Money Morning Investment Director Keith Fitz-Gerald is currently leading an investment trip through China, taking in that country’s culture and scenery, as well as its investment opportunities. Here is Part III of a short series detailing his observations and discoveries.

By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

YANGTZE RIVER, CHINA – The sky is a brilliant blue, the wind clean and crisp and the China where National Guide Jun Hao works resembles the landscape we’re passing – a jumbled mix of the old and new, and a backdrop to a lifestyle that’s suddenly changing much too fast.

"It’s dramatic," says Hao, sweeping his hand through the air for emphasis. "Yes …that’s definitely the word for it."

The rolling hills of China’s Yangtze River valley provide the most graphic and concentrated evidence we’ve seen yet of the change that is modern China.

As far as we can see, there are crumbling old houses built hundreds of years ago and communist-era "flats" – apartments – set low against the hills. Behind them, and set higher, are sparkling new ferro-concrete relocation villages.

But there are no cars, and almost no people visible. Most of the "new villages" don’t have electricity or running water. And their residents remain farmers who head out each day to work the dramatically terraced fields that rise precipitously above the gorge.

It’s as if the new is fleeing the old, yet somehow remains tied to it. But it’s the red lines – and the accompanying signs that read "175 meters" – that are perhaps the most sobering hint of the change that’s to come, for the lines and signage serve to warn passersby where the water will be next year when the reservoir of the massive Three Gorges Dam is finally full.

Story continues below…

Sign up right now, and we’ll send you an important new report for free: “The Three Best Investments in Asia.”

The surface of the water already has risen up and over the 150-meter mark. It’s odd to think that …as we move along the water’s surface …there are entire villages – even cities – far below us, down in the blackness, beyond the reach of the sun’s rays.

"It’s hard to imagine what’s happening in China," Hao said, reflecting upon his life.

He was born in a centuries-old hutong – the narrow streets or alleys that are part of life in old Beijing. This one wasn’t too far from Tiananmen Square, meaning he grew up among the poorest of the poor.

His family shared their courtyard residence with seven other families – perhaps 35 people in all – in a space designed and built for a single family. There was no running water and only a single community bathroom that was literally just a hole in the ground.

"We were poor," Hao says. "Very poor."

Even so, he says, "my earliest memories are very happy ones." Hao recalls playing with other children as in the alleys as they waited for their parents to draw water each morning.

"We didn’t lock our doors – we didn’t have to," says Hao. "Our dreams were simple. Any family having a bike, TV, radio or simply a sewing machine was envied."

Changes Begin

The first hints of change came while Hao was in high school. Then, during his high school years Hao recalls the first glimmers of change. The Cultural Revolution – with all its pain and chaos – finally came to an end, and true reform was able to take hold.

For Hao, the most magic of moments came when he learned that the farmers were suddenly allowed to grow what they want. That meant he could put food on his family’s table. Even today, roughly two decades later, the memory of that singular event is both moving and highly personal for Hao.

He recalls the amazement he felt when the country’s domestic "apple" jeans became the Chinese Prada garment of their day. Almost overnight, he says, "the green, black, gray and brown Mao jackets vanished," only to be replaced by fashions that raised more than a few old-generation eyebrows. "Suddenly we could listen to Taiwanese pop music."

"At that point," Hao recalls today, "we knew change was real. In more ways than one."

Hao’s father, a career customs officer who spoke French, English and Chinese fluently, suddenly died, leaving Hao – as the eldest son – responsible for everything.

"It was …how do you say …a ‘rude awakening’," Hao says, his eyes misting a bit at the memory.

It was just about that time that Hao’s grandfather offered a bit of advice that Hao recalls even today: He told Hao to "eat foreign rice," meaning that Hao should find a career that puts him squarely in front of the changes that would be opening China up to international influences. He also told Hao that he absolutely needed a college education to compete.

"He was a very wise man," Hao says. "Even back then, even though he would not live to see it, he knew my best future would be to get an education and to work with the coming changes rather than [to] run from them."

So that’s just what he did.

Stepping Into the Future by Stepping Out of The Past

Hao graduated from high school just after the Tiananmen Square protest of 1989, and began selling newspapers, doing odd jobs, accepting manual labor positions, and working at any job that he could find.

