Good day… And a Thunderin’ Thursday to you! It’s raining here in St. Louis, so, it must be Thursday! It’s a big night for yours truly, but I’ll talk about that at the end… We’ve got some big moves going on in the currencies and metals, so we had better get to it, and save the chit-chat for later, eh? But first, today is the funding deadline on our latest BRIC MarketSafe CD… We’ll have one more in November and then that’s it!

OK, front and center this morning, Gold has soared to another all-time high! When I turned on the screen this morning, Gold was flashing a great big $1,055 figure… WOW! But wait! OK, now that sounded like an infomercial… But wait! If you act now, you can get double the Ginsu knives! HA! OK, getting back to the original, but wait… Gold and Silver for that matter, aren’t the only risk assets moving higher this morning… All 16 of the countries that are deemed to be the biggest U.S. trading partners, have currencies that are taking liberties VS the dollar this morning…

Basically, it’s like this folks… We keep seeing signs that a global recovery is taking place, I mean, the Reserve Bank of Australia (RBA) even hiked rates this week for crying out loud! And… With those signs of recovery, come the feelings that global rates will be rising, as witnessed by the RBA this week, and with global rates rising, the yield differential to the dollar becomes even greater in favor of the non-dollar currencies.

This is quite evident, when you look out on the currency landscape and see that Aussie dollars (A$) are trading with a 90-cent handle… Brazilian reals are trading 36% higher VS the dollar since March 1st!

Why did I highlight those two currencies? Well, as has been well documented, the RBA already hiked rates and increased their rate differential to the dollar this week, with the thought that they would come back again in November for another rate hike… And Brazil? Yesterday, I saw a story flash across the screen that the Brazilian Central Bank Gov. is mentioning at least 200 BPS of rate hikes before he leaves office next year! Talk about increasing the rate / yield differential!

Yesterday, I talked to you about the euro, and explained why it had not participated with the other currencies’ assault on the dollar… Well, the Big Dog /euro got off the porch to stretch its legs and chase the dollar down the street a bit last night… The euro is trading with an eye toward 1.48…

I’m waiting for some data to print from Germany this morning before I go on… So let’s wait a bit… OK, I’m back now… Well, keeping with the theme that a global recovery is taking place, German Industrial Production rose in August 1.7% from a decline in July. As reported here about a month ago, Germany exited their recession in the 2nd QTR, posting a positive, albeit negligible, GDP… I expect their 3rd QTR to be a bit stronger, as they build on this nascent recovery.

The European Central Bank (ECB) meets this morning, in fact, they’re meeting as I write… I don’t expect the ECB to move rates, announce any quantitative easing, or anything like that… What I’m half expecting though is for ECB President, Trichet, to attempt to put a tourniquet around the dollar, to stop the bleeding… Hey! Nobody in the U.S. is fighting to keep the dollar strong, so somebody has to!

OK… I’ve explained this many times before, but for the new readers, it’s really something that needs to be understood… Look, the ECB and Trichet, know all too well that the U.S. has painted itself into a corner, and the dollar is getting punished for their actions… And, they understand that all they would have to do is talk glowingly about the euro and it would deep six the dollar in a heartbeat! But what good would that do? It’s far better to just keep the lips zipped shut, and watch a general, slow, depreciation of the dollar… So… The euro’s run to the high 1.47 handle this morning, could be at risk to what Trichet has to say… But remember folks, he’s just wrapping a tourniquet around the dollar, it’s not like he’s in love with the dollar and the fundamentals behind it!

Last night, I was doing some reading / research and came across a story that really piqued my interest… Here’s a snippet from the Bloomberg…

“Central banks are diversifying away from the dollar “more aggressively,” according to Barclays Plc, the world’s third-largest currency trader.
The dollar accounted for 37 percent of the $115 billion foreign reserves central banks amassed in the second quarter, after adjustment for exchange-rate changes during the period, compared with 52 percent in the euro, according to a Barclays analysis of data that the International Monetary Fund released on Sept. 30. That was the first time that the dollar’s share fell below 40 percent in the new accumulated foreign reserves of $100 billion or more since the euro’s 1999 debut.”

Remember, about a week or so ago, when I told you that the IMF’s currency report basically showed a move away from the dollar too…

HEY! IF CENTRAL BANKS ARE DIVERSIFYING, SHOULDN’T YOU BE DOING IT TOO?

OH! And there was this quote from Canada’s Finance Minister, Flaherty said…”We are all concerned about the U.S. dollar”…

And then there was this… Haven’t you heard about the guy, known as the Cheater? it seems every day now, you hear people say now, Look out for the cheater, make way for the fool-hearted clown, look out for the cheater, he’s gonna build you up just to let you down… Come on… We all know who I’m talking about, you know him, you love him… It’s U.S. Treasury Sec. Tim Geithner!

Yes, the man that was in charge the NY Fed, and oversaw the banks in that region, of which, most of them needed TARP money didn’t they? Any way… The thing I want to talk about is his latest statement about the dollar… Here’s Timmy! “officials recognize that the dollar’s important role in the system conveys special burdens and responsibilities on us, and we are going to do everything necessary to make sure we sustain confidence.”

Yeah, sure you are… How many Treasuries have you auctioned off this year? Something like $1.6 Trillion? Now, that will give everyone in the world a warm and fuzzy about the dollar’s future won’t it? NOT!

OK, I had better go on to something else before I get too wound up!

The Bank of England (BOE) is also meeting this morning… And after an awful set of economic reports in the past month, the BOE members are scratching their heads and wondering what to do next… They cut rates to the bone… They’ve bought toxic assets from financial institutions… They’ve nationalized a few companies that were about to go under… They spent money on stimulus packages… And they’ve implemented Quantitative Easing…

Sounds like the U.S. doesn’t it? I’ll tell you who else it sounds like… It sounds like Japan in the last decade… I hate to be the one to half to tell these dolts that none of this works! It just makes a laughing stock out of your Central Bank, and puts your currency on the slippery slope downward…

Oh, but not to worry, Tim Geithner is maintaining the confidence in the dollar… ( I guess no one told Canada’s Finance Minister, eh?)

Again, Chuck, go on to something else, and quit coming back to this!

