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Futures Can’t Go Any Lower

Contrarian Profits — Fri, 24 Oct 2008 12:49:01 +0000

“Monumental beating” is how MarketWatch is calling it this morning for U.S. stocks.

U.S. stock futures pointed to another monumental beating on Friday – with leading contracts falling as much as rules allow — as a plunge in Asia reignited concerns about the health of the global economy.

S&P 500 futures dropped 60 points to 855.20 and Nasdaq 100 futures fell 85 points to 1,168.50. Dow industrial futures fell 550 points.

All three contracts fell so much that they reached pre-specified limits that can’t be broken until pit trading opens.

Thursday’s session for U.S. stocks was erratic but generally positive, with the Dow Jones Industrial Average closing 172 points higher and the S&P 500 rising 11 points, though the Nasdaq Composite slipped 11 points.

Read on at MarketWatch.

Whip Inflation Now

John Mauldin — Sat, 14 Jun 2008 16:52:46 +0000

Whip Inflation Now…Where Can We Get Help on Inflation?…The Patient Died Anyway…Inflation in Asia and Europe…There Are No Good Solutions

President Nixon instated price controls on the 15^th of August, 1971. Inflation was a little over 4% at the time. Price controls manifestly did not work (resulting in shortages of all sorts and a deep recession) and were rescinded a few years later. President Ford went to Congress with programs to fight inflation that was running closer to 10% in October of 1974, with a speech entitled “Whip Inflation Now” (WIN). He famously urged Americans to wear “WIN” buttons. That policy too was less than effective, and the buttons, in a history replete with silly gestures by governments, should stand on anyone’s top ten list of such silly gestures.

Cynics more thoughtfully wore the buttons upside down and said the inverted letters (which looked like NIM) stood for “No Immediate Miracles.” They were right. There was no miracle, just eventual pain and lots of it. Ultimately, Paul Volker defeated inflation, but at the cost of two serious recessions and a lot of economic misery, with unemployment levels over 10% for nine months in 1983.

This week we were given the data that inflation as measured by the Consumer Price Index (CPI) over the last year was 4.2% and unemployment is now 5.5%. Some call for the Fed to raise rates so that we do not have to experience another lost decade like the ’70s and then ultimately see some future Volker forced to raise rates and drive unemployment back to 10%. Others suggest that “core” inflation is what should be paid heed to, and urge caution.

This week we look at the cost of what could be a renewed effort to Whip Inflation Now, not just here but in countries worldwide. Will Trichet in Europe raise rates even as the European economy seems to be slowing down? If you think inflation is bad in the US and Europe, take a peek at Asia. And I ask, “What will Ben do?” It should make for an interesting letter.

Whip Inflation Now

Nixon and his advisors thought inflation at 4% was serious enough to institute price controls. Headline inflation in the US is now 4.2%. What kind of economic policy should we pursue to bring inflation back into the Fed’s comfort zone of 1-2%? Would it work and would it be worth the pain? To get a handle on the question, let’s go to the data from the Bureau of Labor Statistics and see where inflation is coming from.

And let me note, this is the same exercise we could do for a host of countries. The answer will be roughly the same: there are no easy solutions.

Core inflation, or inflation without food and energy, grew at 2.3%. Inflation without food costs was an even 4% and without energy was 2.7%. Clearly energy was the leading contributor to inflation in the past year.

But the recent trend in rising inflation is even more worrying. If you look at just the last three months of data and compute an annualized rate of inflation, you find that overall inflation has risen to 4.9%, energy inflation is running at a staggering 28%, and food costs have risen 6.2%. Meanwhile, core inflation during that period dropped to 1.8%. You can see all the data at http://www.bls.gov/news.release/cpi.nr0.htm.

Now, gentle reader, let’s think about these numbers. Food (over 14%) and energy (over 9%) combined make up roughly 24% of the CPI, yet were responsible for over 60% of the recent three-month trend in inflation. By the way, housing was up 4.9% and transportation up 8.7%, so it was not just food and energy.

What would it take to drop headline inflation back to under 2%? Well, one way would be for food and energy prices to fall. Let’s look at the possibilities.

As Donald Coxe has noted, North America has had an 18-year run of remarkably good weather in our growing season. You have to go back 800 years to get a string of years that were that good. Yet today food reserves of all types are at decades-long lows. There is very little room for any type of problem.

This growing season is not off to a good start. It looks like the yield on the corn crop will be lower than normal, and that is if we get very benign weather this fall. Given how late much of the US corn crop was planted, and how torrential rains in the corn belt have devastated crops (not to mention flooding cities, and our thoughts and prayers go out to those who have lost their homes to flooding), an early frost would be disastrous.