Not only did Hao get into college, he earned enough to pay for his tuition and support his family at the same time. And, in doing so, he became "self-sufficient" – a concept that could not even be imagined by prior generations.

Hao notes that "since before I was born, Chinese have been taught to be part of a collective group. You are always part of something else. Now it’s different."

"Now," Hao observes, "we Chinese can be individuals. And, we can have individual value."

That’s something, he says that previous generations couldn’t imagine. Even now, after all the changes that have taken place, Hao says it’s a concept his mother still cannot accept or understand.

During college, Hao finally got his shot at "foreign rice." He took – and passed – the National Guide License Exam. At the time, "it was harder than college entry boards and still is," an elite examination, he notes with pride.

Today, Hao is 34 and is one of China’s top national tour guides. He earns more money in a year than his wise grandfather earned in his lifetime. He travels all over China, and all over the world. He’s married, and he and his wife have their own flat in Beijing. They even have their own car. A family, for now, isn’t in the plans.

"We want one," he notes, "but we’re worried about the future."

That’s the downside of so-called "freedom of choice;" the freedom to succeed means that there’s also a freedom to fail.

That’s why "we want everything now," states Hao. "I think we see this in the stock market, too. Most Chinese have had such rapid change that they don’t understand that the rest of the world takes time."

"We don’t worry about ‘now’," he says, making quotation-mark signs with his fingers for emphasis. "We worry about the future. So we save, save, save."

Hao is stunned when I tell him that American consumers have a negative savings rate – at a time when Chinese savers tuck away 40% of their income.

In a candid moment, Hao says he must look ahead, for he realizes he could be unemployed next year.

Indeed, he’s quick to point out that the plummeting U.S. dollar has clearly affected his business.

"I have to quote the trips I plan months in advance," he notes. "As the dollar drops, I make less because the cost of making each tour is going up here in China."

There’s an irony with current market conditions that make him feels as if his life has traveled full circle – at least a little bit.

"Now I worry about meat on the table at New Year’s, which was the same thing my family worried about when we were dirt poor and living in the hutongs" when I was small and growing up in Beijing.

With equal candor, Hao concedes that this realization means he’ll "have to get better at anticipating what will happen" next, in both the near term, and well ahead.

But to be part of China’s new economy is "exciting," he observes. He wouldn’t change a thing – even if that were possible.

And it’s not. The fact that China is changing cannot be altered or stopped. After all, as Hao notes, quoting a famous Chinese adage: "Kai gong mei you hui tou jien."

That means that, "once the arrow is released from the bow, it will not come back."

[Editor's Note: "The View From China" is an investing travelogue chronicling Money Morning Investment Director Keith Fitz-Gerald's current journey through Mainland China. Fitz-Gerald last wrote about how China's changes are creating profit opportunities for U.S. investors. Next up: The key questions to ask about China. For more insight on China investments, click here to find out how you can obtain a copy of investing guru Jim Roger's new bestseller, "A Bull in China," free of charge.]

News and Related Story Links:

• Money Morning Investment Travelogue:
  The View From China: The Seeds of Change Bode Well for U.S. Investors.

• Money Morning Investment Travelogue:
  The View From China: A World Case Study for Alternative Energy.

• Wikipedia:
  Three Gorges Dam.

• Wikipedia:
  The Great Wall of China.

• Wikipedia:
  Emperor Qin_Shi_Huang.

• Wikipedia:
  Mao Zedong.

• Wikipedia:
  Deng Xiaoping.

• Wikipedia:
  Jiang Zemin

Money Morning Investment Director Keith Fitz-Gerald is currently leading an investment trip through China, taking in that country’s culture and scenery, as well as its investment opportunities. Here is Part III of a short series detailing his observations and discoveries.

By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

MUTIANYU, CHINA – When you step up on to the top of China’s Great Wall where I am today, it’s instantly clear that China is unlike any other place on earth – although not for reasons you’d normally think.

It’s true that China’s a communist country that’s steeped in tradition by virtue of a history that reaches back thousands of years. But there are changes afoot that may make the next generation of Chinese leaders the best yet.