Well… Earlier in the Pfennig this morning, I told you about the rise in the A$… I didn’t tell you that it was trading at a 14-month high, as it was reported that Australian employment surged 40,600 in September! With a print like this, I think that’s it’s almost a given now that the RBA comes back in November and hikes rates again!

Another currency at a 14-month high is the New Zealand dollar / kiwi… Remember how I’ve told you about the Reserve Bank of New Zealand (RBNZ) Gov. Bollard, and his penchant for jawboning kiwi lower? I despise him for these things, as a Central Banker, your job is to protect the value of your currency, not diss it!

Well, now Bollard has company… New Zealand Finance Minister, Bill English, has this to say… “We’re uncomfortable with it (kiwi) at this stage in the economic cycle.” You see, Mr. English is concerned that the economic recovery will be stamped out with a strong kiwi… Well, I’ve got a cure for you Mr. English… Tell Bollard and the boys over at the RBNZ not to raise interest rates, and that will do the trick! It’ll stop the speculation in its tracks! However, if the RBNZ does raise rates next month, then you have no one to blame but yourselves!

OK… Let’s get back to Gold, before we head to the recap and the Big Finish!

I did a video yesterday on Gold… And I talked about how you can go about your life without an inflation hedge in your back pocket and suffer the consequences of not only having your purchasing power reduced by the falling dollar, but having what dollars you have left eaten away by inflation… OR… you can get that inflation hedge… and put it away for a rainy day… or pull out to play it like a “Get Out of Jail Free Card” when inflation hits…

To recap… Gold has soared to another all-time high of $1,055 overnight. And the non-dollar currencies are all gaining VS the dollar on the thoughts that a global recovery will result in wider yield differentials in those currencies VS the dollar. A$ and kiwi have both traded at 14-month highs overnight… And… We could see some downside risk to the euro if ECB President Trichet decides to defend the dollar today after the ECB meeting this morning.

Currencies today 10/8/09: A$ .9050, kiwi .7398, C$ .9475, euro 1.4770, sterling 1.6060, Swiss .9745, rand 7.3440, krone 5.6545, SEK 6.9890, forint 182.75, zloty 2.8655, koruna 17.4375, RUB 29.60, yen 88.30, sing 1.39, HKD 7.75, INR 46.36, China 6.8260, pesos 13.31, BRL 1.7480, dollar index 76.03, Oil $70.23, 10-year 3.19%, Silver $17.84, and Gold… $1,055.08

That’s it for today… Have a Thunderin’ Thursday.

Chuck Butler

Source: Gold Soars To Another All-Time High!

Good day… And a Terrific Tuesday to you! A Tuesday morning that is seeing a HUGE currency rally VS the dollar on the news that the Reserve Bank of Australia (RBA) opted to go ahead and hike rates now, and not wait for November’s meeting, as I had thought they would do! WOW!

The first hike… It has opened Pandora’s Box of interest rate hikes around the world… For, if the RBA went this soon, then we can expect Norway’s Norges Bank to push their rate hike earlier on the calendar, maybe even later this month! And they won’t be the only ones! Look for New Zealand to hike rates this year, and who knows what other country (Brazil?) will follow after that… But I see them coming, and they’re marching the death march of the dollar!

OK, that was a little dramatic, while I don’t believe, although I have more doubts every day, that the dollar would collapse to nothing, I do believe it has a long way to go when it comes to weakening. How else will the U.S. pay pack their debts in the future? It sure won’t be because of a cut in Gov’t Spending! That is… Unless all this deficit spending can be reversed and Gov’t is cut (in size) to resemble something from 50 years ago! But, that’s like asking for the moon and sky, eh?

Let’s get back to the Aussie rate hike, that’s more exciting and upbeat than talking about what’s going to be needed in the future here in the U.S! The statement that followed the RBA rate hike, was very upbeat… So… I totally expect another rate hike next month from the RBA!

OK… The dollar’s weakness this morning isn’t all due to the Aussie rate hike, and prospects for other rate hikes around the world… In 2001 I wrote a white paper called, “The Demise of the Dollar”… This was the thesis for all the things I talk about almost daily regarding the reasons the dollar would got into a secular bear market… And this was one year, let me repeat that, one year, BEFORE the dollar entered into a weak dollar trend in Feb of 2002!

The reason I bring this up here in 2009, is that there is an article in the U.K. Independent that’s making the rounds, that’s called… “The Demise of the dollar”! This report though is about secret meetings with the Gulf Arabs along with China, Russia, Japan and France, and they are planning to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

Uh-Oh… That’s serious stuff folks… And that death march I talked about above? Well, if this story is true, that death march just became much louder!

Right now, however, the markets are not taking the story hook, line and sinker, just yet… Yes, the dollar has been sold, but not like you would think, if traders had taken the story to heart… I think some digestion time needs to be had first… I mean the currency traders had the first rate hike and then this story on their plates all at one meal… That’s a lot to digest! And Besides.. The Saudi Bank Gov. is denying that any of these meetings took place… Of course to conspiracy buffs like me, that’s akin to saying, “These meetings DID take place, and we’re just covering up the evidence” HA!

Now… Some might be cursing these countries right now, for dealing this rumored blow to the dollar… But, it’s not like the dollar didn’t have it coming! The Deficit Spending… For instance, is one thing that people that “know better” realize that the U.S. will not be able to climb out from under the deficit rock… And those knuckleheads who said “Deficits don’t matter”? Well… I’ve said this many times before, but I can’t talk about the Deficits don’t matter crowd without talking about how these people remind me of a guy… He’s standing on top of the Empire State Building, and decides to jump off… As he passes the 56th floor, he says… “So far… So good!”

Well, unfortunately for our “Deficits don’t matter” guy falling to the ground, the sidewalk is coming at him very quickly now…

And here’s another thing that should just tick you off to no end, but you have to think that the people that have loaned us money, are wondering if they’ll ever get paid back… What I’m talking about here is the story from yesterday, regarding the TARP funds… You might want to sit down for this one folks…

Neil Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP), says that despite multiple statements on Oct. 14 of last year that these nine banks were healthy and only receiving government funds for the good of the country’s economy, federal officials knew otherwise. He went on to say that “the Treasury Dept. and the Federal Reserve lied to the American public last fall when they said the first nine banks to receive government bailout funds were healthy.”

