Probably not. First off, new Asian buyers and a “whole pile of Johnny-come-lately types” are fuelling current demand. A six-litre bottle of Château Pétrus 1982 recently sold for a record £60,000 at auction in Hong Kong, a city where wine imports rose by more than 40% in the first eight months of the year.

Meanwhile, in Christie’s spring 2009 global sales, Asian and Chinese buyers accounted for 61% of the total sale value, compared to 7% in 2005. “With demand coming almost entirely from Asian buyers, and with that demand so heavily biased towards one particular producer, it would be wrong to start heralding the return of a bull market”, say the people over at the Vintage wine fund.

Asia is beginning to resemble Japan in the late 1980s, when cash-flush companies and property developers splurged on trophy works by artists such as Van Gogh.

But there’s another reason why wine just isn’t such a great investment.

Read the rest of the story on MoneyWeek.com.

Government debt prices fell as U.S Treasuries retreated on the prospect of $63 billion in new supply this week and shorter-dated euro zone bonds slipped ahead of 8 billion euros worth of two-year paper from Germany on Wednesday.

Crude oil rose above $47 a barrel at one point after renewed buying on speculation the Organization of Petroleum Exporting Countries may cut production again at its meeting on Sunday in Vienna.

Equity markets in Europe and the United States were choppy as higher energy prices pulled up oil shares while U.S. bank shares rose on optimism that Washington will provide more clarity on government plans to shore up the U.S. banking system.

U.S. Federal Reserve Chairman Ben Bernanke was attending a meeting on the economy with President Barack Obama, the White House said.

But in Europe, financials took the most points off the FTSEurofirst 300 index of top European shares as investors continued to flee the financial sector following news of further government stake-building, fanning worries about the stability of Britain’s banks.

Growing fears about the ailing U.S. automakers and banking drove interbank U.S. dollar borrowing costs up.

In Asia, Japan’s Nikkei average closed at a 26-year low, finishing down 1.2 percent, and other Asian markets slipped on worries about the fate of General Motors and U.S. banks.

“The dollar seems to be the only safe haven left right now, with both the yen and Swiss franc under pressure,” said Robert Blake, senior currency strategist at State Street in Boston.

“We’re certainly in risk aversion mode and the trade right now is to buy dollars, which to a large extent reflects huge repatriation flows to the United States.”

Currencies have tracked equity markets’ performance over the last few weeks, with the dollar tending to benefit when stocks fall as investors seek shelter amid fears of a collapse of banking systems worldwide.

The dollar was up against a basket of major trading-partner currencies, with the U.S. Dollar Index up 0.53 percent.

The euro fell 0.12 percent at $1.2625, while against the yen, the dollar rose 0.50 percent at 98.86.

With the outlook so dim, Barclays cut its year-end target for the S&P 500 to 760, saying the probability of the benchmark U.S. stock index hitting an initial 875 was much lower now.

After 1 p.m., the Dow Jones industrial average was down 62.76 points, or 0.95 percent, at 6,564.18. The Standard & Poor’s 500 Index was down 4.35 points, or 0.64 percent, at 679.03. The Nasdaq Composite Index was down 18.56 points, or 1.43 percent, at 1,275.29.

The biggest drag on the Dow was Merck & Co Inc after its proposed $41 billion takeover of Schering-Plough raised concerns about the depth and breadth of the recession as it hurts such defensive sectors as drugmakers, analysts said.

“This deal was done in a declining environment for both companies,” said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.

The FTSEurofirst 300 index of top European shares closed down 0.7 percent at 657.30 points.

The benchmark 10-year U.S. Treasury note fell 6/32 in price to yield 2.90 percent. The 2-year U.S. Treasury note fell 3/32 in price to yield 0.99 percent.

U.S. light sweet crude oil rose 94 cents to $46.46 a barrel.

OPEC Secretary-General Abdullah al-Badri said the 12-member producer group would consider reducing output again at its meeting on Sunday as it tries to counter downward pressure on oil prices from falling demand.

“All options are on the table,” he told reporters in Qatar when asked if OPEC, which pumps more than one-third of the world’s oil, would announce another reduction in supply at its meeting in Vienna.

Spot gold prices fell $18.90 to $917.65 an ounce.