And like the Great Wall, which was initially built under Emperor Qin Shi Huang (221-210 BC), those changes may last for centuries.

Groomed under the Party’s watchful eye, these men and women are beginning the long process of change that will culminate with their installation as leaders in 2012. They speak openly of change and of opening China.

This contrasts starkly with Mao Zedong, Deng Xiaoping and Jiang Zemin who were educated (some would say indoctrinated) in the former Soviet Union.

While we’re seeing glimmers of this in the current generation of leaders – including President Hú Jǐntāo and Premier Wen Jiabao – it’s the next generation that will really demonstrate the commitment to change.

For the most part, both Hu and Wen remain inwardly focused – even though both have traveled extensively outside China. That’s an important point. For travel outside China has provided these two leaders with a perspective that the country’s leaders have never previously possessed.

In short, by virtue of this experience, they know that "foreign rice" is China’s future.

With that insight, China’s current leaders are laying the groundwork for the most profound changes the country has seen in centuries. But those sweeping changes will be the responsibility of the next generation of leaders, who have received substantial portions of their education in the United States and Europe. They are eager to embrace the best the world has to offer and to assume their place in the international affairs realm.

This suggests that China’s incoming leaders actually understand what they’re getting China into, and have the firsthand experience to carry it out. It also means that they can build upon the foundations being established today by Hu and Wen and others.

The bottom line: It’s very likely the world will be able to work much more closely with China, at a much-higher level and with a more-complete agreement than we have at any other point in the past.

This scares a lot of people who may not appreciate 1.3 billion of our closest friends suddenly bursting onto the world’s stage.

So consider it this way: We view this as the greatest investing opportunity of our lifetime.

Besides, this isn’t going to just happen all at once. Like the Great Wall, which stretches for thousands of miles, the process will take place one brick at a time.

Now if I can just find a way back down….

[Editor's Note: "The View From China" is an investing travelogue chronicling Money Morning Investment Director Keith Fitz-Gerald's current journey through Mainland China. Fitz-Gerald last wrote about how China's growth in helping push up global oil prices. Next up: How China views the rest of the world - especially the United States. For more insight on China investments, click here to find out how you can obtain a copy of investing guru Jim Roger's new bestseller, "A Bull in China," free of charge.]

News and Related Story Links:

• Money Morning Investment Travelogue:
  The View From China: A World Case Study for Alternative Energy.

• Wikipedia:
  The Great Wall of China.

• Wikipedia:
  Emperor Qin_Shi_Huang.

• Wikipedia:
  Mao Zedong.

• Wikipedia:
  Deng Xiaoping.

• Wikipedia:
  Jiang Zemin

Money Morning Investment Director Keith Fitz-Gerald is currently leading an investment trip through China, taking in that country’s culture and scenery, as well as its investment opportunities. Here is Part II of a short series detailing his observations and discoveries.

By Keith Fitz-Gerald

Investment Director
Money Morning/The Money Map Report

XI’AN, CHINA – For years, I’ve been telling hushed, incredulous audiences around the world that oil prices were headed higher – much higher.

I consistently list three causes: Supply, demand, and interruption.

The first is obvious – even though most folks still don’t want to believe it. Data suggests we’re burning through the world’s petroleum reserves four times faster than we’re finding new ones. We haven’t had a major new discovery of significance in 30 years. And, adding insult to injury, we still don’t have workable substitutes in place (alternative energy technologies such as fuel cells, for instance), even though we’ve had decades of warning to get our act together.

The second, demand, is tougher to call. On one hand, higher prices are reducing demand in so-called first-tier countries. But when it comes to the rest of the planet, all bets are off.

Here in China, for example, they’re using fuel at an accelerating rate. Part of that is the increasing reliance on fuel oil, but an even bigger catalyst is simply because companies like Chery Automobile Co. Ltd., Geely Automobile Holding Ltd., and Chongqing Changan Automobile Co. Ltd., are producing inexpensive, gas-powered cars for the masses.

The same is true in India where Tata Motors Ltd. (TTM) $2,500 car is opening up driving and vehicle ownership to millions of consumers who otherwise would never have also become motorists.

