IMF Forecast: Can China Really Overtake the U.S. Economy by 2016?

According to the International Monetary Fund (IMF) “World Economic Outlook,” China’s output will surpass that of the United States in 2016 – only five years from now.

But don’t worry. The IMF calculation is based on “purchasing power parity” (PPP), which does not reflect real money. It relies on projecting China’s stellar growth rates five years into the future. And it relies on Chinese official statistics, which are more than a little questionable.

(In fact, after the media storm that resulted, the IMF apparently even soft-pedaled its prediction that China would leapfrog the United States in just five years; in a subsequent interview, an IMF spokesman reportedly said that, by non-PPP measures, the U.S. economy “will still be 70% larger by 2016.” A recent World Bank forecast concluded that China could overtake the United States by 2030.)

This prediction – and the attention it continues to draw – serves a useful purpose, particularly if it’s given the scrutiny that it deserves.

For global investors with China-based holdings, it reminds us of that country’s long-term potential – and the fact that such potential is always tempered by near-term risk. For the rest of us, it reminds us that China’s ascendance is inevitable – in fact, is already happening – and will be with us for a long time, even if that Asian giant isn’t immediately going to overwhelm the rest of the world.

And for our elected leaders in Washington, the IMF report – false alarm or not – should serve as a wakeup call to attack and address the many problems that threaten this country’s global leadership.

IMF Report: A Closer Look

I had some problems with this prediction from the moment it hit the headlines.

Let’s start with the IMF statistics themselves. They measure gross domestic product (GDP) on the basis of “purchasing power parity,” rather than by market exchange rates.

That makes sense if you’re comparing living standards: If you are talking about what the typical China consumer can buy, he or she is about one-sixth as well off as his or her American counterpart, not one-twentieth.

However, the use of the PPP measure makes much less sense when looking at international trade or political power. That’s because individual purchasing power includes such items as haircuts, which are much cheaper in Beijing than in Boston (except, doubtless, at a couple of very overpriced salons in Shanghai or one of the other burgeoning financial centers) and cannot easily be traded internationally.

On the other hand, goods that are traded internationally are subject to global market forces and are generally about the same price everywhere they are sold. In fact, some of those goods may even be cheaper in the United States, since our distribution system is more efficient and our tariffs lower.

….read more HERE (scroll down to this image below)

….read more HERE (scroll down to this image above)

The piece below is actually an integral part of Dow Theory. Charles Dow placed great emphasis on dividend yields, and Mr. Vronsky, who is editor and a partner of the great “Gold-Eagle” site, is obviously a serious student of the stock market. This piece by Mr. Vronsky should be of interest to all my subscribers. – Richard Russell Dow Theory Letters

2011 Echoes From The Past (Part 2)

By  I. M. Vronsky

Stock Indices Forecasts Based On Dividend Yields

In March 1997 I did an analysis addressing Stock Evaluation based upon Dividend Yield.

Ten years later in March 2007 I did an updated market analysis.

On April 17, 2011 I posted 2011 Echoes From The Past (Part 1).

The above three studies addressed one of the most fundamental and basic evaluation techniques, based upon DIVIDEND YIELD of the stock index. The principal theory is that if the Average Dividend Yield is too low, it reflects an over evaluation of the stocks making up the index.…ie stocks are over-bought or too high in price. Consequently, a stock market correction will cause the Average Dividend Yield to rise to acceptable levels.

A simple test of the dividend yield as a forecaster of future stock prices is presented in the table below (courtesy of “Stock Market Logic”). Shown are the one year returns which have ensued from various DJIA dividend yield intervals since 1941.

…..read more and view more charts HERE

Brief Excerpt from Richard Russell’s Dow Theory Letters. One of the best values anywhere in the financial world at only a $300 subscription to get his DAILY report for a year. HERE to subscribe. Amongst his achievements Richard was in cash before the 2008/2009 Crash and he has been Bullish Gold since below $300 Ed Note: Richard Russell is bullish Silver and holds one of the largest single positions he has held since the 1950’s in the precious metals.

Usually you can buy an investment anytime… but the window for this one closes in just a few days.

It Pays Up to 10% a Year… But ONLY if You Invest Before May 5

Without a doubt, it’s among the oddest investments I’ve researched.

Normally I’m poring over classic income securities — stocks, bonds, funds, and the like. I’m concerned about payout ratios… interest rates… economic forecasts.

This investment is different. You won’t find it on any exchange, and you won’t find a price chart. But don’t worry, it’s simpler to understand than any stock. Best of all, we’re guaranteed not to lose money.

You read that right. We won’t risk a dime. The downside is capped at 0%.

In return for that safety, the returns are capped at 10% per year. Considering this is as safe as your savings account, a possible 10% annual return is nothing to scoff at.

What I’ve found is a certificate of deposit (CD). But it’s not a run of the mill version you’d find at your local bank. Today, you’re lucky if regular CDs pay you more a couple percent.

That’s not the case here.

This CD is offered by EverBank — a specialty bank that offers many securities you can’t find elsewhere. The official name is the MarketSafe Diversified Commodities CD.

It’s indexed to a basket of commodities. The five-year CD tracks the spot prices of a basket of 10 commodities (WTI crude oil, gold, silver, platinum, soybeans, corn, sugar, copper, nickel, and lean hogs).

See a hypothetical 5-year performance of this CD»

Find out why this is a safer choice for commodity investing»

If these commodities gain ground, at the end of five years you get your money back plus the sum of each year’s average return. If they lose money over that time, you simply receive your principal back.

As a hypothetical example, this CD would have returned a total of 27.2% after five years if it had been issued on January 1, 2005.

That’s much better than a savings account… with roughly the same amount of risk.

Like other CDs, this product is not exchange traded. Investors must open an account with EverBank directly. And like other banks, EverBank is FDIC insured. The minimum investment for this CD is $1,500 and the bank charges no account fees. The funding deadline for this particular product is May 5, 2011 and the issue date is May 17.

Many investment advisors recommend diversifying a portfolio with commodities. But prices of the world’s basic necessities are very volatile. These are hardly the risks a late-stage investor wants to take on.

But there are solid arguments for long-term demand growth for commodities, and thanks to EverBank, there is now a safer way to get exposure to the commodities market… without risking a dime.

[Note: Be sure to keep an eye out for next week’s Dividend Opportunities. I’ll show you how to earn more than $1,260 every month in dividends]

Always searching for your next paycheck,

Amy Calistri
Chief Investment Strategist — The Daily Paycheck

P.S. — You can learn more about this certificate of deposit by clicking HERE to visit EverBank’s website.