That’s right… They LIED TO US! Now, doesn’t that just tick you off? It sure ticks me off!

So… You can see some of the reasons the countries mentioned above might be thinking about removing the dollar as the pricing mechanism when it comes to oil…

OK… We started up beat, then got brought down, let’s get back to upbeat! Hey! How about Gold? When I turned on the screen this morning, Gold was $1,020! You would think that even if the U.K. Independent story is just a rumor, that Gold would gain on the rumors…

I read a story last night, while waiting for the so-called “Epic Battle” between the Vikings and Packers on Monday Night Football, that one analyst was of the belief that Gold was about to return to its link to the price of Oil… Hmmm… Well, I personally hope that’s not the case, as I certainly don’t want to see the price of Oil rise to the levels I think Gold is going to rise to!

Yesterday, I did a presentation on the DTI network… (I had given you all the link to it last week) My power point presentation didn’t work, so I had to just “wing it” (yeah, like talking for 30 minutes on how we got here, what’s going on, and why one needs the power of portfolio diversification was difficult for me! HA!) I think they want me to come back next week… DTI educates investors / traders/ and people that just want to know how the markets work, so it’s all for a good cause, because… An educated investor, is a good investor!

OK… Let’s see… OH! I wanted to talk about this yesterday and totally forgot, but it’s not too late today to talk about it…

One thing that we’ll begin to see this month is the earnings season…
You might recall that in previous quarter ends I thought that stocks would get taken to the woodshed, because of lousy earnings, only to be surprised at the earnings that were posted… But trying not to be the boy who cried wolf, I’ll once again say that I just don’t see the earnings to support stock prices. This time I think we’ll see that the method used in previous quarters by Corporations to produce the earnings was cost cutting… One would have to think that the Corporations have cut to the bone… And now, we’ll get to the cheese that binds for earnings… A lack of revenue…

I really liked the reaction of the non-dollar currencies, led by the Aussie dollar, after the RBA rate hike… It was like “old days”… Uh-Oh, I have a song in my head… “Old days Good times I remember, Fun days, Filled with simple pleasures, Drive-in movies, Comic books and blue jeans, Howdy doody, Baseball cards and birthdays, Take me back, To a world gone away,
Memories, Seem like yesterday….

Yes, the “old days”… Well, in this case I was talking about currencies trading on “Fundamentals” not stupid trading themes, not flights to safety, not deleveraging, but plain and simple fundamentals, things that ordinary people, like me, can understand, and place a value on a currency based on the fundamentals!

But… We’ve not really seen a fundamental trend since July of 2008… However, if we begin to see the rate hikes that I think we’ll begin to see, it could be the harbinger of a return to fundamentals… And that, my friends, and dear readers would be like manna from heaven for your Pfennig writer!

Well… Since I came in this morning, Gold has gained $5 more, to $1,025! Looks like the all-time high of $1,033.90 that came in March of 2008, could be in jeopardy… My love’s in jeopardy, baby… Oooh, ooh, ooh, ooh…

Maybe Gold moving higher can get Silver going too! My friend, the Mogambo Guru, reported yesterday that silver analyst, Ted Butler, reports that in the last 10 months, “some 150 million ounces of silver can easily be documented to have been bought by investors.
Undocumented purchases would add tens of millions more ounces.”

In fact, when you add it all up, “Investment demand for silver this year is running at a full 25% of world mine production and over 20% of total production (including recycling). This is a remarkable historical turnabout.”

Chuck here… Back from a trip to the Mogambo’s letter… I just love the way the Mogambo ends his letter each week… He talks about how people should be buying Gold, Silver, and Oil, and then says… “Hey! This investing stuff is easy! Whee!”

OK… To recap… The RBA did raise rates 25 BPS last night, and sounded quite upbeat in their after rate hike statement. Look for other countries to follow now that Pandora’s Box of rate hikes has been opened. There’s a story going around about countries banding together to remove the dollar as the pricing mechanism for Oil trades… It’s being denied, but there’s smoke… And you know what I say when there’s smoke… And Gold is pushing the envelope on its all-time high of $1,033.90…

Currencies today 10/6/09: A$ .8875, kiwi .7355, C$ .9395, euro 1.4730, sterling 1.59, Swiss .9745, rand 7.4230, krone 5.6920, SEK 6.97, forint 181.15, zloty 2.8370, koruna 17.3360, RUB 29.81, yen 89, sing 1.4025, HKD 7.75, INR 46.99, China 6.8263, pesos 13.56, BRL 1.7593, dollar index 76.35, Oil $71.13, 10-year 3.22%, Silver $16.99, and Gold… $1,025.45

That’s it for today… Hope your Tuesday is Terrific!

Chuck Butler

Source: RBA Raises Rates!

“The issue is a disputed border between the two. They fought a 32-day war over it in 1962. China emerged victorious, but the whole thing settled nothing. The border between the two remains hotly contested. It is nearly 2,500 miles long and winds its way across difficult mountainous terrain. There is a northeastern state in India called Arunachal Pradesh, which China calls “Southern Tibet” and claims as Chinese territory.

“India claims last year there were nearly 300 border violations by Chinese troops and over 2,000 instances of ‘aggressive border patrolling.’ In the Indian media, it’s become a kind of sport to guess when China will attack India. And a recent essay by a Chinese analyst added fuel to the fire when it claimed China could ‘dismember the so-called “Indian Union” with one little move.’

“What would the effects be? It’s hard to say. But if the world’s two largest and fastest- growing emerging markets go to war, the results can’t be good for the global economy. China is even India’s largest trading partner. It all depends on how it unfolds.”

Chris will be getting a frontlines view of this flash point over the next few weeks. He and our executive publisher Addison Wiggin will be scouting potential joint ventures in the UAE and India from this weekend until mid-October. For highlights, be sure to check your daily 5 Min. Forecast. But for the nitty-gritty — and actionable advice — keep your eyes open for our new BRIC report… it’ll be ready very soon.

Source: Think China vs. India

Good day… And a Happy Friday to one and all! It’s still raining here in St. Louis this morning, but I won’t that get me down, as it is a Friday! G-20 has gotten a bit ugly, folks… Seems everyone just can’t seem to get along! Imagine that! 20 different countries, and now they want to be able to watch another country’s finances and comment on them! Oh, I can see that working out real well! NOT!