And they’re gearing up for more. China Petrochemical Development Corp., Sinopec Shanghai Petrochemical Co. Ltd.,  and China National Petroleum Corp. are adding as much as 24% to their crude oil refining capacity in the next three years. Much of that is simply to cope with an economy that’s risen at 10.6% the first three months of 2008 – the ninth-straight quarter of double-digit expansion.

China, which is already the world’s second-biggest energy user, will need to import as much as 60% of its oil by 2020, according to Wang Jiacheng, deputy director of the research unit at the National Development and Reform Commission.

Combine that with terrorism, and we have a trifecta of reasons why oil will go far higher.

And there’s nothing in the near term that can prevent it.

Naysayers counter my thesis by arguing that high prices will lead to conservation as the economics of driving become unfavorable. We agree – but even that will take time to happen.

The problem is that China and India, in particular, are getting into the game at a time when they have no experience with low prices. So the "higher" prices that are causing the rest of the world fits are largely irrelevant to those two newcomers.

Story continues below…

Sign up right now, and we’ll send you an important new report for free: “The Three Best Investments in Asia.”

What’s more, in very practical terms, the only time you really have a real drop in consumption and an increase in efficiency is when consumers buy new cars … and airplanes … and machinery.

But here again the avenues to change are limited.

Not only are Americans tapped out and unable to buy new cars, but their credit is as wrecked as are the financial markets that would otherwise accelerate this process of change.

Here in China, it’s a different ball game. The savings rate is 40% or more, and consumers are so flush with cash that they’re buying new cars and trucks at a breathtaking rate.

That helps explain why the automotive industry here grew 22% last year, putting nearly 9 million new vehicles on the road and substantially boosting the demand for gasoline and diesel fuels.

In recent months, there’s been another argument advanced and the talking heads are trying to blame much of what’s happening with higher prices on speculators.

That’s the financial equivalent of "the dog ate my homework."

What’s really driving oil prices is the combination of supply and demand imbalances that I’ve sketched out here, and a "fear of interruption" prompted by terrorism.

Global traders are doing nothing more than ensuring that they have access to oil no matter how high prices run. Absent an alternative, the reality is that no country on earth can afford to be without oil and the energy that it provides. This means that traders, whose job it is to procure supplies in the open markets, are simply doing what they are paid to do…make sure their clients can get it when they want it.

It’s like going to the super market. If there are 1,000 eggs and only 100 buyers, the price of an egg will be lower. But reverse the situation with a single egg and 1,000 buyers and you can bet dimes to dollars the price will sky rocket dramatically as buyers bid against each other to get that single – suddenly precious – off-white orb.

It really is that simple.

At some level, this stinks and I’ll be the first to admit that I hate feeling like I’ve been mugged every time I fill up.

But, as an investor, there are plenty of ways to take the sting we feel out of our wallets as a result of all this.

The simplest is to invest in commodities of all types. Not only are commodities a direct beneficiary of higher oil prices, they also demonstrate a remarkable resilience in the face of inflationary pressures like those we face now. Call it a "value meal" if you will.

It’s also a good bet to concentrate on alternative energy. The "tree huggers" who were long maligned as fringe members of our society actually have been right all along, and many will be vindicated in the next few years – especially when it comes to developing the so-called "green technologies."

Personally, I’m glad to see this take place, since it means there is nothing alternative about alternatives any longer.

And we can profit along the way.

["The View From China" is an investing travelogue chronicling Money Morning Investment Director Keith Fitz-Gerald's current journey through Mainland China. Fitz-Gerald last wrote about China's auto industry. Next up: A look at how China and the United States must work closer together to achieve common goals. For more insight on China investments, click here to find out how you can obtain a copy of investing guru Jim Roger's new best-seller, "A Bull in China," free of charge.]

News and Related Story Links:

• Money Morning Investing Travelogue:
  The View From China: Despite the Auto Industry’s Pedal-to-the-Metal Growth, a Safety Play May Offer the Safest Play.

• Money Morning Special Investment Research Report:
  Three Ways to Play Money Morning’s Prediction That Oil Prices Will Reach $187 a Barrel.

• Money Morning News Analysis:
  Goldman Sachs Follows Money Morning Prediction That Oil Prices Could Approach $200 a Barrel.