Because we have devoted so much of our arable land to corn (in a very misguided policy to turn food into ethanol), we have less for soybeans, which is putting upward price pressure on beans and other grains that are used to feed cattle, hogs, chickens, etc. In fact, it costs so much to feed livestock that ranchers are shrinking their herds.. This means more meat is coming into the system now, which is dampening prices. Increased supply will reduce prices in the short term, but next fall we will find that supplies of all types of meat will be short. That will potentially send meat prices soaring. Cereal and bakery products are up 10% over the last year. They could continue to rise in the fall if the corn crop does not yield more than currently projected. It will cost even more to feed your household and feed the animals we need for meat.

Food is the most basic of commodities. Demand is fairly consistent, and supplies may come under pressure. Looking for food inflation to drop back by the fall to 2% is not realistic in the current environment.

What about energy? There is some more hope there, at least on the oil front. High prices have reduced demand in the US, with gasoline usage down about 4%.

I think we have reached a tipping point. The psyche of the US consumer has been permanently scarred. Slowly, this country is going to replace its fleet of cars with smaller, more fuel-efficient cars. Over time, we will see demand continue to fall. We could see further drops in the demand for gas in the next few months.

Much of Asia used to subsidize oil prices to their consumers. That is changing, as Indonesia, Sri Lanka, and Taiwan have announced they are decreasing their subsidies, as the cost is simply too much. Malaysia now spends 25% of its budget on oil subsidies, and must raise prices or cut other services – or watch inflation get worse. India is now contemplating how to cut its subsidies. Even China is likely to start to raise costs after the Olympics. These countries are going to go through their own price shocks. All this will reduce world demand for oil.

The Change In Policy…The Divergence in European Spreads – Why Now?

John Mauldin — Sat, 31 May 2008 20:52:43 +0000

So, without further ado, let’s jump into the problem with the Euro. Back in May 2007, we wrote a piece entitled “Part 2-So What Should We Worry About“.

In that ad hoc comment, we wrote: “The crux of the thesis of our latest book, The End is Not Nigh, is simple and goes something like this: a) Asian central banks continue to manipulate their currencies and prevent them from finding a fair value against either the US$ or the Euro b) this manipulation triggers an accumulation in central bank reserves which, in turn, leads to low real rates around the world c) the combination of low global real rates and low Asian exchange rates amounts to a subsidy for Asian production and Western consumption d) in the US, the subsidy has by and large been captured by individual consumers e) meanwhile, in Europe, the subsidy has been cashed in by governments whose debt has skyrocketed f) we see little reason why, in the near future, the subsidy should be removed but g) if it were removed, the US would most likely encounter a consumer recession (not the end of the world) while h) Europe could go through a debt crisis (far more problematic).”

We went on and wrote: “Last week, and against most observers’ expectations, the Indian central bank did not raise rates at its meeting. Instead, it seems that the authorities are allowing the currency to rise and hopefully thereby absorb some of the country’s inflationary pressures (linked to energy and higher food prices). In recent weeks, the rupee has shot higher and now stands at a post-Asian crisis high. And interestingly, the local market is loving it. While Indian stocks had been sucking wind year to date, the central bank’s apparent policy shift (from higher interest rates to higher exchange rates) has triggered a very sharp rally.

This of course is an interesting turn of events and we would not be surprised if Asian central banks were to study developments in India carefully over the coming quarters. After all, India is blazing a path that a number of Asian countries may yet decide to follow.

One could argue that a change in monetary policy in Asia could end up being a “triple whammy” for Western economies. It would mean that:

Asian central banks would export less capital into our bond markets and this would likely lead to a drift higher in real rates around the world.
Asian exchange rates would move sharply higher, which in turn would likely mean higher import prices in the US and Europe.
As Asian exchange rates start to move higher, Asia’s private savers would likely start repatriating capital, further amplifying exchange rate and interest rate movements. This would also likely lead to collapses in monetary aggregates in the Europe and the US.

Finally, we concluded the paper by saying: As we highlighted in Part 1: Why We Remain Bullish, we are not worried about valuations. And we are also not worried about “excess leverage” in the system, or the threat of a “private equity bubble”. We also do not fear an “economic meltdown” or a brutal end to the “Yen carry-trade” (which we did fear in the Spring of 2006). Instead, if we had to have one concern, it would have to be a possible change of monetary policy across Asia and the impact that this would have on real rates around the world. As we view things, the only reason Asian central banks would change their policies is if food prices continued to increase (in that respect, owning some soft commodities — a hedge against rising real rates — makes sense to us – as does owning Asian currencies). Interestingly, such a turn of events seems to be unfolding in India, yet no one seems to care. Monitoring changes in Asian inflation, monetary policies and exchange rates could prove more important than ever.