March 9 (Reuters)

Unless we see a big bounce today, the yen will end the day with the first weekly loss vs. the US$ in two months. With a majority of markets closed, most news stories centered around the Japanese yen. Japanese industrial production fell the most in 55 years as reported on Wednesday. Factory output plunged 8.1% from October, more than 6.8% estimated by economists. Other data released in Japan showed the jobless rate climbed to 3.9% from 3.7%, and household spending slid .5%, a ninth drop.

Markets are now counting on the Bank of Japan to follow the FOMC’s lead and begin ‘quantitative easing’. Bank of Japan policy board member Hidetoshi Kamezaki said policy members would consider ‘extraordinary steps’ to help the economy. Japan’s central bank already countered the drop in US interest rates with a drop of their own, and again have the industrialized world’s lowest interest rates. Now they will turn to other means designed to pump liquidity into the financial markets. Kamezaki told reporters that the bank’s next policy steps should focus on improving funding for companies and influencing long-term borrowing costs. The bank will likely start buying corporate bonds and could actually go into the equity markets purchasing stocks to support Japanese industry.

If Japanese policy makers do adopt aggressive quantitative easing, the yen could see a fall in value. These measures pump large amounts of cash into the markets, and the laws of supply and demand tell me that these tremendous increases in money supply will eventually drive down the value of the currencies. The values of both the yen and the dollar will be challenged by these ‘quantitative easing’ measures over the next few years.

But some in the Japanese administration want a more cautious approach. Prime Minister Taro Aso has yet to implement two announced stimulus packages. He believes the Asian economies are better positioned than those of the west to endure the global recession. Instead of using all of their ammunition at once, the Prime Minister wants to take a more gradual approach to combating the economic slowdown.

One thing helping Japan weather the economic downturn is the falling price of crude oil. Since hitting a high of 147.27 on July 10 of this year, the price of oil has fallen 75%. OPEC has cut production in an attempt to slow the drop, but these announced cuts have yet to have an impact on crude prices.

The lower oil prices have kept a lid on global inflation, and several countries are taking advantage of these lower numbers to bring their interest rates down. India’s inflation slowed to a nine month low, with wholesale prices increasing 6.61% from a year earlier, down from 6.84% the prior week. Inflation in India has fallen below the central bank’s target of 7% largely due to lower fuel costs. I would expect India to continue cutting rates, which could reverse some of the rupees recent gains.

But the fall in oil prices haven’t helped all economies. Russia’s central bank devalued the ruble for the third time in a week, sending the currency to its lowest level against the dollar in two years. The Norwegian krone had also fallen as oil retreated from its highs. But the recent dollar weakness has steadied the krone, and it has been trading in a fairly tight range vs. the US$.

No data will be released in the US today, and the markets will likely be very light. Most will be heading out to the malls to try and take advantage of all of the year end closeout sales. Retailers have been dropping prices dramatically to try and salvage a tough holiday shopping season. US retail sales fell between 6 and 8% this season according to predictions by the credit card companies. This was one of the most challenging holiday seasons on record, and with a falling US economy, I would expect next year’s to be even worse.

The dollar strength we saw during 2008 will not spill over to 2009. I would think the recent dollar weakness will be the rule for next year, as the tremendous increase in money supply here in the US will help drive the value of the dollar lower. On that note I will move on to the currency scorecard:

Currencies today 12/26/08: A$ .6851, kiwi .5765, C$ .8209, euro 1.4097, sterling 1.4747, Swiss .9321, ISK 145, rand 9.74, krone 7.1259, SEK 8.022, forint 189.79, zloty 2.9163, koruna 18.728, yen 90.43, baht 34.99, sing 1.4469, HKD 7.75, INR 48.4437, China 6.8413, pesos 13.3125, BRL 2.3764, dollar index 81.214, Oil $36.37, Silver $10.38, and Gold… $848.55

Source: It’s All About the Yen

“As the financial and economic crisis spreads, oil prices continue to trade on the bad economic news,” wrote James Williams, of WTRG Economics. “Buying oil futures is like trying to catch a falling knife.”

Williams added that, “It is now clear that that Asia and China in particular is not insulated from the problems of the West … That means lower demand for construction materials and the energy that is used in their manufacture and transportation.”