By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

Since the start of the year, the debate over the state of the U.S. economy seems to escalate by the day. The ongoing subprime mortgage mess, the resultant credit crunch and daily stories about housing defaults, escalating oil prices and lousy corporate earnings only seem to further fuel the debate.

Of course, we all see the government reports and analyst research notes that seem to contradict one another from one day to the next – and sometimes from one hour to the next.

So here at Money Morning, we thought we’d take a bit of a different approach, and use some of the social indicators that we’ve come across to develop a "Top 10 List" of reasons the U.S. economy may have achieved a new market bottom – though perhaps it’s not yet the ultimate market bottom.

Admittedly, this list is absolutely tongue in cheek. But social indicators do play a huge role in successful investing, even though the scholarly types often consider them little more than slightly disguised voodoo.

Nevertheless, here’s our Top 10 List:

10. Although its company stock is down 14% year-to-date, there are still 172 Starbucks Corp. (SBUX) employees for every citizen of Vatican City.

9.   The world’s three richest men – Warren Buffett ($62 billion), Carlos Slim Helu’ ($60 billion) and Bill Gates ($58 billion) – are worth as much as the combined gross domestic product (GDP) of the world’s 40 poorest countries.

Story continues below…

Sign up right now, and we’ll send you an important new report for free: “The Three Best Investments in Asia.”

8.   Chairman and Chief Executive Officer Angelo Mozilo of Countrywide Financial Corp. (CFC), and former executives Charles O. "Chuck" Prince III who was ousted from Citigroup Inc. (C) and E. Stanley "Stan" O’Neal of Merrill Lynch & Co. Inc. (MER), can still make house payments.

7.   Upscale hedge fund managers still prefer Mercedes SUVs for their nannies.

6. Weathermen have a better predictive record than economists.

5.   History shows that recessions wipe out between 20% and 25% of financial assets. Even with the almost $300 billion in financial write-downs we’ve seen so far, we’re still at a mere 5% of the total (depending on which numbers you believe).

4.   Alan Greenspan reportedly makes more money per speech now than he did annually as chairman of the U.S. Federal Reserve.

3.   U.S. Federal Reserve Chairman Ben S. Bernanke still has a job.
                                                          
2.   As of the close yesterday (Wednesday), the Standard & Poor’s 500 Index has only fallen 13% from its intraday peak on Oct. 11, 2007. Like a barber-school trainee, recessions typically clip 25%-30% off the top.

And the number-one reason we haven’t reached the bottom yet:

1.   BusinessWeek has yet to publish a successor issue to their infamous Aug. 13, 1979 cover story that predicted "The Death of Equities." That story preceded one of the greatest bull market runs in history.

News and Related Story Links:

• Money Morning:
  Dear Ben: To Save the U.S. Economy, Here Are the Moves You Need to Make Now

• Money Morning:
  Have We Hit The Bottom?

• Money Morning:
  One Sure-Fire Sign That Gas Prices are Heading Higher

Editor’s Note: Our friend and colleague, Keith Fitz-Gerald, is on an investment research excursion to Southeast Asia. Here’s the first installment of his investment travelogue.

Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

SINGAPORE — Any doubts I had about how the recent U.S. economic malaise was affecting the Asian region were promptly dispelled when I rolled off my 23-hour flight into Singapore`s Changi Airport.

At 11:50 p.m., it was every bit as busy as Frankfurt or any other major international airport in the middle of the day.

As I looked around while I waited to clear customs — a process that took nearly two hours because of heightened security — I was struck [as I am on every trip to the Far East and Southeast Asia] by just what a melting pot this is: There’s a simmering brew of Malaysian, Chinese, Indian and Western cultures here, and even late at night the energy is palpable. Right away, one can sense the uniqueness that is Singapore.

That’s exactly why I got started so early today — jet lag be damned!

After a four-hour sleep that resembled a nap more than it did any kind of real rest, I headed out for a stroll around Singapore’s core and the historic Orchard Road area. My goal, as it usually is when I travel, was to observe the city’s transformation as it wakes up to face a new day. Not only does this help me get grounded whenever I arrive in a new city, but when it comes to investments, there are few better ways of gauging a city’s economic vibrancy.

