As for the broader markets, I’m not going to say anything about stocks and bonds because there are very few that are worth owning. That’s not to say 2003 wasn’t a good year to have done so. But I believe that we’re on the edge of a disaster for bond holders. And that 2003 was a rather inevitable (however unpredictable in timing) bear market rally. And, since stocks are so overpriced by any conventional measure – in addition to the fact I can see absolutely no reason to own them – I suspect they’re headed down in the months to come. The public may be down on the beach picking up pretty shells, now that the tide has gone out after the storm, but they’re going to be washed away when it comes back in.

There is an exception to this, however: The resources issues. As I pointed out last month, all the metals have skyrocketed – copper, nickel, molybdenum, PGMs, cobalt, you-name-it. The only relative laggards have been oil and the precious metals. No problem. Their stocks went through the roof last year.

In recognition of these things, I spent a week at two mining conventions just before this went to press. I’ll discuss all the companies I visited with in the March issue, which I believe you’ll find quite interesting..

China

I’ve spent a fair amount of time in China over the years, not even counting living in Hong Kong. There’s no question in my mind the 21st Century will belong to China, much as the 20th did to America. Europe will mainly serve as a source of houseboys and maids for the Chinese. But, try as I might, I can’t see a safe direct way to take advantage of this megatrend at the moment.

It’s widely touted in the press that the Chinese yuan is an undervalued currency.

The Chinese government reports $403 billion of foreign exchange reserves at the end of 2003, net of the $45 billion they used in the bank bailout. That’s a rise of $117 billion from the end of 2002. It’s unclear in exactly what form that money is held, but the vast majority is undoubtedly US dollars. Supposedly, they’ve been selling yuan to buy dollars (in the form of US Treasury securities) in order to enhance their exports. Maybe. After all, the US appears to have a bottomless appetite for both foreign capital and foreign goods. But if I was a Chinese central banker, I’d feel pretty stupid holding all those floating abstractions, in that they’ve lost about one third of their value against stronger currencies in the last couple of years. And I’d want to replace the paper with gold.

How about buying Chinese stocks? I don’t think it makes any sense. The huge amount of bad bank debt, combined with government bailouts, a rapidly expanding money supply, and an absolutely frenetic building boom has got to have created gigantic distortions in the country’s economy. You have no way of knowing how all that could affect any given company. But it’s not likely to be good.

I’m not trying to be negative about something most people seem to think is a “sure thing” just for the sake of being contrary. Although the fact everybody likes something as an investment is reason enough to be contrary. I’m a huge China bull. But the time to buy is during a crisis, not what’s likely the peak of a boom.

In any event, my approach is not to diversify broadly, but to concentrate force in what seems to be the best place to be. And that continues to be precious metals and mining stocks.

Europe

Whenever I visit heavily taxed, heavily regulated, bureaucratic, welfare-ridden, philosophically socialist Europe I’m forced to ask myself how it’s able to do as well as it does. One would expect to see a gradually declining standard of living, but to all appearances, the place seems to be doing fine. Even if it’s not booming the way the Orient is.

As for regulations, Europeans have many more, but they feel no moral imperative to obey them. And, although the average European may be a socialist, he’s also enough of a cynic to save as much of his paycheck as he can, unlike most Americans.

Those things, plus centuries of accumulated capital (hence Milton Friedman’s famous dictum “There’s a lot of ruin in a country”) are the factors holding the place together.

But with the EU coming down hard on traditional tax havens, and severely compromising bank secrecy within Europe, it’s going to become much harder and more expensive to evade taxes. And that’s going to erode the continent’s capital base. Further, European Central Banks have been aggressive sellers of gold over the years, and now the Euro is “backed” mostly by the US dollar. That’s eventually going to be a big problem for savers.

I continue to be a big fan of the Orient, where people culturally have most of the European’s virtues, and still few of their vices.

New Zealand

Longtime readers know I’ve been a fan of New Zealand for years, both as a place to invest and a place to spend time. The place is still as beautiful and friendly as ever, but some of my enthusiasm is waning. As those of you who acted on my previous advice have found, the Kiwi dollar has risen from a low of US$0.39 to a recent high of almost $0.70 – about a 75% gain.