Rachel Ziemba, analyst at RGE Monitor said the bailout might “not be enough to unlock the credit markets, which is what is needed for a real improvement in economic outlook, and thus oil demand.”

Ziemba added that oil prices rose too far and too fast earlier this year, outpacing its fundamentals, and its “fall came as part of a broader reassessment of the global, not just U.S., outlook and recognition that global demand growth for oil would be lower than expected.”

Source: Crude hits the skids – Plummets below $90/barrel

Does mean the end of the great emerging markets trend?

On the contrary, here at Profit Hunter we believe it presents you with an even better chance to buy.

As short-term traders pile out of Vietnam, we seriously recommend canny long-term investors PILE IN.

And we’ve uncovered the perfect way to play…

Like a slingshot, Vietnam is pulling back. Be ready when it goes off

See, we regard Vietnam as the “sling shot” economy of the next 20 years.

“Slingshot” is the term we use to describe a hitherto ignored market.

A market that takes off suddenly and rapidly after attracting a raft of state, domestic and international investment…

True to form, Vietnam pulled-in $15 billion in foreign funds last year alone.

“Slingshot” markets tend to emerge in developing countries where there has been major economic reform, a relaxing of market controls and a year-on-year increase in GDP…

Vietnam is experiencing all these in abundance.

We saw exactly the same global economic shifts in China and Russia 5 years ago.

That’s why the recent volatility in Vietnam’s performance only strengthens our view that the “slingshot” is being pulled back even more. When it comes off, we see carefully positioned investors making a packet!

But before I reveal this exciting opportunity, let me explain why the Asian markets are taking a breather, and crucially, why it won’t last forever…

Vietnam is a victim of its own success

As we’ve seen, its dazzling economic performance has attracted an unprecedented level of foreign money.

But that tide of money has had some unintended side effects: It has led to too much liquidity in the financial system, and that’s fuelled inflation.

Right now, inflation in Vietnam is running at 25.2%. And it’s spooked a lot of short-term foreign investors.

With Western markets reeling in the wake of the credit crunch, Asian markets suffer as international profit seekers lose their appetite for riskier investments.

Now there isn’t much Vietnam’s government can do about that – but what it IS doing is taking real measures to tackle inflation.

Last week, it raised interest rates from 8.75% to 12%. And I believe they will have to go higher before they have a positive impact. But it’s an important first step.

Not only that, it backs-up an important point we made when we first recommended investing in Vietnam on 3 July last year: This is a country where the government is willing to sacrifice short-term growth to ensure the long-term development strategy remains on-track.

And that’s precisely what you need to look for when you’re investing in a macro growth story like this one.

Buckle-up and hold on for the ride

Short-term speculators may be tempted to bolt for the door. But long-term investors’ interest in the country has actually been rising…

The country received foreign investment pledges of $15.3bn between January and May this year. That’s more than double what it received in the same period last year.

And it underlines our optimism for the country’s growth prospects.

Right now, Vietnam is the most oversold market in the world.

After the recent falls, its market is trading on a price-to-earnings ratio of just 11, which makes this market dirt cheap.

In other words: It’s a screaming buy.

If you aren’t already in it, you ought to be.

Our advice is to get in now, buckle-up and hold on for the ride!

Regards,

Manraaj Singh
Editor
Profit Hunter

Source: Asian Markets Oversold! Buy Vietnam ‘Now’

Yesterday, markets were closed in both the US and Britain. Still, here at the Daily Reckoning’s mobile command post, we continued our lonely vigil. What are we waiting for? What are we watching for?

Ah, dear reader…just a little dignity, a little grace, a little courage and beauty. That’s all we ask. Can we find it on Wall Street? In Washington? In politics or economics? We hope so, because that’s all we have to work with here at the Daily Reckoning.

Oil went up yesterday. Asian markets fell – with Japan taking its biggest hit in 6 weeks. And the dollar fell. Speculators are beginning to bet that the Fed will cut rates for an 8th time; that’s the world on the street. As we predicted, the first 7 cuts have done wonders for the prices of oil, gold and commodities…but little for the real economy. Oil has gone up 60% in 6 months…putting big pressure on US household budgets. Now, instead of taking the hint – that it’s time to go in the other direction, by raising rates to head off rising prices – speculators think Ben Bernanke will continue battling deflation with further rate cuts. Maybe, maybe not…but our guess is that it doesn’t matter. Even if the Fed raises rates, it is unlikely to raise them enough to block the consumer price inflation already in the pipeline.

