in AUD
But guess what? This did not stop investors fleeing the ASX in their droves as soon as the full extent of the financial crisis became clear.

You may not have realised this mass exodus was happening.

The Aussie dollar certainly did.

In August 2008, as the full extent of the sub-prime crisis was being realised, the AUD fell from US$0.98 – almost parity – to US$0.60 at the end of October. That's a 37% drop in the Aussie dollar in four months.

Look at the chart above right. The top line at the furthest left point represents the Aussie dollar (AUD) Vs the US dollar (USD) The chart tracks this relationship from May 2008 through August 2009. (Source: www.goldprice.org)

See what happened to the Aussie dollar at the height of the financial crisis in 2008? It fell off a cliff.

Aussie resource stocks got shellacked too. Remember that 'significant blip' I told you about earlier? This was the GFC wreaking havoc on ASX stocks – including the three I showed you before.

Mining blue chip BHP Billiton fell from $50 to almost $20 over the same time frame – a 60% loss.

The Aussie dollar is what's called a 'commodity currency'. It's strong when investors are bullish on resource stocks and weak when they lose confidence – even temporarily and for whatever reason – as you can see clearly on the chart on the previous page and the three charts I showed you earlier in this letter.

I'm getting to my point – but first, take another quick look at the chart again. See the bottom line at the furthest left point? That's the gold price in Aussie dollars. Look at its almost perfectly inverse relationship to the AUD...

That should give you a bit of a clue about one strand of my urgent China hedging strategy... details coming up...

Right, here's the rub: this 2008 meltdown happened regardless of our dependence on China and regardless of the resource story. The problem was not related to Australia at all – which is a big reason why the AUD and stocks have (pretty much) returned to pre-crisis levels.

It was a 'flight to safety' reaction to the global financial crisis and it gave our economy a fairly nasty short-term jolt.

What's my point? Simple: if an unrelated panic can have this kind of impact on our currency and stock market...


What effect would a sudden collapse of
resource exports to China have?

We're so hooked on the China growth story – and so frightened we might miss out on making a shed-load of money - we invest heavily in the Aussie firms who supply China with raw materials without really paying attention to the story behind the headlines.

Many of us have made huge 'all-in' bets on China sustaining rapid building and economic growth... either intentionally because we see a bull market we want a piece of, or unwittingly as passive investors in the share market.

We think it's a simple story about a developing country striving for prosperity... we believe demand for our resources is just going to keep going up and up... and that there's no simpler case for investment on the planet.

We can't throw our cash down quickly enough. But this is money you may be counting on to help you out in retirement.

That's why I hope you'll forgive me for being blunt:

If I am only 'half right' that this growth is politically motivated, jobs will disappear, the ASX will plummet, the Aussie dollar will nosedive and any investments you had in resource stocks could tank quickly.

"Anything that is dependent on Chinese investment demand would obviously be the most vulnerable to a Chinese growth disappointment"


Pivot Capital

It will DWARF what happened to our economy after the global financial crisis. Put simply: If resource exports to China collapsed we don't have much else to fall back on. That's why you don't want your investment cash solely in Australian stocks in the event of this kind of slowdown.

Bubbles always burst when too much money piles into the same investments at the same time. Markets overheat. They become 'overbought'. When that happens, investors can get cleaned out in the mass selloff well before they realise what's going on.

If I were you I'd urgently move some of my money out of Aussie stocks and into investments that will be largely unaffected by a China slowdown... I'd give myself an insurance policy so that the money I'm trying to grow doesn't get wiped out when this starts to unravel.

And I really do think it will happen this year.

Morgan Stanley reported on March 2nd that iron ore contract prices for 2010 are to rise by 60 percent... and it's now looking like BHP Billiton has secured an even larger rise of 100 percent! That's INSANE when you consider China is basically building ghost towns and theme parks. How many more can it build?

Mark my words: when this crash comes, it's going to hit Australia hard.

The China boom has been nothing but good news for Aussie resource investors – up to now. But it's time to re-evaluate. I know a bubble when I see one.