I think the New Zealand dollar can go higher for several reasons. One is that, despite its huge increase, prices here are still cheap by American standards; they’re just not free anymore. Another is that this is a commodity-driven economy, and the bull market in commodities has really just gotten started. A third is that, notwithstanding bear market rallies, the US dollar itself is in serious trouble.

I also think property prices here can go higher. It’s going to continue to draw well-to-do Americans and Europeans looking for a safe, mellow place for at least a second home; the world’s political situation promises to become uglier and more dangerous in the years to come. Furthermore, the place is increasingly a magnet for opportunity-seekers from the Orient. New Zealand will do just fine, and I still urge you to get on a plane and take a look – especially during the northern hemisphere winter, when the climate down here is a delight.

One thing about New Zealand is that it’s testimony to how progress can and will be made in spite of the best efforts of government to subvert it. New Zealand has been burdened with one loopy socialist government after another practically forever. Including the present one. But it’s still a nice place to be. One can only conjecture how much better it would be if Wellington wasn’t populated by wingnuts dedicated to dissipating their countrymen’s capital. In places like Niue, for instance.

Niue

An excellent example is offered by Niue (not to be confused with Nauru, or Norfolk Island), a 260 sqaure kilometer island nation north of New Zealand. The place has been independent since 1974, but relies basically 100% on welfare from New Zealand. The 1,500 residents are supposed to have a GDP of about NZ$14 million, but all that proves is how unreliable, even ridiculous, such figures can be. They produce nothing but some coconuts and taro, and two-thirds of the 500 people who are employed are on the government payroll. Everybody knows it’s just an embarrassing scam; New Zealand pays these people NZ$7.5 million a year to pointlessly shuffle papers..

I know a number of Niue people, and have been tempted to go to there. And not just because it’s a quite beautiful coral atoll, unusual in that it’s raised, on average, about 40 meters above sealevel. If I wanted a beach/diving vacation, I’d go back to Thailand. Tiny countries like this tend to overlook their most valuable asset: their national sovereignty. There’s a real need for another Hong Kong, and with the proper legal and economic environment, Niue could become one. What put me off was that there’s only one flight in to the place each week. And, as far as getting the natives excited about making their country a beacon of freedom and prosperity for the world… let’s admit it, it’s easier to just collect the dole. I’ve been through the drill in a half-dozen other countries, and will likely entertain the idea again only if I’m desperately in need of amusement.

But Niue could be worth a trip not for either hedonistic or altruistic, but mercenary reasons. On January 6, the place was totally devastated by Cyclone Heta, whose 200 m.p.h. winds destroyed practically every building on the island. At this point, most of the remaining residents are thinking of moving to New Zealand (which is already home to an astounding 20,000 Niueans). I suspect property prices were already low, considering what a big island it is, but land is probably close to free now. I suspect it would be a great place for a resort except, knowing the work ethic of Pacific islanders, you’d have to import all the staff from the Orient. And regulations would probably make that impossible.

It was funny reading accounts in the paper of comments by locals. Almost everybody seems to feel the New Zealanders have an obligation to rebuild the island for them, including their personal homes. And keep the money flowing at current levels, even if most everybody goes to the mainland to collect their dole.

…and Thailand

So we’ve written off China for the time being. But the Orient is still the best place to be for almost everything. It’s a big place, however, so we’ll have to narrow it down a bit. Especially since, even though it needs a library and a lifetime of experience to understand, we only have a few paragraphs.

My first choice for high potential, as longtime readers will recall, has been Burma. It’s very cheap, very beautiful, lightly populated, and right next door to Thailand. The ruling generals, who make it a political pariah now, will be gone at some point. But, in the meantime, a clever entrepreneur can make deals with them, because they all want to feather their nests. Property here will go up 10 or 20 times over the next generation. Want to make millions while having fun? Go to Rangoon.

I like Laos, a fairly large country of only four million, but it’s as sleepy as can be. And I can’t put my finger on what will finally, or ever, light a fire under the place. I haven’t been to Cambodia, but a close friend who’s lived in Hong Kong most of his life has convinced me it’s actually the place to be. It has a coastline, and land prices are very low. It’s still in recovery from losing a quarter of its population under Pol Pot, and gets almost no tourism, except for visitors to Ankor Wat. I’ll relate the full story to you when I next get back to Southeast Asia.