In economic theory, the supply of money is the key to prices. Prices should remain more or less stable when the supply of money increases at the same rate as the supply of goods and services. But in the last 15 years, the US money supply increased about twice as fast as GDP. The surprising thing was that prices didn’t rise. That was the period known as the Great Moderation. Food prices only increased at a 2.5% annual rate…even though money supply, MZM, was going up at nearly 9%.

We have given our opinion as to why consumer prices did not go up. We guessed, too, that those trends that labored so hard to hold them down have now walked off the job. Prices now seem to be adjusting to a higher money supply, with food up 4% last year, officially. Unofficially and anecdotally, consumer prices are rising at about 10% per year.

But while consumer prices were stable during that 15 year period…asset prices frequently went into bubble territory. And now, we await the Final Bubble, dear reader…about which we will have more to say later in the week.

In the meantime, the winner of the Enron Prize, and former head man at the Fed, Alan Greenspan, is in the news this morning. The Financial Times reports that he believes “there still greater than 50% probability of recession.”

Warren Buffett, on the other hand, says recession is already a fact of life. And he says it will be “deeper and longer that people expect.”

The old timer’s definition of a recession was ‘when your neighbor loses his job.’ When you lose your own job, it’s a depression. How many people have lost their jobs in this downturn? Well, for the answer to that question we look to the same people who give us the official inflation numbers – the apparatchiks at the U.S. Labor Department. Therein, of course, hangs a tale…and we will let Dana Samuelson of Danagold tell it:

” The average person judges a recession mainly on employment. If jobs are available, then the economy is holding up. If jobs are scarce, the economy is poor. By that standard, the economy is really struggling, with payrolls down in each of the first four months of the year. But the headline figures, again, don’t reflect the lived reality of Americans. At 5.0% in April, down from 5.1% in March, the current BLS unemployment rate is relatively low by historical standards. Yet the number of jobless Americans of prime working age, that is, men aged 24 to 54, is historically high at 13.1%. Most of these people don’t qualify as unemployed but they are nonetheless out of work.

“Why don’t these would-be workers show up in the headline statistics? Mainly because the government’s definition of the unemployed includes only people who do not have a job, have actively looked for work in the four weeks preceding the survey, and are currently available for work. But it excludes the self-employed, 1099 workers who can’t get enough contracts, those working part-time or on commission only, and the under-employed (like real estate agents waiting tables or mortgage brokers bagging groceries). It also doesn’t count those who’ve given up looking for work altogether—a category known as “discouraged workers,” defined as persons not currently looking for work specifically because they believe there aren’t any jobs available for them. Some analysts say this particular group of jobless Americans—who believe their prospects for finding a job are getting ever dimmer, yet who don’t figure in the computation of the unemployment rate—represent the nation’s dire job situation. According to John Williams’ Shadow Government Statistics , the primary source for unbiased economic data, if adjusted for “discouraged workers,” the actual unemployment figure for April rose to 13.1%, up from 13.0% in March. Now that’s recessionary!”

Real inflation at 10%? Real unemployment at 13%? Maybe. But we have not quite seen the fall off in consumer spending that these numbers suggest…

…stay tuned.

More thoughts…

*** Since we have so little market news to report to you, we will take our quest for truth and beauty to other areas: global warming and the children of Israel for example. Both are touchy issues. In Europe, if you say you are skeptical of global warming, they look at you like a lion at a Christian. In America, you can say almost any nasty thing you want against Arabs…but if you are planning to run for public office, don’t dare to criticize Israel.

We begin by telling a story. A Jewish colleague told us yesterday.

“You really have to be careful to maintain good relations with your neighbors. That’s something my family discovered in WWII. My father was just a little boy in Paris when the war broke out…and then the French surrendered. You know, France was divided in two…there was the zone occupied by the Nazis and there was the unoccupied zone to the South. Since they were Jewish, they figured they’d sneak across the line and once they got to the unoccupied zone, they would just keep a low profile, not mention to anyone that they were Jews, and they would be safe. But my father was only a kid. And when they put him in the local school, in the little town they were staying in, the first thing he did was tell everyone that he was a Jew. So everyone knew why they were there. And then, when the Germans took over all of France anyone in the village could have denounced them and get them sent to a concentration camp. But no one did.”