When I saw the shocking pictures of those Chinese ghost towns my worst fears were confirmed: Australian resources are going to build entire cities no one wants to live in. Whatever you think about the reasons behind it (and I'll give you my two cents in a second), this cannot continue.

The problem is, many Australians have made high-stakes bets that it will continue – without being in full possession of the facts.

But here's the thing:

I'm even more worried now for Australian Investors

Listen, I don't want to frighten the hell out of you. But I do want to spur you into action.

We'd all love everything we invest in to go up and up forever. But, simply, the real world isn't like that. The China boom has been great for Australia, and it probably will be again, but we're due a correction. Soon.

"China is a growth economy, but we need to be careful we are not being played as part of a longterm strategy."


Here's why China is building huge
cities no one wants to live in

The simplistic argument would be to say that China is obsessed with GDP growth. In 2009 China posted whopping GDP growth of 8.7 percent. Simply put – the more a country spends and the more it builds, the higher its GDP.

This growth has been prolific. Analysts predict China will overtake Japan as the world's second largest economy by the end of 2010. That just leaves the United States to topple. And U.S. GDP shrank by 2.4 percent in 2009.

But China's motivation isn't economic growth.

It's political stability.

China's rulers believe that if they move people from the farms to the cities and give them prosperity, they won't rise up and revolt. The authorities see economic growth as a necessary condition for political stability.

This is about the communist government hanging onto power.

A draft discussion paper, produced by delegates at the 2nd Berlin Conference on Asian Security (4/5th Oct, 2007) backs this up:
"The most important political goal of the Chinese Communist Party (CCP) is to maintain its leadership and survival as long as possible. To do so, 'economic development' and 'political stability control'... are necessary conditions"
They also report that: "[The] Chinese people support the Communist Party's rule as long as the Chinese economy improves."

That's why the ruling clique in Beijing commissioned hundreds of new housing and commercial developments, transport and infrastructure networks, even brand new cities...

"The nation's "massive monetary stimulus" risks triggering large asset-price increases, a housing bubble, and bad debts from the financing of local-government projects."


World Bank
Quarterly Report on China

"Regulators are in control of the banking industry, and have the ability to curb lending as needed."


Michael Geoghegan
CEO, HSBC Holdings Plc

That's why it poured US$585 billion into its economy in the form of a stimulus package last year. Most of this has gone into yet more infrastructure and construction projects, creating more jobs and business for building contractors and suppliers of raw materials...

That's why these eerie 'ghost-towns' are springing up all across China... And,

That's why Chinese demand for Aussie resources isn't economically motivated.

And if it isn't economically motivated, it's bogus. It can't last.

Remember – the performance of roughly 39 percent of the stocks on the ASX is hinged on China's continued economic growth. When you buy these stocks with your money, that's what you're betting on.

But this growth is not organic. It's manufactured, stage-managed and heavily controlled. The Chinese authorities can turn it on and off like a tap whenever they please to suit their political aims. That's pretty worrying if you're investing with money you're going to need in your retirement.

Yes, I know it sounds a bit 'out there' but...


On 12th February 2010 I knew my theory was right

The significance of this wasn't widely understood, but on 12th February, China's authorities quietly increased reserve ratios in its banks to 16.5 percent. According to Colleen Ryan in the Australian Financial Review, this action effectively removed US$300 billion from the Chinese economy.

You read that right: the authorities REMOVED $300 billion...

"Recent heated investment on stocks and estates among Chinese people provide another source of threat on social and political stability. Recent enormous price increase of estates worsened income and regional disparity problems and placed an enormous pressure on the living costs of ordinary people. Skyrocketing stock prices already became a political burden. If the stock market collapses... it will certainly provide a window of riots against government."


On China's Internal Stability
2nd Berlin Conference on Asian
Security, 4/5 October, 2007

This is after they'd poured $585 billion IN last year.

Why would the Chinese do that?

Well they're worried, believe it or not, about inflation. Yes, we are talking about the same country that's seemingly obsessed with rapid economic growth!

In January alone, Chinese banks loaned US$203 billion dollars. That was more than the previous three months combined and 20% of the annual target.