Nine months after that paper, we have indeed just gone through a period of a) rapidly rising food prices which have led to b) faster inflation rates across Asia, which have triggered c) a change in Asian monetary policy, notably a willingness to let the currencies appreciate faster than they have in the past. And if Asian central banks are now finally allowing their currencies to rise, then one thing is sure: Asian central banks will no longer need to print large amounts of their own currencies and accumulate US$ and Euros. They will thus also no longer need to buy US Treasuries and European bonds to the extent that they have.

Is it a co-incidence that, as Asia starts to allow its currencies to rise, US mortgages have been hitting the wall and spreads amongst European sovereigns have started to widen? The subsidy that Asian central banks have been giving to consumption in the US and governments in Europe (see The End is Not Nigh) is now disappearing.

Indeed, for the past five years, spreads of Italian ten-year government bonds to German bonds have hovered between 15bp and 25bp. But recently, spreads have started to break out on the upside.

And, of course, Italy is not alone. All across Europe, we have seen a widening of spreads between the “stronger” signatures (Germany, Holland, Austria, Finland, Ireland) and the “weaker” signatures (Portugal, Italy, Greece, Spain, Belgium, France) including those of Eastern Europe (Latvia, Romania, Hungary, Poland…).

Asia’s Markets Bottomed Out!

Manraaj Singh — Thu, 22 May 2008 14:08:03 +0000

Hedge fund managers are piling money into Asian markets. It proves something we at Profit Hunter have believed for months…Asia has bottomed out!

We now believe Asia’s markets are poised for a rebound and this could be your last chance in the foreseeable future to get in on the ground floor.

Right now I’m scoping two stocks that could be about to cut the mustard!

They’re not buys yet… but one of them could be any day now.

The best move you can make

We’ve been sitting tight on our positions since the beginning of the year instead of charging back in at the first sign of an apparent rebound.

It was the right move.

Most of them proved to be dead cat bounces, and the irrational optimists who got in too early have gotten burnt.

The average Asian hedge fund has seen a loss of 5.6% since the beginning of the year… and that’s with the advantage of every possible trading strategy available to them!

The sharp falls we saw in most Asian markets went beyond what can be economically justified. A lot of it was driven by hedge funds being forced to liquidate portions of their portfolio. Investors panicked and began withdrawing money from the funds… banks and brokerages hit by the credit crisis refused to lend to them.

So hedge funds were forced to sell shares to meet margin calls or to reduce their exposure.

In fact, the amount of money invested in Asia-focussed hedge funds fell by 10% in the first three months of this year…

But the investment case for Asia remains intact.

What I’m waiting for is a change in sentiment and the evidence for that is growing. And it’s growing fast!

You see, what worked on the downside should work on the upside too. The re-entry of the hedge funds could give the region a boost.

Here’s one move you can make before they do!

So, if you’re willing to ride-out the short-term turbulence, this is a good time to get into Asia.

Vietnam remains my favourite market in Asia — in fact my favourite way to play this phenomenal trend is listed right here in the UK. You can access all the details here.

But right now, markets everywhere are having a rough time. Asia and Europe have been falling for the last three days. They’re jittery over the surging price of oil. It hit a new record of $135 this morning. We can almost see OPEC President Chakib Khelil, smiling smugly… he’s predicting $200 oil.

Auto makers and transport companies have been having the worst of it. The airlines are ripping their hair out.

In Asia, we’ve seen the price of jet fuel shoot up by more than 50% since the beginning of the year!

Why we like the higher oil price

Shipping companies have taken a hit as well.

Investors are worried that higher fuel prices may dent profits.

We aren’t complaining though. We’re bullish on Asian shipping companies because the credit crunch has led to a slowdown in the number of new ships being built.

That’s obviously good news for the existing shipping companies and we’ve been running the rule over several of them.

But top shipping companies saw their share prices jump after that report on falling ship orders hit the mainstream financial press. So, we’re excited that the latest jitters over the oil price could bring their share prices back down to levels that we find exciting.

We’ve now whittled that down to two fantastic companies.

But we would like to see further falls in their share prices so that the potential impact of rising fuel costs is fully priced in. They’re both fantastic companies, but only one is going to make the cut.

In the meantime, check out our Vietnam opportunity right here and be ready when I give the signal to buy one of these incredible shipping stocks.

Regards,

Manraaj Singh
Editor Profit Hunter

Source: Asia’s Markets Bottomed Out!