This recalled another story. A disagreeable French woman, then in her ‘70s, once told us that during the war she had been the directress of a boarding school for little children. It was a catholic boarding school. But it was wartime and a few of the children were Jewish, sent there by their parents in the hopes that they would be safe.

OK… The Fed’s FOMC meeting minutes caused quite a stir in the currencies yesterday, so let’s go to the tape. The Fed noted that prior easing had provided a better balance to the risks to inflation and growth, although the risks were still towards downside growth. In addition, the Fed downgraded their outlook for growth and pointed toward higher inflation… In addition, the Fed noted that “much weaker 2008 growth, inflation to remain elevated in 2008, jobless rate to rise significantly.” Ooooh, now that doesn’t give me a warm and fuzzy, and it shouldn’t give you one either!

So… If that’s what they “really” talked about, then why on earth did they go ahead and cut interest rates? They put in print that they believe inflation is going higher, and they went ahead and cut interest rates! OMG! These guys (and gals) are something… They are really something.. What? I don’t believe I can say what they are in this letter, as this is a family letter! But, I’m sure my friend, the Mogambo Guru will have something to say about this, in his special Mogambo way… Can’t wait to read his letter next Monday!

The Fed notes sent a message to currency traders and the message said… “with low growth forecast, and higher inflation forecast, the Fed doesn’t have a clue what to do” Which means there isn’t a strong feeling about an interest rate hike now either.

Last night, after getting home from my little buddy Alex’s baseball game, I checked what was going on in the Asian markets… I did this because the Fed FOMC minutes printed after Asia and London had gone home for the day, and I wanted to see how the Asians took the FOMC minutes… At that time the euro was close to 1.58 again…

But something funny happened on the way to the forum for the euro this morning… So, let me explain what happened… It’s called jawboning. The dollar was falling too far too fast again, and something had to be done to slow down the fall, a governor if you will on weakness! And that something came in the form of a report showing that futures traders are adding to bets that the Fed will raise interest rates before year-end…

Well… With inflation (in my terms) at 11%, I would think they would be raising interest rates well before then… But, then, that’s just me… And if the Fed does raise rates, what good will it do if they wait till year-end? By then, inflation will probably be around 14-15% (in my terms) and the price of oil will be… Oh, who knows how high it will be by year-end?

So… The euro has lost about 1/2 cent overnight on this news… Still, the euro has made a nice recovery this week, and all those banging on the drum for and end to the weak dollar trend have crawled into the back seat and shut their traps this week…

OK… Enough on the Fed and their ineptness! Under the category of: “It’s about time they agree with Chuck”… Banks including Royal Bank of Canada, and ABN AMRO Holding NV. Believe that the Aussie dollar is going to parity with the green/peachback. So, the “parity watch” is on… With champagne bottles chilling and party hats all ready to be worn… The “parity party” is being planned… Too bad these Big Banks with their Big Research Departments don’t read the Pfennig…

Just kidding… These guys are great at what they do! But, how about that Aussie dollar? I’ve spent most of this week talking glowingly about the Aussie dollar… Yesterday, it hit a 25-year high!

The New Zealand dollar / kiwi, finally got off its duff and moved higher last night… Kiwi had lagged the Aussie dollar lately, but finally saw some love when a more expansionary than expected budget for 2008 was printed… I still like Aussie more than kiwi, as New Zealand’s debt situation is just too much for me to try to sweep under the rug!

U.S. stocks lost another 200 points yesterday… And we all know what that means… So a quick look at Japanese yen and Swiss francs shows some nice gains this week. This all plays well with what I’ve been talking about… (stocks to fall, and Carry Trades unwind) It’s too early to tell if this will continue, but for now, it sure looks like another “plan” has come together!

A couple of weeks ago I talked about the Indian rupee, and how it had weakened for no apparent reason, therefore laying the blame on the Indian Central Bank… It now appears that a credit market slump has led to this weakness… Corporate Treasurers in India believe this credit market slump has passed and the currency will rebound 8% in the next year.