As usual, I wasn’t disappointed.

Singapore is running full throttle. The country has become Asia’s boomtown. Not only is it situated right at the nexus of centuries-old trading routes; the government has done a very effective job promoting free trade. Indeed, Singapore has enacted a bevy of regulations that are designed to encourage banking and financial development, including tax incentives, currency exchange and infrastructure development.

From the moment I hit the streets, I was overwhelmed by construction activity. There were thousands of migrant workers from Malaysia flowing into the city. And the whining and metallic crashes from the ubiquitous construction equipment melded into a din that only added to the sensory overload I was experiencing.

The old is being replaced by the new here, and old Singapore is being re-made into a cosmopolitan city on par with any metropolis in Europe or in the United States.

While it was once lined with pepper plantations where evening strolls were interrupted by the occasional tiger mauling, Orchard Road is now a palace of capitalism. In fact, it’s one of the world’s most concentrated shopping areas and within a few hours, it was filled with people. There were young executives, fashionistas in impossibly tight jeans and, of course, people like me, just taking it all in.

And everywhere I looked there were hints of the great economic boom we’re all following. Take Citigroup Inc. (C), for instance. Even though it’s under tremendous pressure in the U.S. market, Citi is creating a spectacular presence here when it comes to personal wealth management. So are China’s banks. Both had lots of signage and customers at their Orchard Road locations.

Then there were the cars. There are lots of them for such a seemingly small city, and most were fuel-efficient models. Singapore has no resources and needs to import nearly everything it consumes, so there is an emphasis on conservation. Not surprisingly, public transportation is cheap and very well run. It better be, given that there are some $90,000 Hyundais here.

With all that’s going on, it’s no wonder that legendary investor Jim Rogers chose to move here.

Speaking of whom, Rogers is the reason I’ve flown all the way to this part of the world. He and I will be sitting down together to talk global investing — and I can’t wait to share what I learn with you in the weeks ahead.

News and Related Story Links:

• Web site: Singapore’s Changi Airport.
• Web site: Singapore’s Orchard Road Area.

By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

Show me an effective Bush Administration economic stimulus package and I’ll show you a finger-friendly Cuisinart.

Who does President George W. Bush think he’s kidding?

The $600 bucks he wants to hand out isn’t going to do squat – and the securities markets know it, which is why they’re selling off so steeply as of late.

As much as I’d like to put the blame on Bush for the financial-markets mess we’re dealing with now, it really wouldn’t be fair. Instead, everything points to former Federal Reserve Chairman Al "Irrational Exuberance" Greenspan as being the key cause of this toxic financial soup. This puts his former sidekick and eventual successor – Fed Chairman Ben S. Bernanke – in the unenviable position of having to bring the country in from the rain.

Unfortunately, he can’t do it.

Government Inflation Stats Need Inflating

Despite the party line about so-called "core inflation" holding the line, Washington is badly out of touch with reality, and has been for a long time now. It’s bad enough that the core inflation figures factor out "volatile food and energy prices," as the reports always state. That’s almost a ludicrous thought: After all, the higher costs of food, gasoline, heating oil, air conditioning and electricity hit us squarely in the wallet, too. But, as we’ve been saying for years, even the core inflation numbers the government has been relying upon have understated the true effects of inflation.

Thanks to Greenspan – and years of cheap capital – the home equity market has been pillaged like a band of Vikings ran though it. The average family carries $8,500 to $12,000 in consumer debt, scattered across six to eight credit cards. Breakfast costs 60% more now than it did at this same time a year ago. Oil has nearly doubled, and medical costs are skyrocketing.

Then there are the soaring default rates and bankruptcies, which are escalating at rates we haven’t seen in years.

Unfortunately, Team Bernanke may be out of aces, which is why investors must take matters into their own hands.

Without subjecting you to a lecture on the finer points of economic theory, let me just say that taking the stimulus package the Bush Administration is currently contemplating and bringing it to bear on the current economic conditions is tantamount to bringing a knife to a gunfight. It’s outdated and is the wrong tool for the battle at hand.

