by Addison Wiggin & Ian Mathias

• China’s movin’ on up, soon to be world’s second biggest economy… could it one day be No. 1?
• Employment scene way worse than expected… our takeaways from the monthly jobs report
• Can the Treasury keep offloading debt? Rob Parenteau’s compelling forecast
• Dan Amoss on why a weak dollar does not benefit the U.S.
• Greg Guenthner with a booming tech opportunity… “a colossal shift in the electronics industry”

  Sixty years ago yesterday, China began its communist experiment and slow rise as a world power. This anniversary was not left unnoted by the Red Nation, which staged a massive celebration yesterday that a Washington Post correspondent described as a “musical variety show… Mao meets Elton John.”

There was a parade in Tiananmen Square, where the proud country dragged out 108 city-crushing missiles and nearly 190,000 soldiers, dancers, celebrities and performers -- including, quite naturally, a unit of… retro vixen militants?

Yeah… we don’t get it.

Curiously, there were no musical interpretations of the horrors that begat the People’s Republic (or the Great Leap Forward and Cultural Revolution that soon followed)… maybe they’re saving those for the centennial.

  And this new era of communism comes with a shiny new economic forecast: China could be the world’s second biggest economy as soon as 2010 and the world’s largest in as little as 20 years. This altered trajectory is courtesy of the IMF, which revised its World Economic Outlook yesterday. In short, emerging nations with strong export economies (like China) will drive global growth in the next two years, while more established economies like the U.S., eurozone and Japan will lag behind.

Specifically, the IMF expects China to continue growing around 8-9% a year as Japan -- the world’s second largest economy -- will be lucky to grow much faster than 1.7%. Plug that in some fancy charting software and you get this:

With Japan a foregone conclusion, China now sets its sights on I.O.U.S.A. The IMF has no projections that far away, but researchers at the Nomura Institute of Capital Markets Research proclaimed this week that China will pass the U.S. sometime between 2026-2039, depending on yuan appreciation.

We’re skeptics, if only because it’s such a widely held belief nowadays that China will inevitably rise to the top. Before they get there, they’ll have to rewrite their entire economic credo, the current staple of which is American overconsumption. And it was only 20 years ago when every broker was convinced Japan would soon be the world’s economic powerhouse. Eight of the world’s 10 biggest companies were Japanese in 1988. Today, the biggest (Toyota) is 22nd, and only five others are in the top 100. 

But there is one thing that might “make it different this time”: people. 1.3 billion Chinese people, to be specific. If China can ever monetize its massive population, they’ll leave us all in the dust:

These are just a few of many reasons we’re about to launch a BRIC newsletter. As readers of The 5, you’ll get the first crack… keep an eye on your inbox this weekend. More details in today’s P.S.

  Back in the U.S., stock markets are mired in yet another worse-than-expected jobs report. The Street expected 175,000 lost jobs in September; the government said 263,000. The chart might tell the story best:

Even July and August couldn’t escape the chaos today, as net revisions added 13,000 more job losses over the summer.

In the strange world of government stats, that bumps the official unemployment rate from 9.7% to 9.8% -- officially about 15.1 million people. That’s the highest rate in 26 years. Of those officially unemployed, a record 35% have been out of work longer than six months. The U6 rate, which also accounts for people working part time who can’t find a full-time job and those who want a job but have given up looking, is now up to 17%, closer to 30 million people.  

Coming from Uncle Sam, it’s hard to take any of those stats too seriously. But the ballpark idea is in line with our day-to-day observations… the employment scene isn’t getting any better.

  The lousy jobs report had major indexes in the U.S. open down about 0.75% -- especially bad considering yesterday’s 2% sell-off. But as we write, the Dow and S&P are trending back up and are just a breath from break-even… in a twisted way, the bull market isn’t dead yet.

  “Households are more likely to migrate into equities the longer the equity rally lasts,” explains our macroeconomic adviser Rob Parenteau. So Q1 2009 is likely to be the peak of their buying interest in Treasury bonds.

“Foreign private investors finished their flight to safety trade in the last half of 2008, and by now, they are off chasing emerging-market bonds. Foreign central banks with currency pegs have to keep buying dollar-denominated assets as long as they are running trade surpluses against the United States, and from the looks of it, their surpluses are starting to widen again.

“The Fed has been rebuilding its Treasury holdings, but that part of its quantitative easing gambit is about done, and it does not appear to be setting the table for a reload. Finally, the broker/dealer reload does not make a lot of sense -- we were told the late 2008 interest in Treasuries was an unwinding of long corporates/short Treasury spread trades, and it is not very plausible that they are doing that again in Q2 2009…

“Unless a double dip in the economy is imminent, or unless some major financial institution is about to flame out, we have a hard time seeing how a still-mounting wave of new Treasury issuance is going to avoid smothering private investors with (1) nominal return requirements in excess of that offered by the current Treasury yield curve, and (2) portfolio preference that has increasingly favored riskier assets since March.

