Today at 12pm ET, Martin Weiss convened his associates from arond the world and together, they shared their views on the economic paradigm shift that is underway. I attended the online Summit and here are my notes:

Simply put, the seismic shift is away from the U.S. and EU and toward the BRIC countries of Brazil, Russia, India and China. Large flows of investment capital are being directed to these markets and the group provided many insights into statistics and trends that back up their view that a long term trend is in place from West to East. They also provided a few specific reccomendations.

Here are a few of the key points from the Summit:

Millennial Shift

The most important and sustainable mega-trend is moving from bogged down economies to those with cash, commodities, and confidence

US Housing is stabilizing

The housing market’s fundamental drivers are the bubble and sharply lower prices which have been largely achieved.There may be another 5-10% decline as the 1 million homes and additional adjustible mortgages reset so there will be more foreclosures. But lower prices are stimulating higher sales volume that is chewing away at the ovrsupply. Leading indicators iluminate this point. In California existing home sales are up 20%, In Florida, 28% and in Nevada, 40% with new new home sales up 11% 23% and 45% indicating a.turnaround in the home real estate market.

Commercial real estate on the other hand is still in big trouble.

More trouble on the way in the form of the federal deficit. Summit participants are dumbfounded at the increasing deficits and the dismissive attitude of government economists as the deficit passes $2 trillion with politicians sleep walking through the crisis. Federal tax revenues plunged by largest amount since 1932!  There is a huge supply of bonds pushing up long term rates. This week alone saw an avalanche of $75 billion in additional debt sold in 3 days. And the U.S. is not alone. Budget deficits in the Euro zone are even more shocking. Politicians there promised to maintain debt limits of 3% of GDP in all countries and in fact have already exceeded that number. The best countries are running 6%-7% with the worst offenders between 9-10% with no time line to bring the deficits in line. This is a devastating development for Euro growth.

The situation reminded one Summit participant of Brazil in the 50′s. Now the U.S. and Western Europe are in the same rat trap. The drivers of economic growth are population (young active adults and seniors. In the U.S. this is not the case with Baby Boomers maing the country top heavy and less likely to grow. Brazil has no large baby boomer population. In summary, Western Europe and Europe do not favor economic growth but rather stagnation. The other drivers of capitalism are free market policies which the US and Eur have taken huge steps to move away from.  Rarely do we see government take control and then relinquish it. The EU shows exponential growth not in free market policies but in legislation and new directives adding up to higher costs, less flexibility and deeper recessions or handicapped growth. The growth of the Germany of 50’s/60’s cannot happen again in EU or the US with these policies and lacking those free market incentives. To Summit participants, this is a truly frightening development. Eastern Europe has been integrated into the EU and sucked into the giant bureaucracy with its disincentives for growth.

If you as an investor are looking to escape trouble, forget about Europe. The housing bubbles in the EU are more extreme than US. Euro banks borrowed Yen and Swiss Francs and are 3x more leveraged and therefore more likely to collapse. Any government rescue will be a much bigger drag on their economies.

The exception is Russia that despite its corruption is not destroying wealth but rather generating wealth through oil and other commodities for China so if you are bullish on oil you can leverage your investment in Russia.

China’s massive growth is for real and has been stress tested by the economic crisis and passed with flying colors. We are witnessing a new spurt of sustainable growth that could correct short term but will not change its long term outlok and transformation. Deregulation is helping China on multiple fronts. Computers and cell phones have connected the country and 3 of 5 in the world will be Asian in a few years, a megatrend that will shape the century…

Medium Term Outlook for Europe: The EU and US are totally linked. The US leads and the EU follows. Wtness the bear market and the US feeble recovery. The EU will follow.

The China stock market is the best performing in the world, up 87% this year and 133% from low last year. Their ETF (EWZ) is up 65%. The Shanghei Index is up 45% vs 3% Dow. The Summit participants agreed it is sustainable with short term pullbacks.

China’s underlying fundamentals show GDP growth in the Q1 of 6.4%, Q2 +7.9%  and 8%-9% forecast for next year. China is still racking up trade surpluses and purchasing is up for the 5th straight month. Credit and capital flows are increasing at the same time US and Europe are collapsing. New lending in China is up 201% following through on its promise to move stimulus monies from urban to rural. Since the banks are owned by the government, the stimulus is having a real impact unlike in the US where private banks are buying smaller banks and paying large bonuses. In China, the stimulus is going to build new higways, railways and oil and gas pipelines. There are currently an estimated 275,000 construction  projects underway vs the US where the number is much smaller and being cut back. In total, China is putting $564 billion to work representing 14% of GDP and perhaps most importantly, China has cash in the bank with no debt and no borrowing costs.