So… Yesterday, we had the dollar gaining back the ground that it had lost the previous day, but at the end of the day, we’re looking very much like the currencies hadn’t moved from morning to morning… And overnight, didn’t bring about much movement… So… When you get to the currency round-up below, you’ll see the dollar’s gains were small, and short-lived.

The U.K. and France are a bit upset with the U.S. and the President’s plan to reduce the number of board members to the IMF, and guess who is on the chopping block? That’s right… The U.K. and France! I really don’t care about all this stuff, except to watch the saber rattling, and jockeying for “supreme leader”… I won’t say any more about that here…

I did notice thought that, just as I said months ago, regarding the BRIC countries, that they would have to be reckoned with, due to their HUGE Treasury Chests of reserves, and the fact that they have a good portion of the World’s population… Ok, where was I? Oh!, I noticed that it was going to be announced today that G-20 was going to take over as the main forum for global economic coordination. They will take that over from the G-8…

Well, guess who’s a part of G-20 that wasn’t a part of G-8? The BRIC countries! They will have more say in what goes on economically! Just like I said they would! This is a big deal, in that this shifts the power from the rich countries to the emerging markets… Yes, the rich countries are still in the Group of 20… But, the emerging markets outweigh them now!

And already, we can hear China taking shots at the U.S…. And, now that everyone can comment on other countries’ economies, the U.S. took a shot at Germany, saying that they haven’t done enough to spur Domestic Demand… Germany’s chancellor, Angela Merkel, who is up for election on Sunday, shot back at the U.S., and said… “We should also look at imbalances between currency regions and not pick on specific countries within the Eurozone.”

OK… Let’s talk about something else… I was reading the Financial Times last night, and came across a story that really said something… Here it is… The FT…

“Losses on loans at U.S. banks and other lenders rose to $53 Billion in the first quarter, almost triple the previous high, reached in 2002, said a group of regulators, including the Federal Reserve and the Federal Deposit Insurance Corp. Nonbank lenders, particularly hedge funds, hold $1 of every $3 in troubled loans and 47% of all distressed loans. Loans made to media and telecommunications companies were in the worst state. Lending to the financial-services sector was the next worst, followed by loans to property companies.”

But Hey! According to people in power that should know better, it’s time to sound the all-clear horn!

And that brings me to something I wrote about the other day, regarding the delayed foreclosures… A reader was kind enough to send me this that maybe explains the delays…

A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.

And… As another reader pointed out to me… It sure doesn’t make the holder of the loan any richer to foreclose on it, given the state of the housing market today…

Ok… Enough of that! Yesterday, I talked about how Japanese yen was living right these days, rallying when the dollar is weak, and rallying alongside the dollar when it’s not! Well… One of the reasons this could be happening with regularity, is that it is believed that Japanese exporters are repatriating their profits, as their fiscal first half ends this month…

So, does that mean the rug gets pulled out from beneath yen next week? Hmmm… I don’t think so… I think that the one thing that’s really underpinning yen right now is this new found appreciation by the Bank of Japan for yen strength! Just last night, Japan’s Finance Minister Hirohisa Fujii reiterated his opposition to intervention in foreign- exchange markets.

Now, I don’t know how long the exporters in Japan are going to go along with this new found appreciation for yen strength… But for now… Yen is on the verge of gaining even more ground…

In New Zealand overnight… The string of good data prints ended with a thud! New Zealand’s Trade Deficit widened almost double what was expected! UGH! Remember, New Zealand has to import lots of things, and when the exports of wool, dairy, and lumber aren’t strong, their deficit gets whacked! So, New Zealand would always have a Trade Deficit… But, at times it gets completely out of hand, and this is one of those times… Kiwi, got taken to the woodshed after the report printed, as well it should!

The Swiss National Bank (SNB) had a board member giving an interview last night, and when asked about the SNB’s repeated jawboning to get the franc weaker, he had this to say… “with regards to the Swiss franc this means that we counter an appreciation of the franc against the euro decisively.”

Now, that’s a horse of a different color! All this time we were led to believe that the SNB would intervene to get the franc weaker VS the dollar! No wonder the franc has kicked some dollar tail lately, without a peep from the SNB… The franc was allowed to get stronger VS the dollar, as long as the euro was moving in the same direction, same general percentage move VS the dollar!

Our mortgage production guru, Stacy Blair, was talking the other day in a meeting, and mentioned that mortgage rates had edged down again, and production was picking up once more… Well, that plays well with a story I read last night… The average interest rate for U.S. home mortgages fell to less than 5%, and loan applications surged 13%, the Mortgage Bankers Association said. The nationwide average rate on a 30-year fixed-rate mortgage declined to 4.97%. The application surge amounted to a 50% increase compared with the end of June.

OK… So… I would guess that most of that stuff is re-financing loans, but hey! Like I told everyone on our desk 6 months ago, when the rates were in the 4% region… Go refinance your home loan! And then put the money you save each month in savings!

We get back to some data in the U.S. today, and I think that it could have a lot to do on whether the currencies rally or not VS the dollar. Durable Goods Orders for August prints first, and is expected to really fall back from July’s strong 4.9% print… August is expected to print just a .4% gain for Durable Goods… That won’t get the “strong recovery flag wavers” out, and that won’t be good for the non-dollar currencies…

Then later we get the U. of Michigan Consumer Confidence report, which could turns things around for the non-dollar currencies… As the Consumer Confidence report is expected to be strong… ????? Why? I have no idea… (besides the obvious, stock strength)

We’ll also see New Home Sales data for August…

Have you noticed the collapse of the Oil price? Pretty steep drop in just a couple of days! I told you the other day that the G-20 might put pressure on commodities… Oil is off, and Gold has fallen back below $1,000 wink, wink…

So… To recap, the dollar’s rally was stopped short. The G-20 is the new global economic monitor, and the U.S. is ticking the U.K. and France off, regarding seats on the IMF board. G-20 is getting hot and heavy… Japanese exporters are repatriating their profits thus propping up Yen… And, New Zealand’s Trade Deficit widens again…

Currencies today 9/25/09: A$ .8650, kiwi .7185, C$ .9175, euro 1.4685, sterling 1.6010, Swiss .9720, rand 7.4280, krone 5.7850, SEK 6.9170, forint 184.25, zloty 2.8550, koruna 17.15, RUB 30.09, yen 90.20, sing 1.4160, HKD 7.75, INR 47.98, China 6.8286, pesos 13.48, BRL 1.7995, dollar index 76.73, Oil $66.28, 10-year 3.36%, Silver 16.31, and Gold $997.32

That’s it for today… I hope you have a Fantastico Friday, and Wild and Wacky Weekend!