Hong Kong Gaining Prominence as Leading Global Financial Center

Jennifer Yousfi — Wed, 21 May 2008 17:29:59 +0000

At a time when Europe and the United States are shedding jobs in the financial sector, one financial center is only adding to its ranks: Hong Kong.

Though it currently holds third place behind London and New York, Hong Kong’s presence as a world financial center is growing by the day. Credit Suisse Group (CS) is the latest financial firm to move a top executive to the Asian city.

Vikram Gandhi, the Swiss bank’s head of global financial institutions group, will relocate to Hong Kong from New York this summer to tap growth in Asia, Bloomberg News reported.

“As part of our ongoing commitment to transfer talented bankers to other regions, Asia Pacific will benefit greatly from having a banker on the ground with Vikram’s experience and client relationships,” Jim Amine and Marc Granetz, co-heads of global investment banking at Credit Suisse, wrote in an internal memo. “We are going to continue to align our best bankers with areas of highest potential growth.”

This move follows similar relocations to Hong Kong by top brass at Deutsche Bank AG (DB), Morgan Stanley (MS) and Citigroup Inc. (C) as investment bankers look to cash in on the large number of sovereign wealth, private equity and corporate deals occurring in Asia.

China and the other emerging Asian economies haven’t been as adversely affected by the global credit crunch. While deals are slowing down in the United States and Europe, the pace of business is still fast and furious in the Pacific Rim.

“Investment bankers follow the money,” Scott Moeller, a Professor at the Cass Business School and former executive with Deutsche Bank and Morgan Stanley, told BBC News.

“With sovereign wealth funds having a lot of money, with Asia having escaped the worst of the credit crunch and with the crunch having hit the U.S. and Europe the hardest, it is not surprising at all,” Moeller said. “Once you get critical mass in a location, it begins to snowball and that is what is happening in Asia.”

But despite the growing number of deals happening in Asia, competition between Hong Kong and Shanghai is likely to keep the former city from overtaking London or New York as the new global financial capital.

“I would be more worried if I was in a third tier financial center like Paris or Frankfurt than in London or New York,” Moeller said. “I don’t think London or New York will be losing their crowns as leading financial centers any time soon.”

Source: Hong Kong Gaining Prominence as Leading Global Financial Center

The Absolute Return Letter

John Mauldin — Thu, 15 May 2008 14:50:52 +0000

What countries are truly the have and have nots of the world? Good friend and business partner Niels Jensen of Absolute Return Partners suggests we look at the old equation in a new way? Food and energy resources may be at least part of the definition in the future.

In this week’s Outside the Box we continue with what I mentioned a few weeks ago: agricultural needs are going to be a new and important force in the world and when coupled with energy may shift the balance of power in the world in strange a different ways.

When, as Niels points out, Afghanistan poppy farmers are shifting to wheat farming, the world is truly a different place. I think you will find the research he has done to be truly worth a few minutes of your thinking time.

And as a preface, I was reminded a little while ago that a Financial Times headline story last Friday mentioned that China is buying African farmland and building massive amounts of railroads and infrastructure to get grains to the market. I have long been bullish on African farmland. This week’s OTB will tell you why.

“There is nothing so disastrous as a rational investment policy in an irrational world,” John Maynard Keynes. You just know that something is astray when Afghan poppy growers begin to switch from opium to wheat.

According to the Independent newspaper here in the UK, that’s exactly what is now happening. I have no desire to enter into a pound for pound risk/reward analysis of producing wheat versus opium. However, the consequences of the rapid rise in energy and agricultural commodity prices are far reaching and perhaps not as well understood as they should be. That is the content of this month’s letter.

The Silent Tsunami

My story begins with Al Gore. While most of us lulled ourselves into the belief that he was onto something when he tried to convince us that global warming (or climate change, as I prefer to call it) was the most formidable challenge facing this planet, a silent tsunami¹, also known as the global food crisis, began to develop and is now threatening to undermine global political and economic stability, the latter of which has been key to the benign financial markets we have all benefited from in recent years.

According to the World Bank, just over 1 billion people live on one dollar or less per day. People in the poorest countries in the world spend 80% of their income on food. So when you and I have hardly noticed that the bread we pick up from the local bakery has doubled in price over the past year, it is because only 10-15% of our budget is spent on food items². In many emerging economies the number is much higher. Chinese consumers spend 28% of their income on food. In India it is 33%. If you want to know how much it is in your country, go to:

http://www.ers.usda.gov/briefing/cpifoodandexpenditures/data/2006table97.htm.

