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[EarlyOne]

Saut: The World Is In Its 3rd Super Cycle In The Past 200 Years
July 17, 2012

Today Jeffrey Saut told King World News that “the world is in its 3rd ‘Super Cycle’ of the past 200 years.” Saut, who is Chief Investment Strategist for $360 billion strong Raymond James, also said, “China has bitten the bullet and they are getting ready to accelerate again.”

Saut also spoke with KWN about Europe, Japan and gold, but first, here is what Saut had to say about what he calls “the 3rd Super Cycle”: “China will be incredibly important going forward in the global economy. They are a key in terms of the world’s growth cycle. I think the world is in its 3rd ‘Super Cycle’ of the past 200 years. The world’s GDP growth accelerated with the Industrial Revolution, from 1.7% to 2.7% per year.”

“That acceleration started in 1870, with the Industrial Revolution, and it stayed there until World War I and the Spanish flue epidemic in 1913. These two tragic events caused world GDP to retreat back down to 1.7% per year. It stayed there until 1946, as the globe was emerging from World War II.

At that time, the world’s GDP growth accelerated to a really hot 5%, and it stayed there until the ’73 OPEC oil embargo which caused it to retrograde back down to about 2.8%....

“Then, in November of 2001, China joined the World Trade Organization, and I believe that put the world into its 3rd ‘Super Cycle’ in the past 200 years.

I expect notional world GDP growth going forward to be somewhere around the 4% level. If you look at China’s economy, it is softening somewhat over there, but if feels to me like China has bitten the bullet and they are getting ready to accelerate again.

They have drawn down inventories over in Chia, and with domestic consumption still improving, I think they are going to have to crank back up the manufacturing sector. So I’m not one of these people that thinks China is going to implode, and I think over the next 15 years you are going to get the outsized economic growth from the frontier and emerging markets.

If you look at what China is doing, they are following the business model and economic model that Brazil figured out back in the mid-2000s. They figured out that they needed to stimulate some domestic demand, and I think China realizes that as well.

The know that in the long-run, the manufacturer/export driven economic model they’ve been operating on for 15 or 20 years is not sustainable. So they are trying to stimulate domestic demand. The way Brazil did that was to raise interest rates, which strengthened their currency.

Brazil’s economy slowed a bit, but still kept growing. Then, lo-and-behold, they stimulated domestic demand, and I think that’s exactly what China is doing.”

When asked about Japan specifically, Saut responded, “I am actually pretty bullish on Japan. If you look at some of the companies they have high yields, and a lot of them are trading under book value. And I know all of the issues, the demographic issues, etc..

But my dad used to tell me that good things tend to happen to cheap stocks, and there are some really cheap stocks over in Japan. There are a couple of ways to play Japan. The Japan Fund is one of them, there are 3 or 4 that are Japanese-centric.”

Here is what Saut had to say regarding gold: “I have ridden gold since 2001, when we got bullish on tangibles because per capita incomes were going to rise in China because they had joined the World Trade Organization. Per capita incomes were also rising in Indonesia, Malaysia, Vietnam, Thailand, Brazil, Peru, Columbia, etc..

We knew that would mean that people in those areas would be consuming more ‘stuff.’ So we got real bullish on gold, and throttled back a lot of those investments when we got the Dow Theory ‘sell signal’ in 2007. But gold will simply consolidate after the big move it has experienced, and longer-term gold is going to trend higher.”

Saut had this to say regarding Europe: “They are going to keep papering over their problems. Quite frankly, in the real world, you don’t throw $1 trillion at a problem and then walk away if it doesn’t work. That’s just not the way the world works. So I think they continue to try to paper over their problems.”