January producer prices were also up 4.3% over December prices... all of this sparked fears in Beijing that the economy may be starting to overheat.

The government moved swiftly. It immediately raised the capital holding requirements of Chinese banks.

This knee-jerk reaction bought the picture into sharp focus for me.

This is the skittish behaviour of a bunch of control freaks. A government that acts this quickly and decisively to keep an iron grip on its economy sends a worrying signal to anyone with a stake in China's growth.


Why is this worrying for Aussie resource investors?

Raising capital requirements means banks have less money available to lend to businesses. Yes, this is a pretty effective way to curb inflation.

But it also slows demand for credit by real estate speculators. That, in turn, puts the brakes on commercial property and fixed asset investments... and that slows demand for Australian iron ore and other resources.

That can pull stock prices down, quickly.

Bear in mind the Chinese lending boom pushed the value of some commodities UP hugely from their 2008 lows. Between March 2009 and March 2010, zinc rocketed 120%... copper soared 165%... and lead shot up 152%...

So why wouldn't the opposite be true when lending is reined in?

That's a huge concern for Aussie resource investors. But the bigger concern by far is that this secretive, paranoid, power-hungry, one-party dictatorship has Australia's prosperity over a barrel.

Do you want your future financial security determined by the irrational political whims of an overseas government?

I sure as hell don't.

That's why you need to put a hedging strategy in place quickly. I don't know when the effects of a China collapse will be felt by Aussie stocks and reflected in the value of the Aussie Dollar... I don't know how long it will take for the real estate bubble to fully deflate...

But mark my words: like all bubbles and winning streaks, this one will end.

When it does, you'll need to be prepared. Luckily for you – you will be...

I've put together a briefing detailing two investments you should move into now. I'll explain how you can get a free copy of this report in a moment – first here's a preview of what's in it...


'Exit the Dragon' Play 1: make the
RIGHT kind of gold investment

My first recommendation is that you immediately get some exposure to gold.

This shouldn't really come as a big surprise. Gold is the ultimate hedge against a drop in the value of paper currencies – in this case AUD.

I'm sure you know that in times of economic uncertainty investors flock to gold as a protective measure. Gold tends to do well when stocks fall, and vice versa, as investors take their money out of one and put it in the other depending on the prevailing market sentiment.

'Exit the Dragon' Play 2: stash your
cash in this snubbed economy

When the China buying boom slows down, one of the first currencies investors will abandon is the AUD. That's because when you take away resources there's little else of interest here to international investors.

We already saw what happened to resource stocks the last time investors dumped the Aussie dollar after the financial crisis hit. There is an even bigger risk to those stocks in the event of a China collapse.

Step number two of my hedging strategy should neutralise it...

The economy I think you should invest a portion of your portfolio in is in an entirely different position to Australia: it imports raw materials rather than exporting them. And unlike China, it uses those resources to build things people actually need. It has a HUGE manufacturing sector.

The way I see it; if China stops buying our resources, Australia has nothing to fall back on. We have precious little manufacturing – we don't even make enough to satisfy our own demand.

Aussie investors tend to follow a 'home country bias' when considering possible destinations for their cash. This is largely thanks to narrow-focussed advice from the highly ineffective luddites in the funds management industry.

Take it from me – if you're to stand any chance of protecting yourself when the China bubble bursts, you need to ditch this way of thinking - QUICKLY.

You trust these people with your super fund contributions – and they're supposed to have your best interests at heart – but it's obvious they're only concerned about two things: the commission they make on your account and how they can use you as a stepping stone to higher-networth clients.

They pour your cash into stocks without much thought given to whether these investments are right for you. Once they've spent your money they'll leave you in a position for as long as it suits them to do so.

That's not really acting with your best interests at heart.


And here's the real kicker: you're no better off
using a fund manager than just leaving your
money in the bank: OFFICIAL

According to ABC news, Between March 2000 and February 2010 the average interest rate for term deposits in Australian banks was 3.92%. The median retail super fund delivered just 3.7% in the same time! What does that tell you?