Chuck Butler

Source: G-20 Heats Up…

That’s if you believe a Nobel economist, of course. His crude “experiment” was the start of “modern portfolio theory” decades ago. The downside, however, was that with a reduction of risk came a dampening of profits. So scratch that idea.

How about this? A startling study in the late 1970s showed that owning a portfolio of large U.S. companies with international divisions drops your risk 10% below a domestic stock portfolio. Much better. But that wasn’t the eye-popper…

The study also found that owning stocks in international companies cuts your risk in half…

Take that, “efficiency” theorists! Yet the stuffy professors still tried to refute these results. It was a losing battle, though, as more studies emerged, laden with more evidence that international stocks reduce risk.

But the most startling thing? The studies indicate that adding international stocks to your domestic portfolio may even increase your average profits.

But how do you buy stocks in foreign companies trading in London, Hong Kong, or São Paulo? By investing in ADRs… let me explain.

How to Go Overseas Without Even Getting On a Plane

Let’s say you want to buy shares of an English company, trading on the FTSE-100 index. You’d have to convert your cash to pounds, buy the stock, wait to sell it at a profit, then convert it all back to U.S. dollars.

If the greenback weakened, you’d make a profit on the stock but lose on the conversion!

In a word: Ugh.

This is why the vast majority of investors buy a managed international mutual fund. This allows the “experts” to run overseas with your bag of cash and make the investments for you.

But is this really smart?

As early as the 1960s, some economists confirmed that fund managers can’t forecast stock prices well enough to cover their own expenses, let alone make you a profit. In the end, all economists – regardless of their background – agreed that the performance of a managed mutual fund is worse than throwing darts at a list.

Here’s a better way…

Investing in ADRs: Harness JP Morgan’s Secret Weapon

In 1927, a chain of retail stores wanted to list on the NYSE.

Problem was, all the stores were in England!

Even for JP Morgan (NYSE:JPM) – the greatest investment banker of all time – this one was tricky. But he came up with a solution: He bought a big block of the retailer’s shares on the London Stock Exchange and put them in a trust.

Then he sold shares of the trust on the NYSE. These shares were called American Depository Receipts – or ADRs for short.

The company was Selfridges. And with Americans able to invest in a well-managed foreign company with far less risk, the shares sold like hotcakes. And thanks in no small part to this early access to American money, Selfridges is renowned and still thriving today.

So if you want to toss darts around, you could randomly add 3-7 ADRs to your portfolio – a move that will cut your portfolio risk in half, while increasing your profits.

For example, you can go to www.adr.com and throw darts at companies like Holland’s Aegon NV (NYSE: AEG), China’s Acorn International Inc (NYSE: ATV), or Brazil’s Aracruz Celulose SA (NYSE: ARA).

But randomly picking foreign companies is pretty reckless. Here’s how to invest in international stocks properly…

The Four Advantages of Investing in ADRs

What if you knew which international companies were primed to explode in share price? That’s exactly the kind of profitable information that New Frontier Trader readers get all the time.

So here’s my four-point guide for selecting the best foreign ADRs and how they can roll back your risk, even as they ramp up your returns.

• ADR Advantage #1: International Markets Don’t Move Together:

One of the main advantages that ADRs offer is that stocks in two different countries don’t move together.

When you hit the ground in most foreign countries, it’s a whole new economic, political and cultural landscape.

So even if your U.S. stocks are going down, your ADRs might be rising. Take Argentina’s Banco Macro (NYSE: BMA), for example. You could have bought it on July 6 for $16.34. It’s currently trading around $22.85. That’s a 40% return in just two months.

The New Frontier Tip: Buy at least three different high potential ADR stocks, operating in at least three different international countries.

• ADR Advantage #2: Hardship Breeds Managerial Excellence:

Okay, so what about countries that are chaotic – either economically, politically, or in terms of corruption? Places where managers tread in fear day by day.

Check out Transparency International’s Corruption Perception Index. It’s a good measure of social disarray. The United States has a relatively low corruption score of 18, while Somalia has the highest at 180.

Managers become slothful when business is easy. But imagine trying to do honest trade in a pirate haven like Somalia?!

And how about the BRIC economies – Brazil, Russia, India, and China? The corruption score is 96. In fact, Russia alone scores a whopping 147 on the global “Dewey, Cheatem & Howe” scale. Not even Superman’s x-ray vision would help an economist’s macro analysis.

But intense social disarray breeds the toughest managers, and the companies that rise to the top, despite the chaos, are often the pick of the bunch.

One such firm is Ecopetrol (NYSE: EC). It’s the largest integrated oil company in Colombia. You could have bought it on May 18 for $19.31 per share. By Labor Day weekend, it was trading at $26.41 for a tidy return of 37%!

The New Frontier Tip: Look for outstanding management where Wall Street doesn’t expect to find any.

• ADR Advantage #3: Muddy Waters Hide Big Fish:

Studies have proven that Wall Street analysts are incapable of honestly reporting opportunities in their home market. And they’re even more misleading if you try to follow them overseas.

The analyst’s real job is directing traffic where Wall Street’s CEOs and their boards want order flow to go. If executives need to cash out their options, the analyst’s opinion is suddenly upgraded to a green light.

Frankly, Wall Street doesn’t make a dime helping you find a potential fortune in developing countries.

But there are a few outstanding individuals like Warren Buffett, who are skilled at spotting hidden jewels. So you could just buy Berkshire Hathaway (NYSE: BRK.B).

But we have a better way: Go direct!

Take China, for instance. Getting solid information from this murky, mass-demand economy is like pulling teeth from a shark!