Yesterday, Reuters reported that Warren Buffett has this to say about the dollar… “BUFFETT SAYS DOLLAR WILL CONTINUE TO DEVALUE, POLICIES NEEDED TO CORRECT SLIDE HAVE NOT CHANGED”

Sounds like Warren Buffett has been reading the Pfennig! Doesn’t that all sound familiar? Of course it does… Because that’s what I keep saying over and over again! The fundamentals remain awful!

OK… Today, we’ll see the Weekly Initial Jobless Claims, which are forecast to have jumped to 373K, which would be equal to the level at the start of the 2001 recession… We’ll also see the OFHEO House Price Index for the 1st Qtr, which is expected to show a 1.3% decline, which if that number prints it would equal a record low since the data began in 1975… UGH!

Fed Head Kroszner is going to talk today about the recovery and “repair” of the mortgage markets… What recovery? What repair? This ought to be interesting!

Bank of Canada’s Gov. Carney will speak today, but after Canada prints March Retail Sales, which are forecast to show a rebound from the Feb. report. The Canadian loonie continues to move higher VS the green/peachback, so expect some “jawboning” from Carney to slow the loonie’s rise…

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!

In fact, rumors that BHP may increase its bid have brought about even more speculation that China’s largest steelmakers will further enter the fray.

Rio Tinto Group, the world’s third-largest mining company, rose in London trading yesterday (Tuesday) on speculation BHP Billiton Ltd. will increase its $179 billion hostile bid for the company.

“The rumor doing the rounds is that BHP will increase its bid to 3.8 shares for each Rio share,” Manoj Ladwa, a derivatives broker at TradIndex in London, told Bloomberg News.

Rio Chief Executive Officer Tom Albanese rejected BHP’s initial $127 billion offer saying it “significantly undervalued Rio Tinto and its prospects.” Albanese also said the bid, which offered three shares of BHP for every one share of Rio, was not just out of the ballpark, but “several ballparks away” from being an accurate appraisal. A second offer of 3.4 BHP shares per share of Rio Tinto was also rejected.

BHP has refused to comment on the rumors, but it’s not too great a stretch to imagine another bid might be on its way. That’s because the one thing the world’s second and third largest mining companies can agree on is that Asian markets should be paying more for their iron ore.

Both Rio and rival BHP Billiton are believed to be pushing for an 85% increase in 2008-2009 benchmark iron ore prices, despite the 65% to 71% rise agreed to by Brazilian mining rival Vale (RIO).

The two Aussie juggernauts believe their proximity to Asian markets gives them greater leverage to charge higher prices.

“Rio Tinto will continue to negotiate to obtain a freight premium, to reflect its proximity to Asia and its major customers,” Sam Walsh, Rio’s chief executive of iron ore projects said in February.

Freight accounts for 30% of the landed cost of Australian iron ore in China, but close to 50% of Brazilin iron ore. China, the world’s largest steel producer and consumer, imported 383 million metric tons of iron ore in 2007, up 56.8 million tons, or 17.4%, from the previous year, the China Iron and Steel Association reported.

China’s Chess Game

China is perhaps most affected by the increase in iron ore prices. The country produces about a third of the world’s steel and the vast majority of that output is being used to build the foundation of what will one day become the world’s premier economic power. A boom in commodities prices that has caused the spot price of iron ore to triple in the past five years threatens to derail the country’s fast track development.

However, the only thing that scares Beijing more than soaring ore prices is the prospect that BHP and Rio will team up to ensure that high metal prices are supported well into the future, and perhaps through the duration of China’s economic and industrial expansion.

So far, Xiao Yaqing, chief executive of Aluminum Corp. of China (ACH), otherwise known as Chalco, has given the strongest indication that the state-backed Chinese company is uneasy about the prospect of BHP and Rio forming an ironclad alliance.

“A firm that owns too many resources is not good for the world,” he said in an interview with Hong Kong’s South China Morning Post. “People do not want to see a company dominate the market in any industry.”

Earlier this year, Chalco and Alcoa Inc. (AA), the U.S. aluminum company, bought a 9% stake in Rio Tinto Group for $14 billion. The move turned the duo into Rio’s single largest shareholder, ensuring BHP would have to obtain a 50.1% stake in the company to complete its takeover.

