Isn’t that a scary thought?

Just a couple of days after Obama touched down in Washington, China makes a very American decree. It’s telling its banks it had better shore up their capital situations or face strong sanctions from the government.

They say imitation is the sincerest form of flattery. America did it first, now the communists are following.

In case you missed the news over the past year or so, China’s economy is flat-out soaring ahead. While no figure that disseminates from Beijing is ever trusted, most analysts believe the country’s GDP is growing by a rate of 7% or so. Some even say it has eclipsed the 10% mark.

Just like here in the States, very little of that growth is organic. China’s government is just as fond of manipulating natural market forces as our friends inside the beltway.

And, of course, anytime the government gets involved, some unnatural and unexpected economic reverberations will be felt.

Just as their American brethren did over the past decade, China’s banks are taking advantage of a fixed currency and an optimal lending environment by sending all the money they can dig from the couch cushions into the streets of China.

As the economy grows, the leverage on their books multiplies. Like we learned just 13 months ago, the situation will eventually collapse under its own weight.

That’s why Beijing has stepped in and told the banks that they had better save some money for their backup coffers… or else.

This is bad, bad news for a country surviving on borrowed money (no, not us… this time). China’s economy has been artificially inflated by the government’s cash infusions. But now the leadership is starting to pull back, realizing enough is enough.

Continuing with Friday’s lead, this proves natural market forces are still alive and well. Better yet, it proves China is in for some bumpy traveling.

If you would have asked me early last week about China’s economic health, I would have told you I like what I see. But then something odd happened.

Obama visited. And it’s been downhill ever since.

*** I love it when the markets make a mistake. After some positive economic data from the consumer front this morning, the equities market put in quite a showing today. In fact, even the ultra-bearish natural gas sector followed the crowd of bulls today.

It has created another fantastic buying opportunity. Natural gas prices climbed by less than one percent, but much of the sector is up by two or even three times that figure. Investors mistakenly got caught up in the rally.

Over the next few days they are going to pay for it.

Late last week, we locked in gains of 400% thanks to the natural gas market’s recent selloff. Thanks to today’s action, investors that make their move now have yet another shot at triple-digit gains.

To find out how, read my updated report.

This is going to be a fun week for the energy markets.

*** Let’s face it, the dollar is in trouble. But so is the sun at the center of our solar system. The big question is which will implode first. Now that the dollar has slowed its decline, the race may be tighter than you think.

The dollar will eventually be tossed aside, but will it happen in the next million years?

Here’s a bit of what I told Contrarian Profit readers this afternoon:

“Is the drop in the dollar worth watching? Just like the sun will eventually shine its last ray of light, the mighty dollar will someday buy its last barrel of oil or its final container of Chinese imports.

“We all know it is going to happen, so why bother discussing it. Right?

“There is no doubt the world’s currency of choice has more pressure stacked against it than ever before. But even with $12 trillion in debt and nearly a trillion of annual interest payments due within the next decade, the greenback is still stronger than it was just sixteen months ago.

“While so many of us are betting against the dollar and calling for its demise, plenty more investors are using it as a security net, buying American treasuries to protect themselves in case the bottom really falls out.

“With the sun someday going to fade, I could sit in my basement and wait for the big day to come, or I could live my life without worry.

“It’s the same thing with the dollar. We could bet against the greenback and profit as it drops, or we could forget about the minimal return potential and keep our eyes looking forward, where the real money is at.

“Here’s the scoop. The dollar is likely to fade, at most, six percent below today’s value against the Euro. That’s major erosion for such a massively distributed currency, but six percent over a few years doesn’t stack up to a hill of beans in the grand scheme of things.

“I can list a couple of dozen stocks that are up by twice that figure today alone.

“No doubt, you should pay attention to the dollar, as a six-percent decay in the value of the world’s most important currency will change all sorts of valuations. But don’t invest in the cause, invest in the effect.” Keep reading here.

The dollar is going to fall, but you and I may not live long enough to get rich off the move. The smart money is looking somewhere else. I say we follow.

Consider Basilea, a Swiss drugmaker focused on antibacterial and antifungal remedies. The company’s lead drug, ceftobiprole, is a promising treatment for complicated skin infections. But last month, the FDA issued the company and its Big Pharma partner, Johnson & Johnson, an approvable letter – the regulator’s notorious maybe-yes/maybe-no ruling.

Without pausing to see if the company can satisfy the agency’s concerns, investors dumped the stock. It fell from 187.40 Swiss francs to 148.50 on the day of the ruling. It closed yesterday around 150.

But these dramatic, emotional reactions give us excellent opportunities to profit. Our own Dr. George Huang has developed a proprietary method for trading these approvable letters. It’s a strategy that offers huge upside and very limited downside.

The FDA will issue 55 more rulings in 2008, and we have exact dates for all of them. The next one happens on Tuesday. Dr. George Huang has written a primer explaining his system, and we’re offering the primer and his new trading service at a big discount that ends this Monday. To learn more about Dr. Huang’s S&A FDA Report, click here…

Oil trades for more than $117 per barrel, and for the first time China, India, Russia, and the Middle East will consume more crude than the U.S.

The International Energy Agency estimates the emerging markets will consume 20.67 million barrels a day this year, a 4.4% increase. Meanwhile, U.S. consumption will fall 2% to 20.38 million barrels a day. We doubt oil prices are going anywhere but up.

Look at the chart below (courtesy of U.S. Global Investors) showing international oil consumption per capita. Every country’s oil consumption exploded following the industrialization of that country… except China. China has not even begun to whet its oil appetite. Wildcatter T. Boone Pickens thinks we’ll see $125 oil, but according to this chart, it could go much higher

Oil consumption per capita, 1900 to present

Ali al-Naimi, Saudi’s oil minister said, “Limited capacity along the entire supply chain is the real source of current global supply tightness and represents the greatest threat to ensuring adequate energy to fuel future economic growth.” Al-Naimi says the world needs more infrastructure investment to find new oil wells. Saudi Arabia is the third major oil-producing nation to warn of shortages. This month, a Russian oil executive announced his country’s oil production has peaked, and Nigeria claimed its output may fall by one-third due to under-investment.

One thing is for sure: Americans are going to see their standard of living fall dramatically as prices for energy continue to rise. And no amount of solar-panel rebates is going to change this harsh fact.

Alberta, Canada, is one area with sufficient energy supplies. Alberta has a patch of land the size of Florida containing more oil than all of the Middle Eastern countries combined. The oil is mixed with dirt, and harder to process. But with oil at $120, it is worth trying to sort the dirt from the oil.

Canadians will invest $22.2 billion over three years on Alberta infrastructure. Most of this investment will relate to natural gas, which is becoming the most important fuel source in the region. Matt Badiali noticed the Alberta trend early and has several recommendations in his S&A Oil Report portfolio with operations in the region. But he recently discovered a little-known Canadian oil patch that may prove to be even more profitable for investors who get in now. To learn more, click here…

Regards,

Porter Stansberry and Dan Ferris