But if you had the edge, you could have bought shares in the massive Chinese Holiday Inn, with more than 500 budget hotels in more than 90 Chinese cities. Had you bought Home Inns & Hotel Management (Nasdaq: HMIN) at $15.19 on May 12, you’d be sitting on an 88.1% gain in just four months.

The New Frontier Tip: Target markets that Wall Street doesn’t want you to understand.

• ADR Advantage #4: Hunt Down Profits That American Conglomerates Can’t Touch:

Foreign companies located in faraway lands that rise to the top of their regional markets are special. By the time the world’s biggest investment banks invite them to become an ADR, they’re pumping out profits like one of J. Paul Getty’s oil rigs.

South America has hidden Copa Airlines (NYSE: CPA) from American investors until just recently. You could have bought the stock for $32.22 on May 27. Today, it’s trading for $43 – a fast return of 33.4%. In addition, the firm’s operating margin is 20.3%. Compare that to margins at Southwest (2.1%), Jet Blue (6.5%), or American (-3.4%).

The Single Best Way for Investing in ADRs…

Each of the returns I’ve mentioned above were recommendations in Alex Green’s New Frontier Trader newsletter. This service gives you an edge over the crowd in grabbing the best gains from investing in ADRs.

And the rest of the track record speaks for itself. This year, the service has closed out nine double-digit winners on international stock positions and six triple-digit winners by playing foreign stock options.

Time after time, history has shown that the best way to combine reduced risk with explosive returns is to invest in overseas markets, where Wall Street doesn’t want you to look.

If you’d like to start enjoying the kind of profits that the New Frontier Trader has kicked out to subscribers, simply check out this report.

It all starts with education,

Dr. Scott Brown

Source: Investing in ADRs: The Most Powerful Way to Reduce Market Risk

Fortunately for us, we foresaw this scenario a while ago. On April 20, I recommended that investors diversify their portfolios by adding the SPDR Gold Trust ETF (NYSE: GLD).  The fund is up about 14% since that recommendation, but it’s not yet time to sell, as there are still a number of factors working in gold’s favor.

For starters, there is more and more talk of the U.S. dollar losing some of its luster as a reserve currency.  But this debate is moot for the moment.  The reality is that it will take a long time to reduce the preeminent role of the dollar as the store of value of choice for central banks around the world.

Earlier in March and later in June, Zhou Xiaochuan, governor of the People’s Bank of China made a pitch for the creation of an international global currency delinked from sovereign currencies.  This increased speculation about the probability of China deemphasizing the dollar within their extraordinary high foreign reserves of almost $2 trillion.

Some 64% of global reserves are in U.S. dollars, according to the International Monetary Fund (IMF). So if China and other holders of U.S. debt were to reduce their holdings, it would have a substantial impact on the greenback’s value, as well as on U.S. interest rates, given that those countries would be selling U.S. Treasuries.

Zhou suggested the use of the IMF’s Special Drawing Rights (SDRs) as an alternative. The SDR is a currency linked to a basket of four major international currencies in the following approximate weightings: U.S. dollar (44%), euro (34%), Japanese yen (11%) and British pound (11%).

But the reality is that this would be highly impractical. To begin with, there are almost no instruments denominated in SDRs that China and other countries could invest their reserves.  And if the IMF issues the instruments, then it would be taking the other side of the trade, which means it would have to start lending in SDRs, too.  This is very unlikely.

Furthermore, no other currency on the planet is large enough to serve as the world’s main reserve currency.  The sole exception, in terms of having a comparable size of the economy, is the euro.  The euro serves 16 members countries of the European Union (EU) and a few others peg their currency to it.  But the problem with the euro is that even though the entire EU is comparable in size to the United States, it is comprised of many countries with very different fundamental strengths and weaknesses.

Therefore, each of these countries issues bonds and each of these, by themselves, are too small and offer too little liquidity for central banks to accumulate as reserves.

But right now – given the large size of the current and projected U.S. deficits and the easy monetary policy – the incentives for holding dollars have diminished.  The risk that inflationary pressures will build up next year, and in turn lead to higher interest rates, are not negligible, even though the U.S. Federal Reserve keeps assuring the markets that it will stifle these pressures before they materialize.

Last Friday, John Taylor, a renowned economist and an expert in monetary policy, opined that the Fed would need to start raising interest rates in early 2010 in order to stem price pressures.

In the meantime, emerging markets such as China and Russia complain about the vulnerabilities of the U.S. dollar.  But these visible complaints have to be construed merely as verbal intervention.  These countries are acting in their own self-interest, because they have very large holdings of U.S. Treasury bonds.  They are trying to “encourage” both the Fed and the U.S. government to act very prudently and conservatively with monetary and fiscal policy.

The United States has offered plenty of assurances to China that it will remain vigilant about inflation. But the trick is being able to identify these inflationary pressures and to take action way before the actual inflationary pressures become entrenched in the economy.  And the Fed will need to rely on its projections to do that.

In this uncertain environment, making economic projections is much easier said than done.  And one would rather err on the side of being a bit late in raising interest rates and reducing quantitative easing. If the Fed is slower than needed, and some inflationary pressures build, it they can resort to raising rates a bit faster and resolve the problem. But if the central bank raises rates – and reduces the quantitative easing policy too soon – it could send the economy into another recession.

This could be problematic since it would increase the risk of the U.S. economy falling into a deflationary spiral and put additional pressure on the U.S. financial system.  Therefore, it seems reasonable to assume that the Fed has greater incentive to err on the lenient side than on the hawkish side.