Last month, Sinosteel Corp., China’s second-largest iron ore trader, won over Midwest Corp. by raising its takeover bid to $1.3 billion. Sinosteel has also acquired a 2.4% stake in Murchison Metals Ltd., a rival iron ore producer to Midwest.

Few believe that Chinese companies will stop there, however. The Australian newspaper reported Monday that China’s three largest steel firms – Sinosteel, Chinalco and Baosteel Group Corp.- were looking at a 16% stake in Fortescue Metals Group Ltd., that Harbinger Capital Partners is considering selling. Fortescue is Australia’s third largest iron ore producer behind BHP and Rio Tinto.

“Harbinger chief executive Philip Falcone has been regularly contacted by many Chinese and European companies, particularly in recent weeks,” the paper said. “But because of federal Government concerns about the level of foreign investment, any sale to the Chinese will probably be for only about half of the Harbinger stake.”

Even Marius Kloppers, chief executive of embattled BHP Billiton, thinks a stake in his company will soon fall into Chinese hands.

“Various parts of China that have got surplus funds, capital to deploy, are deploying that across a wide range of things in the world,” he said at an investor briefing. “I have no doubt that one day we will see them show up on our register.”

Source: Iron Ore Proves to be the Most Coveted Commodity in the Pacific 

Forget the UK blues you had on Monday. Don’t despair
about your pension fund value. The credit crunch is
over. Stock markets are now doing what they do… and
going up.

Certainly, that’s how it seems when you look at
yesterday’s phenomenal surge around Western stock
markets… and the continuation across Asian markets
today.

——————————
Markets across the world rally
——————————

Yesterday, the Dow Jones closed up some 400 points, the
FTSE was up 150 points and today in Asia the euphoria
continued unchecked: the Japanese Nikkei up 4.2%, Hong
Kong up 3.5% and India up 2.2%. In Latin America,
Mexico added 2.8% and Brazil 2.9%.

All of this comes on the back of yesterday’s news of
over $23 billion in write-downs. The market, in its
infinite wisdom, thinks that just because banks can
still go to the open market for funds that this credit
crunch is over somehow.

Last time we checked, foreclosures are still rising,
consumers are spending less and banks continue to write
down billions.

The huge rally, then, in banks and retailers
(Kingfisher and B&Q were among the FTSE’s leading
risers yesterday!)… in fact, in just about
anything… seems like some kind of April Fool’s joke –
especially when you consider that about the only shares
falling were mining companies.

I was talking to Robin Tracey who runs our Time Trader
straddle strategy earlier. He has is own thoughts on
this recent rally. “I think it’s just that traders had
been beaten down for too long – the pessimism was
overdone. As soon as we got a bit of “good news” from
the finance sector, the bulls took their cue and a bout
of optimism has blasted in to the market,” he told me
on the phone earlier.

——————————

—————-
Just a short squeeze… or a meaningful rally?
———————————————-

Will that optimism last, I wanted to know… asking
Robin to look into his crystal ball and give me a
definitive answer on where I should place my chips.

“Who know? Not you and certainly not me,” he replied, a
little too honestly perhaps. “This could be either a
severe bout of ‘short covering’ or it could be a
serious “upside initiation”, in other words the start
of a bigger rally. It doesn’t feel like the latter to
me, but I’m afraid we’ll have to wait and see.”

OK, Robin – so the markets could go up… or they could
go down. Thanks for that! Actually, Robin doesn’t care
too much about that. His strategy is market neutral. In
other words, he does not try to guess direction –
that’s a mug’s game in his view. People are invariably
wrong and “most of the time” markets don’t move that
much from month to month. His fascinating strategy aims
to capitalise on that.

The doors are closed on this service for this month’s
trade – but as soon as Robin’s inviting new traders to
join the May trade, I’ll let Profit Watch readers know
first. It could be your kind of thing. Keep an eye out
next week.

———————————
Lots of action in oil and gold…
———————————

Meanwhile, there’s just as much volatility over in the
commodities complex, where we’re still in the throes of
a sizeable volte face in the gold market.

Here in Profit Watch I’ve been musing for a while on
whether that thrust we saw through $1,000 dollars an
ounce would stick… or whether we’d get a decent
correction. Having a rudimentary understanding of
technical analysis, I had $750 in my mind as a possible
retracement level… a possible buying opportunity.