And, because they can’t rely on exports, they are busy increasing domestic consumption. At a time when GM and Chrysler are filing for bankruptcy, auto sales in China increased 18% and China is now the world’s largest car manufacturer with just 10 vehicles for every 1000 people vs 750 vehicles in the US so there is tremendous long term growth in place. In other words, the US auto market is 76 times more saturated than China. China has also passed consumer credit loan reforms and begun financing appliances and other consumer products providing Master Card and Visa explosive growth opportunities. However, China has imposed limits, not allowing interest rates to be more than 4x the current interest rate or more than 5x the cardholder’s monthly income. China is also improving its ties with Taiwan growing closer and closer as allies. Plane flights have started between the two countries with a major economic cooperation agreement in place and Taiwan is a major investor in China and has experienced businessmen that can benefit China as well.

China knows the US reserve currency will be replaced with a basket including the Yuan

Capital development in China is underway. They began opening markets 5 years ago and this liberalization is helping to make the Yuan more valuable. It has been de pegged from the US dollar. Foreign banks can now operate in China and trade the Yuan. Sophisticated currency derivatives have been developed using Hong King as a testing gound for offshore trading. China is a couple years away from completely liberliznig foreign trading and is pushing for the Yuan to be included in the currency basket they see coming.

China is using this p[eriod of weakness in the west to buy up strategic assets including natural resource companies as a hedge vs a dollar decline. When the dollar falls,  gold cooper and oil rise. Summit participants believe gold is about to bust through 1000. To illustrate China’s increasing appetite for acquisitions, in 2002, they made 1 deal, 2003, 3 deals 2004, 11, 33 in 2007 and 53 in 2008 with the average volume of each deal growing. For 2009, the dollar volume will be about double 2008.

Investors are looking at natural resource companies that reflect what china needs as a hedge vs falling dollar and go along for the ride. Chinese big names in natural resources include Petro China-Cinuk-Chalco-BHP and Rio Tinto. One cannot throw a dart and expect to make money in China. Some sectors are not doing well with 100,000 factories closed. Speakers would avoid shipping companies and focus on the domestic sector, retail and construction that reflect China’s growing affluence. There are 100 milion “Chuppies” helping to boost retail sales by 15% and increasing property prices with sales up 50% along with increasing incomes.

A few stock reccomendations:

In retail, Nepstar is china’s only national drug chain. EDU is China’s largetst English language school and administrator of college exams. The company enjoyed a 48% sales and 50% earnings growth in the latest quarter and the analyst who recommended it calls it “the single best stock I’ve found in 30 years and is convinced it will appreciate 10x in the coming years. In construction, the purest play is China Railway Construction and China Construction doing business in both China and the Middle East building highways and ports. It’s traded traded on the Honk Kong exchange and can be purchased through E-Trade for $20 a trade. Dewon Water (DGW) is a major water filtration and pollutioncompany that recently reported a 32% sales and 49% profits increase.

Any country that depends on US like Japan S. Korea and Singapore will lag in performance so now green shoots are appearing in Japan which recently reported an increase in production for the 4th month in a row. The 8.3% increase was the largest since 1953. Nippon is restarting mothballed plants. Honda and Mitsubishi delivered better than expected gains and led the Nikki averages to new 10 month highs high.  Their manufacturing index which was 44 in January is now 80 and the New Orders index, 53 in january is now 85. Japan and S Korea ETF’s look like good investments.

Long term investment strategy

-Future of Hedge Fund Investing is a new book by Monte Agarwal who ran a hedge fund that thrived during the last year. He reported that hedge funds began focusing on Asia in 2003 with more and more opening offices in Hong Kong and Singapore. He sees this as a long term sustainable trend. In 2003 there were 20 funds based there. Now GFIA reports 500 managers are based in Asia for a 25x increase in 10 years. Overall $150 billion is being deployed in the China region. Hedge funds are trend setters and are being followed by institutional managers allocating heavily to China. CALPERS a$ 176 bilion California Employees pension fund calls China investments “inescapable and compelling” and has invested $5 billion in emerging markets and $1 billion in Asia…OTTP controls $88 billion and is one of the world’s saviest investors has invested  in Asia through 3rd parties. $200 million Fountainvest is investing in small and med size China companies. As  more capital moves into Asia there are more investment instruments and liquidity which has opened the door to both sophisticated investors and average investors.

Monte’s long term strategy is to use dips in the West to buy in the East and strength in the East to exit positions. scary news in US/EU will being down all markets offering buying opportunities in the East. The long term trend is that Western Markets are zig zagging lower while Eastern markets are zig zagging higher.

So sell in the West on up moves and by on corrections in the East. Allocate more and more of assets to Asia with solid research and prudence. Do not focus on any one country but diversify across the BRIC countries: China, India, Brazil, Russia, Japan and S. Korea. This is the direction sophisticaed capital is moving. And when it looks like a bubble has arrived, take profits and get ready for the next major investment opportunities.

Larry Edelson is the Editor of Weiss Research’s Uncommon Wisdom and Real Wealth Report