The last decade has seen tremendous changes in the global economy. The US superpower has increasingly taken on debt. Then they have turned around and monetized that debt. The result long term will be a greatly devalued currency. Inflation will also be a concern when the economy rebounds a little. This may lead to questions around the validity of the USD as the reserve currency. And that could be very interesting. Contrary, China has been slowly building its economy. With over 1 billion people, China is poised to be a resource black hole. That gives you 1 billion reasons to invest in resources.
Resources cycles tend to move capitalforbusiness in a very long fashion. But that super cycle can be exploited. People who were investing in resources when the industrial revolution was taking off did very well. But now the US, and other developed nations, are debt laden and waning. China, however, is on the verge of its own revolution.
Per capita GDP has to fall in the range of about $3000-$5000 for an economy to garner a consumer, middle class. Once that happens, resource needs start accelerating as the economy starts developing. That means that China, with 1.3 billion people, will start consuming more and more resources. It’s hard to wrap our minds around the enormity of that kind of consumption. But let’s make a comparison of the US and China.
The US tallies about 310 million residents thereabouts. China, as we’ve already seen, weighs in at about 1.3 billion residents. Oil usage in the US runs around 68 barrels per capita. China, on the other hand, runs around 5. Think about the demand side of things when China starts moving to 5, 7, 9 barrels. And we’re talking 1.3 billion people here. And that’s not even considering all the other resources that China is stockpiling. Likewise, we haven’t mentioned India’s economy. Though I believe India will lag behind China.
The story is the same with electricity. The US consumes around 12 kWhr per capita. China currently consumes 1 kWhr per capita. Again, the story remains the same with other resources like copper, silver, steel, uranium, etc. And a look at China’s nuclear facility proposal would make you blush. It’s very,very aggressive. Any way you slice it, resource demand is going to go through the roof.
Resources are great because they are tangible goods. They have intrinsic value. Yes, resources are volatile in the short term. But the super cycle of resources is set and ticking. Once China and India move to prominence, resource usage is going to sky rocket. It would be prudent for an investor to consider resources in one’s portfolio.
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