Can the Chinese “dragon” save us from the worst recession in 70 years?

It’s an important question for any investor if they plan on making any long-term investment decisions during this global downturn.

Financial newsletter writer John Mauldin gives us a big clue of what’s to come in an article he wrote earlier today…

One of the best gauges of an economy is tax collections. No one pays taxes unless they have to, so collections are a real-world, real-time analysis of the US economy. And the best source I know of for tracking taxes is The Liscio Report, by Philippa Dunne & Doug Henwood.

Tax collections are down. Philippa and Doug give us the actual numbers, which are not pretty. Bottom line? “What does this all mean? It suggests that the consumer retrenchment in this recession will be deep and long, and will probably continue into any recovery. The American consumer is no longer the world consumer of last resort, and that’s an enormous change for both this country and the rest of the world to get used to.”

(You can learn more about the Liscio Report at www.theliscioreport.com.)

If American consumers are spending less, this means the world’s savers (Asians) would have to become spenders (like Japan did during its “Lost Decade”) for the global economy to rapidly rebound.

But Chinese exports were down 17.5% in January. And imports were down 43.1%.

And down from the double-digit GDP growth rates earlier this decade, Chinese GDP grew only 6.8% last quarter (which means recession in China).

China has already shed 20 million jobs (with estimates from the Telegraph.co.uk of50 million more on the way). And Beijing is implementing its $586 billion to stimulate its own economy.

So if China isn’t selling an increasing amount of goods and its consumers are buying less, then how could China keep the world economy from shrinking?

It won’t.

The reality is that China (and Asia in general) is far too export reliant, and the U.S. is far too import reliant. And as long as this imbalance exists, it’s going to be difficult for the global economy to recover.

That means making mid-term market bets on shaky emerging-markets might be a real nice (and easy) way to lose money.

Instead, what you want is steady-eddy income from stable, cash-rich American companies that have virtual monopolies… companies like Microsoft (NASDAQ:MSFT).

Microsoft is a solid company because…

• It holds $20 billion in cash and only $2 billion in debt. Refinancing isn’t an issue. And it has plenty of cash to make it through a downturn and pay shareholders dividends.

• The Windows Vista operating system replacement, Windows 7, is due out by January of 2010. I’ve personally tested the beta, and it’s leaps and bounds better then Vista. There’s been a lot of positive hype around this release, too. So Microsoft should do very well once it hits the market.

Microsoft is a virtual monopoly! Its operating system was the choice of 89.6% of Web users in 2008. Any new upgrade means hundreds of millions buyers will buy

It’s not going to be tough work getting through the next few years of an underwhelming economy. But by holding a strong company like Microsoft, you’re assured that your money is in a safe place and will grow in the years ahead.

Stay free,
Charles