Well clearly we came nowhere near that… but the
market is certainly giving latecomers to the party a
reason to start thinking about jumping in… what do we
make of that?

If you’ve been reading this thing for a while, you know
me. I’m a gold bull over the longer term. I’m not
necessarily a gold bug like some of my colleagues –
Fleet Street CEO, Bill Bonner, William Rees-Mogg at The
Fleet Street Letter or Dan Denning who heads up the
Australian version of our Daily Reckoning letter. These
guys believe gold is the only true store of value in a
depression and they’ve been calling it upwards for the
last 10 years or more… and rightly so.

As inflation rages, gold shines… and that’s what
we’ve been seeing in 2007 and 2008. At its $1,030 high
of a couple of weeks ago, gold was up 23% since the
start of the year.

But I note from Ben Traynor’s Fleet Street Daily email
today that we’re seeing a decent pull back now…

————————————
Gold falls, but oil stays above $100
————————————

Gold is down to $888, he tells me in his excellent
commentary (you should sign up for that if you get the
chance, by the way – see the link at the end of this
email.) But oil has stayed above the magic $100 mark
(excepting a short spell yesterday when it poked its
nose just below for old time’s sake).

“I find it interesting that gold fell but oil didn’t,”
muses Bill Bonner. “Oil has real demand behind it,
while gold is monetary.”

“Absolutely,” agrees Garry White. “You make loads of
stuff from oil. Plus,” he adds, “there’s a real supply
crunch going on. We all seem to focus on US oil
inventories, but we should be looking at capacity in
producing nations too.”

The Gulf is experiencing a power crisis, and it’s
hitting production capacity.

“The fundamentals are in the driving seat now!” says
Garry. “And the fundamentals are tight.

“A US energy economist has a neat explanation as to why
this is happening – and it fits exactly with my view of
the world. It’s all about population growth leading to
energy shortages – and he believes it’s hitting oil-
producing nations hard.

“Writing in the Financial Times, Ohio Northern
University Energy Economist AF Alhajji, said that
Opec’s vanishing excess capacity was now keeping the
oil price above $100. He argued that Gulf States’ power
crises were now a primary driver of the oil price.

—————————————
Gulf power crisis is real – and growing
—————————————

“Alhajji argued that when considering total oil stocks,
you must include inventories in industrial nations PLUS
excess capacity in producer states. We all seem to
focus on US oil inventories – be we should be looking
at capacity in producing nations too.

“Despite rising inventories; vanishing capacity in Gulf
nations makes total global oil stocks so small that
this has been the main driver keeping the oil price
above $100, he argued.

“So, based on this analysis, when we are considering
global oil stocks, oil EXPORTS from these countries are
the most important factor – NOT total oil production.

“Rising living standards, soaring populations and
urbanisation is increasing demand in oil-rich nations.
They are using their own oil to supply their soaring
energy needs. This would also explain why Opec has been
reluctant to increase production… it simply can’t
because of its own power shortages.

“In March, the Middle East Economic Digest warned of an
imminent power and water crisis across the Gulf. It
said there was a serious supply and demand imbalance
caused by a lack of infrastructure investment earlier
in the decade.

“The GCC is currently building a Gulf power grid that
will connect the six member states, paving the way for
a regional electricity market. The grid will not come
online until 2009, however.

“So, a temporary change in the dollar’s fortunes has
revealed that fundamentals are taking over as the main
driver.”

Garry’s advice? Buy commodities – and oil in
particular. If you’re looking for his specific profit
plays, then just get on board his Smart Commodities
letter.

To find out why oil is one of Garry’s Power Trends – 5
trends that could see smart investors make an absolute
killing in the months ahead, read here:

http://click.fspeletters.com/t/15025/1632470/156272/0/

Past performance is not a reliable indicator of future
results. Your capital is at risk when you invest in shares,
never risk more than you can afford to lose. Please seek
independent financial advice if necessary.

That’s all for today…

Until Friday…

Best regards,

Frank Hemsley
Profit Watch

P.S. Remember to get your name on to the list for Ben
Traynor’s Fleet Street Daily e-letter (it’s free!) Just
go here for details:

http://signup.fspinvest.co.uk/LF/fsd.html?newsourcecode2=XFSDD304