We all know about China’s booming economy and some of its more unfortunate consequences. Last year, China surpassed the United States as the world’s largest producer of carbon dioxide, coughing out a ridiculous 6,200 million tons. Sure, most of the pollution comes from vehicle exhaust and coal-fired power plants. But the country has other serious pollution concerns, as well…

As China tries desperately to fix its environmental problems, a few unique tactics have emerged in the form of government mandates. One in particular focuses on getting rid of tons of litter while also saving tens of millions of barrels of oil every year…

The Ban Heard ‘Round the World

Our story begins with the innocuous grocery bag. These thin plastic bags are virtually omnipresent in both America and China. With the exception of a handful of environmentally conscious supermarkets and shops, the disposable plastic bag is the only way we transport our newly purchased belongings back to our homes and offices.

While convenient, plastic bags come with serious environmental consequences. The wind catches them and blows them into waterways. And they’re not biodegradable. If you toss a plastic bag out of your car window, your great-great-great-great grandson will have to look at it on the side of the highway unless some good Samaritan picks it up for you…

Bagging the Plastic Economy

So to combat litter and reduce petroleum consumption, China decided to ban production of thin plastic bags. According to the Chinese government, the country uses too many plastic bags and does not dispose of them properly.

“Our country consumes huge amounts of plastic bags every year. While providing convenience to consumers, they have also caused serious pollution and waste of energy and resources, because of excessive use and inadequate recycling,” government officials told Reuters.

As of June 1, making, selling or using plastic bags under 0.025 millimeters thick will be banned. It may seem like a small step, but it should have a giant impact. According to China Trade News, the Asian nation uses approximately three billion plastic bags per day. That means China has to refine 37 million barrels of crude every year just to make packaging plastics.

Cash in on the Demise of the Grocery Bag

This trend is not limited to China. In fact, plastic is coming under heavy scrutiny across the globe. Even here in the United States, some cities and towns are looking to ban thin plastic bags. After all, this country uses more than 250 million barrels of oil to make plastics and chemicals each year.

Governments and activists have plastic products in their cross hairs. With new legislation limiting the use of many disposable plastics under consideration around the world, merchants and consumers will have to scramble to find new and better ways to carry their groceries and other purchases. While some chains, like Whole Foods Market, have encouraged shoppers to purchase reusable bags, nothing can match the convenience of plastic. It’s sturdy, light and convenient.

But there is a little-known alternative that could help shops and consumers keep their plastics and save oil at the same time…

Good Carbs for Your Portfolio

There is one company looking to lead the charge in Earth-friendly plastics. Although, this company is far too small to give away in a newsletter this size, I’ll give you the basics and a way for you to actually cash in on it…

This company makes plastic — the same stuff you use every single day. But instead of petroleum, it uses starches. Supplementing the company’s plastic products is the starch from tapioca, corn, wheat and potatoes. The result is two distinct plastic product groups, one of which is fully biodegradable…

First are the Compostables. Launched more than a year ago, these plastic resins are certified as biodegradable and compostable in the United States and Europe. Second are the Hybrid Resins. Launched in October 2007, these plastics are made with at least 50% plant starch. The rest is made from petroleum like traditional plastics.

The hybrid products require less energy to make, because the machine temperatures are lower. And the product’s pricing is not as easily affected by oil prices. But the hybrid’s most important feature is that the product is cost competitive with traditional plastics…

The company doesn’t have futuristic machines to make its plastics. It’s the processes that are patented — the company uses conventional manufacturing equipment. This helps keep costs low and margins intact.

As this pollution cleanup idea develops, we’ll be sure to bring you up to date on many more investment opportunities.

Best,

Greg Guenthner
February 8, 2008

Plastic Bags are Now the Hottest Investment Across the Globe was originally featured in the Penny Sleuth.

What I see is based on educated guesses and facts, yet the future can still be difficult to predict…even for me!

The economy of 2008 should be a bipolar one. There will be sectors in recession, if not depression. Yet some sectors will experience a boom.

No surprise, but there will be much more bad news in banking and real estate. I foresee at least three large, well-known financial institutions being taken over by the federal banking regulators, if not filing for protection under bankruptcy law. The expression “too big to fail” will soon become “too big to bail.” And with those takeovers or bankruptcy filings will come fire sales of bank assets, from commercial paper, to credit card and other debt-servicing businesses, to downtown office buildings.

You may find that the credit card in your wallet will no longer work, because its issuing institution will have shut down the transaction window. The FDIC will have to dip into the kitty to pay off many depositors who hold accounts at these institutions. But the FDIC has a limit of $100,000 per person. Some people will not be getting back their full deposit.

