I don’t think it’s a coincidence that when you look at when silver really started to rise sharply and get into a parabolic stage was on the heels of the testimony

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We’re racing to the airport at Pudong. We don’t know why we are racing; there is plenty of time. But the driver seems to want to set a new land speed record for a taxicab.

He’s rocketing along at 100 mph. The cab weaves flawlessly through the traffic.

But what’s this? The cab driver has taken both hands off the wheel. He is putting in a CD. Moments later…what da…?

Country road, take me home, to the place, I belong…
West Virginia, mountain mamma, take me home…

This is no country road. It is about the most modern highway we have ever been on. Flyways…flyovers…bridges…elevated highways…we have just gone over the river on a bridge that looks like it was built yesterday. Now, we are cruising along through the smog in 8 lanes of traffic.

Over on the left, a ghost city is barely visible through the gray haze. It must have dozens…no hundreds…of office and apartment towers. There is a huge parking lot on the left…and then, in the distance…another city. We see only the shapes. But it is a city as big as Bethesda…no, as big as Baltimore….

We continue our Taxicab 500…passing cars on the left…then on the right…and then, right through the middle… slipping through a narrow space with cars and trucks on both sides.

Again on the left is another of these spectral cities… Is it Cleveland? Is it San Diego? In size, it could be either. We left downtown Shanghai a half an hour ago. But we are still passing through towns…industrial parks…and building projects. There must be a dozen cities the size of Baltimore between the center of Shanghai and the airport.

The airport, of course, is new…like everything else…and colossal. It is Dulles in style. But bigger, many times bigger.

Can there be any doubt that China is destined to become the world’s economic superpower? It has the size…the energy…the know-how. And it has the money.

One of our Dear Readers in Shanghai enlightened us:

“I came here 20 years ago. Then, we foreigners had so much more power and money…and technology. We could call the shots.

“Our company still does about half its manufacturing in the US. The local companies here in China can beat us on price every time. And the contracts are huge, so we can make a lot of money here…even with low-cost, relatively low-margin products. But the top quality stuff still comes from the US. The Chinese have not quite caught up – partly because the market here doesn’t want too much quality.

“There’s such a fast turnover. People don’t want to pay for products that will last too long. Things are changing too fast.

“So for now, the quality here on many items still isn’t up to US standards. It’s just a matter of time, though. I’m going to retire in 5 years. I figure that’s about as long as we’re going to be able to do these deals. After that, it’s all over. They won’t need us. They have the money. They have the skills and technology. We won’t have anything to offer.”

Generally, the more you do something the better you get at it. The Chinese are making more cars…more highways…more trains…more office buildings and more of everything than anyone else. It is no wonder that they are doing these things well – maybe better than anyone else too.

A new train service between Shanghai and Beijing begins next month. Trains will travel between the two cities at up to 300 kilometers per hour. Already, a high-speed maglev train takes you from the airport to the city so fast that you arrive before you find a seat.

But so what? You’re probably wondering. So are we. So what if the Chinese take the lead in wealth and innovation?

You remember those 5 big trends we mentioned in yesterday’s “The Land of Rising Prices and Stagnant Incomes”? You don’t? Well, we’ll repeat them:

1) The Great Correction – in many of the advanced economies, but centered in America…

2) The continued rise of the developing economies…not just in Asia, but in Latin America and Africa, too.

3) The increasing scarcity of cheap energy, land, water and raw materials.

4) The decline (suicide might better describe it) of the American Empire.

5) The approaching end of the dollar-based world financial system.

The interesting, and frustrating, thing about these trends is that they all intersect in various ways at various times…setting up collisions that are as unpredictable as they are hazardous.

You’ll notice, too, that the China story runs right through the middle of them, like a tanker truck through a pizza parlor. It is the central story to the rise of Asia and the developing economies. It is a large part of the reason low-priced commodities and natural resources are disappearing. The Chinese currency is almost sure to rise as the dollar-based world financial system comes apart. And China is also the likely successor to the US Empire.