There are three food staples in the world today which dwarf all other food ingredients in terms of importance. They are (in alphabetical order) corn, rice and wheat. As you can see from chart 1 below, they have all experienced rapid price appreciation since last summer. What is it that has driven this price explosion and what does it mean to financial markets? As with most things in life, there is no simple explanation; a number of factors have conspired to create a situation which is exceptional but also destabilising and hence dangerous.

It Is The Bio-Fuel Policy Stupid!

The explanation given by most commentators is the bio-fuel policy currently being pursued by the Bush administration in Washington. The policy is driven by a desire to unlock the United States from its rising dependence on imported crude oil. The problem, as Bush and his government have been slow to recognise, is the stupidity of the policy in its current form. Let’s back that claim up with some hard facts.

In the United States, corn (better known as maize over there) is the primary ingredient in ethanol production although wheat and soybeans are also used. According to a recent UN report, it takes 232 kg of corn to fill an average 50 litre car tank with ethanol – enough corn to feed a child for an entire year. It is estimated that almost 20% of total US corn production will go towards ethanol this year and the number is set to rise to 45% by 2015³.

The problem with corn is that it is low on carbon hydrates, which is where the energy comes from. Instead, American ethanol producers rely heavily on fertilisers with the energy being extracted from the nitrogen in the fertiliser. This is an inefficient and very costly approach – in particular in an environment of rising energy prices because crude oil and/or natural gas are major ingredients in fertiliser production. 33,000 cubic feet of natural gas are required to produce just 1 ton of ammonia!

So what does all this mean? According to estimates from Goldman Sachs, the cost of ethanol from corn is now over $80 per barrel, it is about $145 from wheat and over $230 from soybeans. Other countries recognised this problem a long time ago and use crops with higher carbon hydrate content. In the Philippines they use coconut oil and the Brazilians use sugar cane. Goldman reckons that the cost of one barrel of ethanol based on sugar cane is about $35. So why not import sugar cane from Brazil instead of using corn? One simple answer: Brazilian farmers do not vote at American elections. Idaho farmers do.

Are Investors To Blame?

There is no question that the US bio-fuel policy which, by the way, is now being copied in other parts of the world including the EU, has to take its share of the blame. But it is by no means the only reason for the food crisis. The next culprit on my list is our very own industry – investors of all kinds. In recent years there has been rising demand for commodity-linked investment products from investors all over the world. Pension funds, hedge funds, mutual funds and private investors have all allocated more and more to commodities and, in recent months, demand growth has been explosive, as is evident from chart 2 below. It is estimated that the aggregate value of commodity-linked index funds now exceeds $200 billion, a very significant number in a not very large market.

The 10 Hottest Global Investment Trends to Follow for the Next 18 Months

William Patalon III — Wed, 07 May 2008 18:41:07 +0000

There’s an old Wall Street adage that tells us that “the trend is your friend.” And there’s a witty bit of wisdom we’ve developed here at Money Morning to help guide our readers and us that says: “Go global or go home.”

Combine those two and you’ll discover that you’ve got yourself one very strong investing strategy – if you choose the right trends, that is.

Surprisingly, that’s nowhere near as difficult as most investors think. All you have to do is to look around you, and study the forces that are at work in the markets each day. If you do that on a consistent basis, you’ll soon discover that no matter what kind of “trick play” the financial markets throw at you, you’ll be able to side-step the tackle attempt, will avoid being thrown for a loss – and will actually end up scoring some hefty profits for your portfolio.

To show you what I mean, let’s take a quick look at the markets right now…

The New World Disorder

For decades, America’s Wall Street was the financial center of the world, if not the universe. That New York-centric viewpoint was so pervasive that one of the most-recognizable investment aphorisms to emerge was the ubiquitous: “When Wall Street sneezes, the rest of the world catches a cold.”

But as we’ve all seen during the wild markets we’ve had to navigate of late, that’s not true any longer – and may never be again.

For the first time in modern history, the U.S. economy finds itself back with the masses, flying coach instead of first class. We’ve all heard the statistics.

For instance:

From 2005 to 2010 alone, worldwide wealth will soar from $118 trillion to more than $200 trillion – with the newly capitalist markets of Asia and Europe accounting for the biggest share.
Over the next 25 years, America’s share of the worldwide economic pie will slip from 28% to 24%…
While during that same stretch Asia’s share of the global market will almost double – meaning it will account for a whopping 55% of the global economy by 2030.

But those are just statistics. A confluence of powerful forces is responsible for those changes. So let’s take a look at some of the global trends that are the actual catalysts behind those numbers.