Here’s why: The Fed’s current tactics presume that healthy financial institutions will be able to counter inadequate consumer demand. This is why the central bank has been working so hard to keep such "big boys" as Citigroup Inc. (C) and Merrill Lynch & Co. Inc. (MER) afloat.

However, using the words "healthy" and "financial institutions" in the same sentence is perhaps the ultimate oxymoron, because it was the financial institutions that got us into this mess, and they’re anything but healthy right now.

At best, some of these players are turnaround candidates.

But, healthy? No way…

Personally, I’m livid that my tax dollars are being deployed to bail out some of these financial institutions, when the markets clearly want to let them die a painful death. Nor am I happy that big companies are using tax loopholes and other financial maneuvers to dodge hundreds of millions of dollars in state and federal income taxes. That’s money that you and I will have to make up.

But what really burns my jets is that Wall Street paid out some of its biggest-ever bonuses for last year. Now the newly flush members of the Armani Army are shopping for homes in Aspen and the Hamptons, while many working- and middle-class homeowners are struggling to avoid defaulting on their subprime mortgages. The rest of us are trying to figure out what we’re going to do with the $600 we’re each going to get from the Bush anti-recession stimulus plan.

Don’t get me wrong: The money’s nice; but it won’t help much.

Clearly, the money rules have changed. And getting rich is the best revenge even as our esteemed leaders muddle around in a politically charged stupor.

Here’s how…

Profit Plays to Make Now

First, build a base. Invest as much as 50% of your assets in a category of investments we refer to as "Base Builders." That’s one of three asset classes – the other two being "Global Growth" and "Rocket Riders" – whose names are self-explanatory. Invest as much as 40% in Global Growth and up to 10% in the more-speculative Rocket Rider investments.

These are holdings that not only provide a significant potential upside, but also have automatic safety brakes built in. The Vanguard Wellington Fund (VWELX) is my favorite example. Since 1929, it’s captured most of the market’s upside, including a fair number of years with returns of 20% or better. But the fund has avoided replicating the worst of the downturns because of its 60-40 split between stocks and bonds.

Second, dial up dividends. Studies show that dividend-paying stocks are less volatile, and the consistent reinvestments along the way can build up a thick layer of financial armor that will actually boost your returns when the markets eventually do recover – as they will.

Certainly, dividend-paying stocks such as General Electric Co. (GE), Johnson & Johnson (JNJ) and Bristol Myers Squibb Co. (BMY) are great, but a dividend-harvest strategy like that utilized by the Alpine Dynamic Dividend Fund (ADVDX) can dramatically accelerate the process in down markets.

Third, run the reverse. Include at least a small percentage of "inverse" mutual funds or exchange-traded funds (ETFs) in your portfolio mix. In case you’re not familiar with inverse investments, these are funds that appreciate in value as the broader market drops. Not only can they help stabilize your portfolio during the increasingly volatile stretch like the one we’re attempting to navigate now, they can also really put a smile on your face when the going gets rough. One of our favorites is the Rydex Inverse S&P 500 Strategy Investment Fund (RYURX).

And fourth, and last, grab some "Global Titans." Make sure that you are focusing the more-conventional portions of your portfolio on the so-called Global Titan stocks that we’ve discussed with you so many times before. Companies such as Yum! Brands Inc. (YUM), PepsiCo Inc. (PEP) and The Boeing Co. (BA) derive big portions of their revenue from overseas. Not only can these securities overcome the weak U.S. economy, they can capitalize on the faster growth of key overseas markets as China.

It’s a formula for double-barreled profits that will clearly have a bigger benefit than a capital-infusion plan that nets each of us $600.

News and Related Story Links:

• San Jose Mercury News:
  Stock Markets Plunge Worldwide.

Editor’s Note: This is the 15th Installment of an Ongoing Series Highlighting the Global Investing Outlook for 2008.

By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

Following a spectacular run up last year, many investors are wondering what’s next in Asia.

We are, too.

The steady stream of news so far this year has only seemed to make things worse. And the current market volatility, which began with last summer’s U.S. credit crisis, seems set to derail U.S. economic growth. Throw higher oil prices, inflationary concerns and a dollar that’s turning out to be more like Rodney Dangerfield than Sean Connery into the mix, and you’ve got what seems to be a real mess.