We have neglected this theme for years – ever since we published (with Addison Wiggin) our opus on the subject, Empire of Debt. But the killing of Osama bin Laden reawakened our interest.

One of the few things we don’t wonder about is why the feds killed Mr. bin Laden. It would have been far too messy and uncomfortable for them to put him on trial. After all, before he was America’s greatest enemy, he was one of her greatest friends.

Yes, dear reader. Mr. bin Laden rendered much service to the US Empire, specifically to the US defense establishment. First, he set up Al Qaeda, with CIA help, to harass the flank of America’s most powerful enemy – the Soviet Union. Then, when the Soviet Union fell, the defense industry was despondent. There was no longer any need to invest such a huge part of America’s treasure on ‘defense’ when there was nothing to defend against.

With no plausible threat, the defense budget would have been easy prey for the budget hawks. But then, in their hour of need, like the Argentine generals coming to the aid of Maggie Thatcher’s approval ratings, Osama bin Laden came to the rescue. At least, so it appears. We would have been very curious to find out more about his role in the 9/11 attack; unfortunately, the trial of Osama bin Laden was cut short by two bullets fired at close range.

Not that we’re criticizing. If we were in a position of power, we probably would have wanted him to disappear too. The last thing anyone in the CIA would want to see would be Osama shooting his mouth off in front of the whole world.

According to The Atlantic magazine, bin Laden triggered $3 trillion of spending by the US. How much of that ended up in the pockets of defense contractors? One percent? Five percent? We have no idea, but even 1% would be a $30 billion windfall, probably about equal to the annual profits of all the world’s automobile companies combined.

But now what? Osama is in Davy Jones’ locker. And the US is headed to bankruptcy. Will the Pentagon and its suppliers go gently into that good night – of budget cuts and shrinking profits? Or will they rage…and find a replacement for Mr. bin Laden? China, perhaps?

Stay tuned.

Bill Bonner
for The Daily Reckoning

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n Part One of the Investment U interview, Jim discusses the primary influences for his recent book, the signals of a potential bubble in the commodities markets, and why the twenty-first century belongs to China…

Garrett Baldwin: The book is A Gift to My Children: A Father’s Lessons for Life and Investing. Where did you find the time to write such a reflective piece on life and investing?

Jim Rogers: It was really just put together over a life, having made many mistakes and having a periodic few successes in my life. It took a lifetime to make all those mistakes and figure out how things work.

The book started when a Japanese reporter once asked me, “What are you teaching your daughter?” And she wrote an article explaining what I was teaching my daughter. She did that again and again.

The next thing you know, she had a dozen columns or so about things I had said. After reading those columns and reflecting on them, I started making it into a book. It was first published in Japan. The American version is much more extensive.

Garrett Baldwin: You start with the message: “Swim your own races.” How has that lesson helped you, both as an investor and, as you put it in the book, “a citizen of the world?”

Jim Rogers: Well, I, probably like many other people, always assumed that [everybody] else knew more than I did, and so I would try to copy or mimic other people, or at least think about how other people were doing things.

But eventually I realized when I listened to someone who I thought knew what he’s talking about, but I disagreed with him, it turned out that I was right and he was wrong. After that happens enough times, you start to realize, “Maybe I should listen to myself instead of [everyone else].” That gave me the insight and the confidence to swim my own race.

Garrett Baldwin: You state that the more ridiculous the investment idea, the better it is for the contrarian investor. So what seems ridiculous but also high potential on your radar?

For Remainder of Interview read more HERE

I’ve worked on Wall Street my entire life, and one thing I’ve learned is that large institutional investors, like pension funds and endowments, rarely veer from the herd. They manage too much of other people’s money to stick their necks out alone-if their investments go bad, at least they can point to everyone else who fared just as poorly.

For this reason, these funds are often lagging in their perception of crucial market changes-changes such as a doomed currency. While many of us are buying precious metals to hedge against the collapse of the dollar, gold and silver have been taboo investments on Wall Street for years. Fund managers are taught that gold is a “barbarous relic” – much better to stick with government bonds and blue-chip stocks. That’s what everyone else is doing.