I recognize that few will take advantage of these tips; perhaps they’re too exotic. But most good investments are off the beaten path, and a little hard to get into. And often a little scary. Of course. It’s once they’re popular, and most of their potential has already been realized, that, perversely, they carry serious risk.

Which leads me to Thailand. Thailand, where I spent almost three weeks over the Christmas holidays, has always been my favorite country in the Orient as a lifestyle choice. It’s an excellent choice for the holidays, as well, if only because you’re likely to be bedeviled with sappy Christmas carols only on December 25th itself. Santa Claus, like McDonald’s and Coca-Cola, can be found in every nook and cranny of the world.

As an investment, beachfront land here has been a standout, going up about ten times in the last decade alone. It’s not absolutely cheap any more; an acre of beachfront on Koh Samui will run about $200,000, minimum. Of course, that’s still cheap relative to what you pay in Hawaii, or Florida, or California. And it’s far more desirable, in my opinion. You’ll find the costs of food, construction, and servants are a tiny fraction of what they would be in the States. And although you can easily get absolutely anything you want, the lifestyle is far more laid back. One reason it’s so friendly is that it was the only country in this part of the world that was never colonized.

Thailand is actually the safest and surest way to play the boom in China, as well. As the Chinese middle class grows, they’ll travel. And they’ll pile into Thailand, as a first choice foreign destination, simply because it’s such a delightful place. The price of land is going to go much higher.

Of course things can go wrong for a while; timing is important. The main downside to Thailand is its government, under Prime Minister Thaksin. It’s currently a popular regime but, for reasons I’ll describe shortly, there’s serious trouble brewing. Thaksin used to be a general in the (notoriously corrupt) Thai police; to have risen to that height, you’ve got to presume Thaksin excelled at corruption. He also has an unfortunate authoritarian streak, reminiscent of Singapore’s Lee Kwan Yu and Malaysia’s Mahattir. Which partially accounts for a rather astounding 2,500 supposed drug dealers being killed in gun battles with police over the last year. And insane new rules forcing bars to close at 1AM and soon, the rumor is, at midnight. Thailand is, in case you didn’t know, the party capital of the Orient.

He thinks the Thais are too undisciplined; in fact he thinks everything is too undisciplined. So he’s trying to organize new international cartels for sugar, rubber, and rice; cartels always end in disaster. Among other stupid economic ideas are the building of a $35 billion canal across the peninsula, lots of easy credit for both business and consumers, price controls, cash giveaways averaging $23,000 each to 70,000 local hamlets, subsidized home loans, and allowing debtors to put off loan repayments.

What this megalomaniacal nincompoop is doing is creating a credit-driven boom, and it’s going to result in a bust. Most Thai companies are highly leveraged, so it’s welcomed by everyone, right now, prominently including Thai investors. All the world’s stock markets, which tend to move together, went up substantially last year – mostly, I believe, as a reaction to having gone down three years. But there’s no good reason for the Thai stock market to have gone up about 100% last year (making it the world’s best performing) other than a booming money supply.

Fortunately, Thai culture will outlast Thaksin, the boom, and the coming bust. And the country remains perhaps my top choice as a place to both vacation and to have a crib in the Orient. But I’d hold off major investments until the bust. Which I expect will come within a couple years.

Here’s a travel tip. The best hotel in the world, for my money, is the Peninsula in Bangkok. It’s much classier, and half the price, of the Oriental across the river, which has been unjustly rated as the best for years. In Koh Samui, don’t even think of staying at the outrageously overpriced Meridian; stay at the excellent, and conveniently located, Nordic Inn, for US$50 a night.

This article originally appeared in the February 2004 edition of Doug Casey’s International Speculator, and is used here with permission from Casey Research, LLC, 166 South Main St., Suite 2b, Stowe VT 05672.

Visit www.caseyresearch.com for information on subscribing to the International Speculator, or the Casey Investment Alert - Doug's premium service for the most serious of investors.