Fortunately, though, if you take a look behind the headlines, Asian markets are holding up just fine and, although they are likely to continue to be volatile during 2008 [along with the rest of the world's markets], they’re full of promise for decades to come.

Much of that promise is obviously due to the region’s growth. But increasingly, it’s also a function of the combined strength of the area…as it relates to China.

A Repeat Performance with a Different Star

If this sounds familiar, it should. For the 50 years immediately following World War II, the region centered on Japan. And investors who went along for the ride went straight to the top on the back of a Nikkei exchange and regional trading alliances that knew no downside…until the late 1990s when the bottom dropped out.

As usual, those who were focused on the short-term got badly burned and have yet to recover, with the Nikkei still trading at merely a quarter of where it was at its peak. Alternatively, safety-focused investors who made intelligent choices did well.

Today, Asia faces a similar situation only this time with China at the helm. And many investors are sitting at a similar cross roads. Like Japan before it, China has experienced a whopping run-up, which makes it all the more tempting for people who missed that initial surge. But China is a riskier investment than ever before.

This combination makes us suspect that now is the time to get serious.

Balancing Risk and Returns

There’s no question the region will continue to grow for decades. Yet, in contrast to the record growth of the past few years, which was driven largely by speculative liquidity, the longer-term growth in the region will increasingly be China-centric.

To cash in, investors will have to do two things:

• Make smarter, "safety-first" choices that diversify – and don’t concentrate – risk.
• And limit investment choices to companies that are poised to capitalize on international exposure in the region.

Here’s why.

Large-cap companies, particularly those with global operations, can build business within the region – and with far less risk than those local companies engaged exclusively in a domestic-focused business. This helps ensure stability. Plus, many of these companies pay dividends, which are vitally important at the moment, because they help offset the elevated risks we take when we invest in the China region.

Further, by concentrating on the so-called "Global Titans" doing business in the region, we mitigate a "split-personality problem" that eventually will end up clobbering most investors who don’t adopt the safety-first philosophy we advocate.

I’ve been involved with Asia investments for more than two decades. And I’ve seen it time and again. The reality is that 99% of all investors seeking profits in the area don’t understand that there are differing investment views when it comes to local money and international money.

For instance, in Asia, managers tend to focus almost exclusively on top-line [revenue] growth, whereas Western managers and investors all tend to focus on bottom-line profitability. Obviously, those two objectives don’t always align. And that creates a potential mismatch that can wipe out unsuspecting investors who are out seeking a "quick buck" profit.

Profit Plays for a Potential Slowdown

Bigger-company shares – like those we prefer – will keep their edge longer, even if there is a China-induced slowdown during 2008. We think such a slowdown is unlikely. But given the high-valuations that remain after last year’s big run-up, it’s a possibility, nonetheless.

With regard to favorite choices that meet our regional criteria, some at the moment include Zurich-based ABB Ltd. (ABB), which provides electrical power infrastructure in the region. China Medical Technologies Inc. (CMED) and Huaneng Power International, Inc. (HNP) fit the "Global Titans" model, too, but in reverse. Both firms focus on China, but also have important international operations with great potential outside of Mainland China.

If a broader holding is more your speed, without a doubt the best in class in our opinion is the China Region Opportunity Fund (USCOX), a mutual fund run by San Antonio-based U.S. Global Investors Inc. (GROW). And U.S. Global, itself, is not a bad play on international growth. It manages some of the best emerging-market funds, and natural-resources funds, in the business. As global growth fuels global investments – and it will – U.S. global will see more money pour into its funds, boosting the management fees it collects, as well as its profits and stock price.

The bottom line on Asia in 2008 is that we expect global volatility to sweep through the region, even though it is awash with liquidity. We see China leading the pack for decades to come, just as Japan did a half century ago. Yet, in the longer-term, we don’t see a direct correlation between regional economic growth and equity valuations. And that suggests that a safety-first approach – with a focus on large-cap companies that are globally diversified – is the strategy to follow if you want to maximize your profits from Asia.

Money Morning‘s "Outlook 2008" series last covered Agricultural Commodities.  Next up: Biotechnology.