But there are early signs that the herd is changing direction.

In a remarkably under-reported story, the University of Texas’ endowment fund-the second largest in the country, after Harvard’s-added about half of a billion dollars worth of gold to its portfolio just this month, on top of the half-billion it purchased several months prior.

The university’s endowment now owns a staggering 6,643 bars of bullion (664,300 ounces) – which have already appreciated by nearly $40 million since mid-April , when the bars were delivered to a dedicated HSBC-owned vault in New York City. Not a bad start.

Kyle Bass, the well-known Hayman Capital hedge fund manager and UT endowment board member, advised the university on the purchase. He stated his reasoning plainly: “Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services? I look at gold as just another currency that they can’t print any more of.”

Apparently, the university agrees that sitting on a pile of fiat paper is an act of faith not befitting a prudent and enlightened institution.

The purchase is certainly causing a few heads to turn.

Now that a major endowment has taken this step, other fund managers are going to be emboldened to follow through on their gut instincts. These are smart guys, after all; they are aware that although their funds may be posting nominal gains, they are losing much more in purchasing power. I wouldn’t be surprised if many have privately bought precious metals, but now they have cover to do so professionally.

Perhaps the most interesting part of UT’s billion-dollar repudiation of Fed Chairman Bernanke and his printing press, however, is that the fund demanded physical delivery of the bullion. While more commonplace in Europe, this is truly unprecedented for a stateside institution.

To my mind, the delivery of physical bullion suggests at least two important implications. The first is that UT perceives gold to be a long-term strategy for wealth preservation, as opposed to a short-term speculation. The second is that UT must be somewhat concerned about the stability of financial markets in general – it wants to own physical gold safely stored in a vault, as opposed to owning paper claims or other instruments with counterparty risk.

I have long recommended that investors hold at least 5-10% of their portfolios in physical precious metals. UT’s $1 billion position represents roughly 5% of its $20 billion endowment.

If endowment after endowment were to decide to sell billions of Bernanke’s dollars and diversify into gold, what might this do to the gold price? If  these colossal funds start getting the idea that holding 5% of their portfolios in gold is more conservative and intelligent than holding the current average of 1%, what would this mean for gold demand? I think the answer is clear.

If US university endowments were to increase their gold positions from the current average of 1% to an average of 5% of their portfolios, it would equal $20 billion, or roughly 400 metric tons of gold at today’s spot price.

Beyond endowments, private foundations in the US, with 2010 assets totaling nearly $600b, would similarly require nearly 600 metric tons of gold if they sought to hold 5% of their assets in the metal.

And again, these are just US endowments and foundations; there’s a whole world beyond our borders.

The point here is simple-the total potentially investable funds around the world are significant relative to the size of the current gold market. It’s not hard to perceive what a simple move from 1% to 5% of average portfolios would do to the price of gold, and this is why the University of Texas’ bullion delivery is so important – it’s a vivid indication that such a move may now be taking place.

Gold remains widely neglected among the big money players, but it’s clear that they’re beginning to come to terms with the negative prospects for the US dollar. After all, while fund managers don’t want to veer from the herd, they also don’t want to follow the herd off a cliff.

The University of Texas, with its billion-dollar stash of physical gold, is one institution that has finally seen the cliff. The physical delivery of this purchase exemplifies the severity of the threat that UT’s endowment board perceives.

We may be on the cusp of a smart-money gold rush. If so, it could drive gold to a record in real terms, even before retail investors join in.

For Peter’s latest gold market news and analysis, sign up for Peter Schiff’s Gold Report, a monthly newsletter published by Euro Pacific Precious Metals and featuring original contributions from Peter Schiff, Casey Research, and the Aden Sisters. Click here to learn more.

Please note: Euro Pacific Capital is not affiliated with Euro Pacific Precious Metals, however, Peter Schiff is CEO of Euro Pacific Capital, Inc. and CEO of Euro Pacific Precious Metals, LLC.