Key among them:

The emergence of such new economic heavyweights such as China and India, which are now competing for the capital, the jobs and the business contracts that U.S. companies for decades had almost all to themselves.
The perfection of new telecommunications technologies that are making national boundaries largely irrelevant from a business standpoint, while also enabling global corporations to shift labor and capital wherever it’s needed around the world.
The emergence of new capital sources; in particular, the so-called “sovereign wealth funds” – the massive state-run pools of investment capital that are now operating like venture capital funds with a worldwide reach.
A global credit crisis – which grew out of a U.S. housing-market bubble – that continues to wreak havoc on the U.S. economy and the U.S. dollar.
An unprecedented escalation in global energy and commodity prices that, combined with the weak U.S. greenback, is allowing inflationary forces to take hold in the American market for the first time in nearly three decades.Taken at face value, such trends are terribly unsettling for U.S. consumers and investors alike. And the unease in this country is growing at an alarming rate. Believe me, we here at Money Morning know that as well as anyone. As our team of global investing experts beats the bushes in search of new trends and new investing opportunities to bring your way, we hear these concerns voiced over and over again.We certainly understand folks being worried. After all, with change comes uncertainty. And uncertainty can breed worry, if not fear.For those of you who are understandably fearful, I’ll ask you to consider one other longtime Wall Street adage: With change comes opportunity.

Global Profit Opportunities Abound

With all the global changes we see, we also see plenty of opportunity – especially for U.S. investors. While I understand if many investors can only see a burly group of blockers standing between them and the profits they’d dearly love to lock in, we here at Money Morning see a playing field that’s wide open all the way to the end zone.
All you have to do is call the right plays – by picking the right trends. Here are 10 that are worth watching – and capitalizing on – as they play out in the global capital markets at different times over the next 12 months or more.

Cash in on the Cash Barons: Sovereign wealth funds from China and the Middle East are pouring billions into stocks too many investors would rather ignore.

Energize With Energy: Energy will be a recurrent theme in the months to come – and not just in terms of oil and gasoline. Crude oil will remain in the forefront of the profit plays to come. But that’s not all: Alternative energy opportunities such as uranium and so-called “green energy” investments will benefit from soaring prices for conventional energy sources. When it comes to these profit plays, it will pay to keep all your bases covered.

Buy into Buyouts: Mergers and acquisitions, management buyouts and private-equity deals helped fuel the record run in the U.S. stocks in the first half of 2007. The subprime-mortgage mess and ensuing credit crisis will make it tougher to do deals in the next 12 months, but the choicest buyouts still will get done.

Build With Biotech: This isn’t your father’s biotech sector. No longer are we talking only about the “Big Pharma” drug-development firms. Some of the biggest players are now trying to solve the world’s food and fuel shortages – with some notable successes. With special, more-environmentally friendly herbicides and higher-yielding, genetically engineered crop seeds, these companies have already engineered big increases in sales and profits – and there’s a lot more to come.

Asia and Africa: Two likely winners of China’s $1.5bn windfall

Chris Mayer — Wed, 16 Apr 2008 20:54:23 +0000

As the slowdown in the West intensifies, emerging markets continue to perform. Three of the top 10 global IPOs were Chinese, and Chinese and Indian companies between them raised a whopping $12.6 billion over the first quarter.

And today, China announced that its white-hot economy beat analysts’ predictions, growing 10.6% in the same period.

Let me put that in perspective for you…

China’s been growing so rapidly that it may overtake Germany as the world’s third biggest economy this year.

Since the country kicked-off its free-markets reform programme in 1978, the economy has grown in size by a mind-boggling 68 times.

What’s all the more staggering is it achieved that growth DESPITE seeing the first fall in its trade surplus since 2004.

In other words, even while China’s export growth is slowing as a result of the economic slowdown in the West, its economy is continuing to hold up remarkably well as domestic and regional demand picks up – and the country’s appetite for imports is helping the emerging markets to withstand the U.S. slump.

But I think it’ll do much better than simply ‘withstand’ the slump.

And it’ll drive money into other emerging economies at a rate of knots…

Vietnam and Africa: Two likely winners of China’s $1.5bn windfall

China now holds $1.68 trillion in foreign reserves and it is looking for profitable opportunities to pump the cash.

According to China consultants, Z-Ben Advisors, part of that plan could see China’s three sovereign wealth funds outsourcing a combined $320 billion to foreign asset managers.

These investments could be huge – Z-Ben expects the size of the individual investments to range between $750 million and $1.5 billion.

And where do you think the bulk of that money is going to end up?

Emerging Asia.

My favourite Asian market, Vietnam, is right on China’s doorstep. I believe they’re likely to be one of the big winners from China’s investment drive.