Remember that we are not out of the woods by any means.  Unemployment, which is a lagging indicator, is still increasing and there are many other large problems to resolve in the economy. Without even considering the impact that healthcare reform will have on the U.S. budget deficit, we see the following important headwinds:

• Consumers are very weak.  It’s not just the jobless that have been affected.  The uncertainty about continued employment for those who still have jobs led to an increase savings rates as would be consumers postpone spending.
• The huge drop in home prices has put about one in four homes in an “upside down” mortgage situation. That means consumers cannot sell their houses without taking a loss, and cannot borrow against their homes to make other expenditures.
• The drop in home values has had another effect:  It has increased the need for consumers to save.  This need has been reinforced by the large hit to 401(k) savings and other retirement plans.  As a result, savings rates have zoomed to 7% of personal income. The savings rate could even hit 10% as consumers strive to rebuild their nest eggs.  Additionally, the “Baby Boom” generation has saved too little and retirement is just around the corner.  Consumers make some two thirds of the U.S. economy, so this new predisposition to saving will be a drag on consumption for a long time.
• Capacity utilization is still low, which greatly reduces producer pricing power.  This, along with very high unemployment, gives the Fed time for now.  Low capacity utilization also keeps investments in factory expansion low.
• Recent banking data revealed that many smaller U.S. banks will be closing their doors, taxing the already overstretched resources of the Federal Deposit Insurance Corp. (FDIC), which will have to be recapitalized, adding to the U.S. fiscal deficit.
• We have not yet seen the fallout from the commercial real estate drop, which Money Morning has warned will be severe.  Since the U.S. consumer is not buying as much, many properties will not be able to keep up with their payments and will default on their loans.  Commercial real estate generally follows the trends in residential real estate with one or two years of lag.
• Last, but not least, we are going to see an economic acceleration in the United States in the third quarter, but that acceleration might be driven to a large extent by inventory rebuilding.  The U.S. economy will probably surprise to the upside in the third quarter with growth.  Among other things, the government’s Car Allowance Rebate System (CARS), popularly known as “Cash for Clunkers,” should show up positively in the numbers.  But once the levels of inventories are brought up to their necessary levels, that extra growth will not be present in the following quarter.  And the demand from Cash for Clunkers will cease to be a factor.

All of these reasons warrant caution for the Fed.  Some economists, including Nobel Prize winner and former World Bank Chief Economist Joseph Stiglitz, have highlighted the risk of a “W-shaped” recession/recovery scenario, and have even suggested the need for another stimulus package.  While that might do more harm than good, this position highlights the dovish bias that the Fed is likely to maintain.

What About the Rest of the World?

China enjoys many degrees of freedom to move its economy forward and has had resounding success in doing so.  It has no debt and more than $2 trillion in foreign currency reserves.  Its banking system is small in relation to the size of its economy, which gives the country a lot of room to expand credit, and the savings rate of its consumers is sky-high.  This leaves China with the capital resources to deploy growth strategies.  Since the largest companies are all government-owned, when the government decides to deploy capital, it gets done swiftly and powerfully throughout the economy, with great effect on growth.

As a result, China’s economy grew at the breakneck annualized pace of 14% in the second quarter.

Other emerging markets, like Brazil and India, are in similar, though not as potent, positions to move their economies forward. And they are doing so aggressively. India is expected to post on average 7% plus of annual gross domestic product (GDP) growth.

Emerging economies – those that did not splurge the bonanza of the prior five years of strong growth in commodity prices and other exports — are now in the position of stimulating their economies with easy monetary and fiscal policies.

Massive stimulus packages, the scorching demand growth from capital investments, and reborn consumers in emerging Asia, have combined to rekindle global growth.

Resurgent Growth in Europe

Both Europe and Japan are emerging from their recessions – even though Japan may post a negative growth number in the fourth quarter – and Britain and Italy are lagging behind in the recovery.  But the most important European economies, led by Germany and France, are pulling ahead.

It is understandable that European Central Bank (ECB) President Jean Claude Trichet, recently mentioned that the recovery was uneven in Europe.  Most market pundits took this as a sign that Europe would not be raising rates as fast as previously anticipated.

However, keeping interest rates low is much harder to do than it is to say.  Unlike the Fed, which has symmetric objectives – promoting economic growth and controlling inflation – the ECB’s only mandate is to control inflation.  The reason for this notable difference in objectives is that the European economy is much less flexible than the American economy, mainly due to its very rigid labor laws and other regulations.

Thus, the Europeans start running into inflationary problems when their economy grows above 2.5%.

The ECB just raised its own growth forecasts.  Similarly, the Organization for Economic Cooperation and Development (OECD), which comprises the 30 most influential free-market representative democracies, indicated that the global recession is coming to an end much faster then they previously thought, but said that the recovery will rely on massive spending and low interest rates for some time.  The OECD cited the strong rebound in Asian economies as having jumpstarted this global reacceleration.

Because the Federal Reserve will have to err on the cautious side, and because of the institutions’ differing mandates, the ECB will probably tighten monetary policy before the U.S. central bank does. That means the euro and emerging market currencies will keep appreciating against the U.S. dollar and the price of gold will soar.

The protests that will come from time to time from Chin and Russia will be just that: verbal intervention.  They will not resort to sudden changes in the composition of their foreign reserves, at the risk of doing further damage to the dollar.

In fact, China and other countries generate some 90% of their large current account surpluses in U.S. dollars.  But their holdings of dollar-denominated assets are only about 64% of their total reserves.  That means they already consistently sell the difference, and this selling so far has not decimated the dollar.

So do not expect a sudden devaluation of the greenback, nor fear China currency reallocations.

But we can and do expect a gradual weakening of the U.S. dollar to occur next year.

And as much as we all hate it, we will be able to take comfort in the fact that we avoided a much worse evil: Deflation.

So we are going to remain playing it with gold.  Also, this “currency” play gives us added diversification to the portfolio.

Source: Buy, Sell or Hold: The SPDR Gold Trust ETF (NYSE: GLD) Continues to Offer Investors a Hedge Against Inflation

The world’s second-largest foodmaker went public with its bid for Cadbury earlier this week after being snubbed privately. Kraft’s offer – a 31% premium to the chocolate maker’s Friday closing price of $37.46 a share, but less than  – “fundamentally undervalues” Cadbury, it said. The offer is less than 15 times Cadbury’s 2008 earnings before interest, tax, depreciation and amortization (EBITDA).

“Any follow-up offer by Kraft would likely involve a higher price,” Moody’s Investor Service senior analyst Brian Weddington said in a note. “The increased leverage that would result under the proposed transaction would be considerable.”

Increased leverage could be a boon to Cadbury and its investors, as The Hershey Co. (NYSE: HSY) will likely throw its hat into the bidding ring, one person familiar with the matter told The Wall Street Journal.