“Of course, in light of the past year’s worth of policy machinations, the Fed could always roll its QE program into 2010, perhaps with a much larger skew toward Treasuries, but the dollar bears and the commodity bulls would surely have a field day on the day of that announcement.”

For more macro forecasts from Rob, including one that would make market recovery almost impossible in 2010, look here.

  The dollar index rose from 76.5 Wednesday to as high as 77.2 this morning as stocks sank. The equity rally we noted above has put a dent on those gains, but the DX is still up nearly a full point from September lows.

  “Trashing the dollar is not bullish for America as a whole,” notes Dan Amoss. “It’s dangerous for the viability of the middle class. It’s good for exporters of agricultural products, specialized manufactured products and energy producers, but bad for everyone who pays for lots of imported products, or imports that are incorporated into the supply chains of businesses that sell to U.S. consumers.
 
“One example is Ford’s recent decision to site a $490 million auto plant in Chongqing, China, slated to open in 2012. Why isn’t Ford building this plant in Michigan, to export cars to the rest of the world? After all, economists are giddy that ‘a weaker dollar will boost U.S. exports,’ right? 

“I think this claim that ‘a weak dollar is good for exports’ is narrow-minded and misleading. It ignores the fact that a weak dollar would drive capital out of the U.S., into economies that are paying a real return on their currencies.”
 

  A weak dollar is good for one thing: gold. The spot price remains just a bit above $1,000 a ounce today.

  Oil’s down a bit, as some of the gas escapes from the recovery bubble. A barrel is down a buck and change today, to $69 a pop.

  “We are now beginning the first chapter of a colossal shift in the electronics industry -- organic light-emitting diode technology,” says Greg Guenthner, armed with today’s 5 Min. investment opportunity.

“OLED displays are taking off in a big way. These next-generation displays are perfect for the mobile phone and personal media device markets because they are thinner than traditional displays and produce sharper images.

“OLED -- and active-matrix OLED -- technology has now reached its tipping point. Very soon, we will begin to see OLEDs used in a vast array of electronics, including small televisions, digital cameras, netbooks, phones -- the list goes on and on.

“The rise of the OLED display is similar to that of the flat-panel television. Once a novelty, flat-panel LCD and plasma televisions quickly became the industry standard as quality and production increased while prices fell. The ‘transition’ from bulky tube televisions to sleek flat-panel displays took only a few short years.

“Try walking into your neighborhood electronics store today to browse the tube television selection. Be warned: You will be disappointed…

“Overall, the OLED display market is set to grow up to $6.2 billion by 2015, according to DisplaySearch forecasts. Last year, the total OLED market was worth an estimated $600,000. As you can see, we are looking at exponential growth, with the mobile phone market leading the charge.”

Greg just put his favorite OLED maker in the Bulletin Board Elite portfolio -- a group of small-cap companies ignored by Wall Street, but loved by early investors. Get more details here.

  Last today, a sign of the times: A shoe thrower has struck again!

Evidently a serious insult in the Middle East, yesterday saw another shoe hurled at a famous world leader. We noted when this first happened in 2008, when an Iraqi journalist epitomized the region’s distaste for G.W. Bush by hucking his size 10s at Dubya -- who, to our nimble former president’s credit, dodged ’em with ease.

Heh, well, since aversion to the war in Iraq is so “last year,” it’s only fitting that the latest Middle East-Nike-toss target was Dominique Strauss-Kahn, head of the IMF. A Turkish student journalist threw his shoe at Kahn after a press meeting in Istanbul, where the IMF is brokering a deal to provide Turkey with a multibillion-dollar bailout loan. The kid should have practiced a bit at home… he ended up hitting another student by accident.

Have a nice weekend,

Ian Mathias
The 5 Min. Forecast

P.S. Bon voyage to Addison Wiggin and Chris Mayer, who are embarking on an investment tour of Dubai and Mumbai over the next two weeks. "At a time when Western economies are awash in debt, recession and political shenanigans,” says Addison, “we're seeking alternative investment strategies for diversifying away from potential calamity.” Strategies -- of course -- he’ll share with Agora Financial readers. 

Our search for quality BRIC analysis has lead us to Equitymaster, an Indian research firm that will soon become one of our “boots on the ground” partners for the new BRIC report. That name might sound familiar if you joined us at our Investment Symposium in Vancouver this summer: Equitymaster’s head honcho Ajit Dayal gave a compelling presentation on investing in the region.
 
This partnership is an important facet of Addison and Chris’ trip. We’ll be telling you a lot more about this opportunity soon -- stick with The 5 for details.

P.P.S. And right as we were about to go to press, Rio de Janeiro won the bid to host the 2016 Olympics. Heh -- yet another coal in the fire for our new report. We’ll have more to say about that Monday as well. Until then, enjoy your weekend.