And, of course, the Chinese are investing massively in Africa as well. They’ve just offered $50 billion in development finance to Nigeria. Frankly, you’ll bump into them everywhere on the continent today.

China isn’t just a source of investment capital for the emerging markets – the country remains one of the greatest investment stories of all time and there is a lot of money waiting to get in.

Now, the Dubai government controlled investment house, Dubai International Capital, is teaming-up with Hong Kong’s First Eastern Investment to launch a $1 billion private equity fund that will connect Middle Eastern cash with China deals.

That’s another leg in the Gulf’s attempts to shift its investment focus away from the slowing Western economies and towards the faster-growing emerging markets.

‘The mother of all investment booms’

My point is that despite the economic gloom and doom that we keep reading about in the press, the growth story across huge swathes of the world remains intact.

The idea of a “credit crunch” in places like the Gulf or China or Russia right now is laughable.

The problem in these places isn’t a lack of cash – it’s that they have far too much of it.

And as they begin investing that cash in the emerging markets, I expect that we will see the mother of all booms.

Regards,

Manraaj Singh Editor Profit Hunter

P.S. The great shift in the economic balance of power from the West to the emerging economies underlies our investment strategy here at Profit Hunter. And as the current financial crisis deepens, it will only accelerate the gains to be made in the East. Click here to learn more.

Jim Rogers: China’s Economic Advance is All But Unstoppable

Keith Fitz-Gerald — Tue, 15 Apr 2008 14:53:02 +0000

China’s long-term prospects are so strong that even a civil war, an economic collapse or political assassinations would only temporarily delay its emergence as a worldwide economic powerhouse.

With an economy that’s advancing at an average annual clip of better than 11%, $1.7 trillion in currency reserves, and an emerging middle class that will soon be the world’s largest, China represents the future to globally focused investors and businesses alike. But there’s always been a concern about just how resilient China’s economy actually would prove to be.

Rogers urged investors to dump such concerns.

In fact, according to Rogers, when it comes to the Red Dragon, only one thing could cause this powerful expansion to wash out: A major water crisis.

“China has a huge water problem,” he said. “In Northern China, they’re running out of water. They know this and they’re working on it, big time. But if they don’t solve it, or if they don’t solve it in time, then China – as you put it – has failed.”

Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first truly global investment vehicle, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.

It was after Rogers “retired” in 1980 that the public first really got to see him in action. After traveling the world on a motorcycle, Rogers penned the best seller “Investment Biker” – and gained the moniker: “Adventure Capitalist.” And he’s used the “on-the-ground” insights he gained on that trip and others that followed to make some truly historic market calls: Rogers predicted China’s meteoric growth a good decade before it became apparent to other investing “experts,” and he subsequently foretold of the powerful updraft in global commodities prices that is continuing to fuel a year-long bull market in the agriculture, energy and mining sectors.

In his newest best seller, “A Bull in China,” Rogers writes about China and the commodities boom, and details dozens of ways investors can profit from these trends.

Given Rogers’ prescience – not to mention all the uncertainty that right now surrounds the U.S. economy – we thought it was well worth a sit-down with the noted guru, even if it meant traveling all the way to Singapore, where he now lives with his family, to do so.

During that hour-long interview at his home in Singapore’s exclusive Orchard Park district – with the two of us talking as he pedaled his exercise bike furiously, despite the morning heat – Rogers also said that:

Oil prices are only going to go higher.
That Russia will continue to “strip itself” of assets, meaning it will never emerge as an economic force.
And that the U.S. dollar’s woes will continue.

Let’s take a look at some of the highlights of the Money Morning interview with investor and author Jim Rogers.
Keith Fitz-Gerald (Q): Can you see an instance where China fails?

Jim Rogers: Of course. Anybody – and everything – can fail. But [let’s consider] the main problem first.

I don’t worry about war or epidemics or depression or even political upheaval. Everybody has had that. America had horrible problems. We had a terrible Civil War. We had political leaders regularly assassinated 125 years ago. We had massacres in the streets. We had no human rights. We had no rule of law. You could buy and sell congressmen. You can still buy and sell congressmen in America, but they were much cheaper in those days.

America had many disasters, and yet it became the great success story of the 20th Century. As recently as 1907, the entire system went bankrupt in America: The government, Wall Street, everything. And yet, America came out of that and went on to big things.

All of those things can happen in China and would be temporary setbacks. I don’t consider any of them being the end of the China story.

The only thing that worries me permanently about the China story is water.

I’ve been around the world twice. I’ve seen many cities, societies, [and] nations that disappeared because the water disappeared. China has a huge water problem. In Northern China, they’re running out of water. They know this and they’re working on it, big time. But if they don’t solve it, or if they don’t solve it in time, then China – as you put it – has failed.