It behooves everyone to diversify their accounts among institutions and regions. I can see certificates of deposit backed by precious metals as something you’ll want to load up on this year. Our friends at EverBank should not experience the troubles that many other, less well run banks may encounter.

As for real estate, mortgage lending has dried up. This has certainly happened for jumbo amounts, defined as loans in excess of $417,000. Thus, the larger, more expensive homes of the nation are finding fewer buyers. Expect the froth to continue to blow off that mug of stale beer. But what affects the top of the market ripples, if not cascades, to the bottom. Therefore, expect to see a continued general tightening of home buying in the lower regions of the price range, as well.

After the subprime meltdown of 2007, we should expect any lender to demand more documentation of income and credit history than before. We should see higher down payments on any home purchases and the appraising community becoming utterly Prussian and inflexible in its collective correctness.

With that, the closing process will become highly detailed, with more paperwork and more costs to close. You may flip out if you expect to make money by flipping real estate. Enjoy your new home — it will be yours for quite a while.

In the arena of commercial real estate, a banker buddy of mine — who works for a large Midwest institution — put it nicely: “All my clients who were going to build last year are now thinking of buying an existing structure. Everybody who was going to move to larger spaces is now planning to stay put, if not to downsize. Everybody is nervous about the future.”

Thus do ripples lap upon distant shores.

But another banker from the same Midwest institution also added, “My business clients are booming. Manufacturing is going great… Aerospace, mining, and oil services are firing on all cylinders. Those sectors are just fine. The main problem is bottlenecks in the supply chain. Exports are up.”

As for Oil…

We may see Mexican production trending downward at 8% or more. Pemex has not invested enough in the past 20 years, and no amount of near-term investment will prevent a Mexican oil crash. 2008 might be the year in which Mexico announces that it cannot meet export obligations to the U.S.

On the flip side, we should see Iraqi oil production trending upward in 2008. The oil-producing regions are stabilizing militarily. Enough of the “right” people are making money off the oil that disruptive attacks will be few and fatal to the attackers and their clans.

Central governance in Iraq is weak and will remain weak. Look for both the northern and southern regions to cut their own deals. The Kurds in the north will go with Western companies and the Shiites in the south will go with companies from Islamic nations, as well as Chinese companies.

The next great oil frontier region of the world to look toward should be offshore Namibia. The geology is a southerly trend of what one sees offshore Angola, and in some respects a mirror image of the offshore region of Brazil. Offshore development in Namibia will greatly benefit the manufacturing and shipbuilding economy of South Africa.

Russian oil production should remain stable. The Russians talk a good game about how they can meet their contractual commitments, but beneath the bluster, the Russians will be sweating for every barrel of crude oil. Russian output is in delicate balance between depletion and reserve growth. Look for immense, new investment streams to flow into Russian oil services.

Let’s Not Forget About China

In 2008, China will experience increasing levels of pollution of every sort. We’ll read numerous reports about the increasing damage to human health — in China and abroad — due to Chinese industrial development. The dirty environment of China and its potential impact on Olympic athletes will become a cause similar to the Chinese toy scandal of the past year.

China will receive a lot of bad press on a worldwide basis and will pull all the stops to clean up the air and water near Beijing leading up to the Olympics. Vast swaths of heavy industry will be shut down, including coal-fired power plants in northern China. Electricity will also be diverted to Beijing from other regions.

This will cause a ripple effect throughout the Chinese economy as thousands of plants close and millions of workers are displaced from jobs. Overall Chinese economic output will be affected, and there will be a disruption in the Chinese demand for commodities.

This turbulence in the Chinese economy may also be the prelude to a major slowdown in Chinese economic activity after the Olympics. Chinese leaders are already looking for ways to get the breakneck pace of economic growth and price inflation under control, and post-Olympics will be a logical time for the Chinese economy to take a breather.

With the economic landscape around the world what it is today, these are just a handful of things we can expect to see in the upcoming year. As we all know, the world is a strange and unpredictable place where nearly anything can happen. By using sound judgment with an eye toward the future, you should be able to use this knowledge to prepare yourself and have the 2008 you hope for.

Until we meet again…

Byron W. King
February 5, 2008

P.S.: Forecasting markets is always a tough and dangerous thing to do. But, I found some obvious themes when making my predictions. No matter what happens, certain commodities will always be in demand. So, I organized a special service toward the end of last year for just that reason. So far, it is off to a fantastic start.

The Housing, Oil, and Chinese 2008 Forecast was originally featured in the Penny Sleuth.