By the way, Northern India has the same problem, only worse. Many places have it now. Water is becoming a huge problem worldwide. The same is true in the Southwestern United States. You know, you may have Arizona going to war with California. Some sections of Nevada, Colorado …they’re desperate there.

So it’s not just China – but water’s the main thing that worries me about China.

As I say [that] civil war would be a terrible thing in China, but it’d be a temporary setback, as would epidemics, as would economic setbacks, [and as would a] depression. But China will come out of all that and keep going forward. Now, I don’t anticipate war in China – even civil war – but I’m suggesting that if it happened, I don’t see it as the end of the story any more than it was the end of the story in the United States.

Q: There’s a confluence of money flowing into and around China. Do you believe that the United States, with all its current problems, will get left out of this powerful and important trend?

Rogers: Absolutely.

The U.S. dollar is a terribly flawed currency. I’m trying to get all of my money out of U.S. dollars. I don’t know why anybody would put money into the U.S. dollar, and by extension into the U.S., as we stand here today. The U.S. is probably the largest debtor nation the world has ever seen!

The United States’ foreign debts are increasing at the rate of $1 trillion U.S. dollars every 15 months. U.S. foreign debt is over $13 trillion, and rising rapidly. It’s the official policy of the central bank to debase the currency. They’re trying to drive down the value of the dollar.

Q: Is the Chinese Renminbi the next great “liquidity haven” if the U.S. dollar fails? Or do you see the Euro rising to the occasion?

Asia’s Market Slide isn’t Over Yet

Merryn Somerset Webb — Fri, 11 Apr 2008 19:38:09 +0000

What happened to Asian decoupling? Wasn’t Asia – thanks largely to fast-growing heavyweights China and India – supposed to shrug off the financial crisis and economic slowdown in the US?

So far this year jitters over America have left no region of the world untouched. Indeed, while the MSCI USA index is down by 6.5% this year, the MSCI Emerging Market and Emerging Asia indices have lost 8% and 12% respectively in dollar terms, despite a strong rally over the past few days; India, often touted as one of the safer developing markets – owing to its relatively low exposure to exports – is down 28%.

Asian stockmarkets have been unable to decouple, because as global investors have expanded their range in recent years, they have deepened the connections between various markets, says Joanna Slater in The Wall Street Journal. And in rocky times, institutional investors ditch riskier assets, such as Asian and emerging stocks, to cover losses or fund withdrawals in other areas.

Capital can flow where it likes, so “if there’s an upset in one part of the world, it affects all other markets”, says Jonathan Compton of Bedlam Asset Management. The bottom line is that in times of crisis, correlations between stockmarkets increase “and there is nowhere to hide”, says Prieur du Plessis on Seekingalpha.com.

So much for stockmarket decoupling; how about economic decoupling? Asia ex-Japan’s export growth has held up well so far, but US consumption, the main driver of American demand for the region’s products, is now “drying up”, and leading indicators for Asian trade are “pointing south”, says Capital Economics. Export growth for much of the region looks set to slide and may even turn negative in the next few months. Growth in the most tradedependent economies – Malaysia, Singapore and Taiwan – is likely to be significantly lower this year.

Every country in Asia will see slower exports this year, agrees Paul Donovan of UBS. Domestic demand is weakening in America and Europe, which, with Japan, comprise 70% of the world economy. As Citigroup has pointed out, 61% of Asian exports are ultimately consumed in Europe, America and Japan.

Meanwhile, Asian consumption is not yet significant enough to offset a major decrease in US consumption, let alone slowing demand in both Europe and the States. As Stephen Roach of Morgan Stanley points out, China and India jointly account for just a sixth of American demand. Consumption in the BRIC countries last year totalled a third of the US figure, notes CLSA’s Christopher Wood.

Asian earnings-per-share growth “will drop off a cliff” if import growth starts to slow in Europe as well as in America – which seems likely as the US slowdown becomes a global slowdown, says a Citigroup Asia Equity Strategy note. Margins have been squeezed amid higher commodity prices and volumes have been the main driver of profitability.

What’s more, the current 2008 earnings growth forecast for the region, 8.4%, looks unrealistic and valuations are far above average. Asia ex-Japan is on 2.3 times book value, while 1.3 has been typical in American recessions in the past. If this slowdown is only half as bad as the 1990 or 2001 episodes, markets could still fall by another 20%. “The worst is not behind us.”

Source:http://www.moneyweek.com/file/45253/dont-count-on-decoupling-asias-market-slide-isnt-over-yet.html