“Hershey recognizes that Cadbury is the last major confectionery company potentially available and, as such, is likely to make some response,” the person told The Journal. Nestle Chief Executive Officer said his company is always “open to acquisition opportunities if they fit strategically.”

Some analysts have Hershey teaming up with rival Nestle SA to make a joint offer for Cadbury and splitting its business, Reuters reported.

If Kraft and Cadbury can reach an agreement, it would be “bad news” for Nestle, Icap PLC analyst Andy Smith told Bloomberg News. “[Nestle has] the firepower to counter if they want.”

Cadbury and Kraft’s combined sales in 2008 were $51 billion, roughly half of Nestle’s in the same period.

However, Hershey’s position is less flexible.

The Pennsylvania chocolate maker has $1.7 billion in net debt and a market capitalization of $8.9 billion. Cadbury is valued at $17.7 billion, so any takeover by Hershey would require serious financing, according to The Journal.

Hershey could pursue a joint effort with Nestle, but that would mean turning Cadbury’s lucrative gum business over to the Swiss candy company to take to avoid antitrust issues.

Cadbury has almost 29% of the global gum market. The other big player in the sector is privately held Mars Inc., which became the world’s largest confectioner last year when it teamed with Warren Buffet’s Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) to buy chewing gum icon Wm. Wrigley Jr. Company for $23 billion. Berkshire owns about 9.4% of Kraft’s shares, according to Reuters.

In January 2007, Cadbury Chief Executive Officer Todd Stitzer agreed with Hershey’s then-Chief Executive Officer Richard Lenny to remove that obstacle and suggested they create a “global confectionary powerhouse.” But any potential merger was held back by Cadbury’s beverage business, which included Dr. Pepper and Snapple.

Cadbury spun off its beverage business in May 2008, which resulted in the birth of the Dr. Pepper Snapple Group Inc. (NYSE: DPS).

Chances for a reverse scenario of Cadbury acquiring Hershey are slim, as the Hershey Trust is set on protecting the Hershey name and keeping it an American company.

“Simply put: We will not sell the Hershey Co.,” Hershey Trust Chairman LeRoy Zimmerman said in an opinion piece published last year in the Patriot-News of Harrisburg, PA.

While a number of analysts expect Kraft to raise its bid for Cadbury, the foodmaker is in a tight position because it does not have that much room to maneuver without threatening its balance sheet or risking its investment grade credit rating. The company already has almost $19 billion of bonds outstanding, according to Bloomberg.

Other companies mentioned as possible suitors are Kellogg Co. (NYSE: K) and PepsiCo Inc. (NYSE: PEP).

The worst economic downturn since the Great Depression and rising commodity costs have sent consumers looking for less expensive products at the grocery store, limiting companies’ ability to grow. As with Mars’ acquisition of Wrigley last year, companies are looking to consolidation for growth.

“Consolidation in the food sector has long been anticipated,” an unnamed merger advisor told Reuters. “Given the drop in [bottled] water revenues, Nestle and Danone are thought to look at acquisitions to spur revenue growth.”

For Kraft, a successful acquisition of Cadbury would spur its growth by expanding its presence in emerging markets like China, Brazil, Russia, and especially India. Cadbury is deeply entrenched in British Commonwealth nations such as India, where it has been selling chocolate for more than 60 years.

A takeover of Cadbury India “would open up a $500 million chocolate market which is growing at 15% per year,” Angel Broking Ltd. analyst Anand Shah told The Journal.

“I believe that in the current global economy, the growth prospects are constrained,” said Kraft Chief Executive Officer Irene Rosenfeld.

Shares of Kraft closed at $26.85 yesterday (Wednesday), up 1.51% or 40 cents, while Cadbury closed at $51.80, down .15%, or eight cents.

Source: Kraft’s Bid for Cadbury Not Sweet Enough

And it’s a region that holds the key to growth opportunities that could eclipse the growth in the BRIC countries.

In fact, this region collectively has a bigger economy than Brazil, Russia or India already. And in terms of growth, it is growing faster than any of these countries. In terms of population, it’s bigger than the U.S. and nearly as populous the EU. It holds 60% of the world’s proven oil reserves and nearly half of its natural gas.

That last clue probably gives it away. I’m talking about the Middle East and North Africa, or MENA.

Among its largest economies are Saudi Arabia and the United Arab Emirates.

In one of my presentations at Agora Financial’s 10th Annual Investment Symposium in Vancouver, I focused on the growth in these economies because it touches on nearly everything we’ve talked about here recently – water and food scarcity issues, infrastructure needs, energy and the growth in non-U.S. trade. To start, let’s look at a couple of basic facts that push this along.

The first is explosive population growth. MENA is one of the fastest-growing regions in the world. Over the last 50 years, MENA’s population is up more than fourfold. And the population is still young, with the majority of the population under 25 years old. Over the next 30 years, MENA’s population will grow more than 60%, to nearly 700 million people.

The second is that trade is expanding in this part of the world, as I highlighted in last month’s letter. To show this in a different way, let’s look at Syria.

Yes, Syria. Long a pariah state with which the U.S. maintained frosty relations, all that is beginning to change. In July, the U.S. made a couple of announcements that I thought signaled an important shift. First, the U.S. would send an ambassador to Damascus after a four-year absence. Second, the U.S. would ease export bans to Syria.

But more important than this political thaw is the economic story. Syria has been a mercantile crossroads between East and West since its days as a link on the old Silk Road.

Put Your Money Where China Puts Theirs

The ancient city of Aleppo, for instance, was a key stop along the old Silk Road. Even today, it still has the longest covered market in the Middle East – a souk seven miles long. There you can find goods that take you back in history – soap made from olive oil or silk scarves and keffiyehs of a variety of colors. Head down an alleyway and find gold jewelry and stands of fresh pistachios and sacks of spices and more. Then there are the backstreets of hawkers with lamb – always plenty of lamb – and you smell the scent of lime, garlic and mint.

But much has changed, as Ben Simpfendorfer relates in The New Silk Road. Today, for the first time in 22 years, banks in Syria can set their own interest rates on loans and deposits. Today, you can change money on the street without the threat of a ball and chain winding up around your ankles. A stock market even opened for business in March.

The largest investor in the country is Haier, a Chinese company. It makes 50,000 washing machines and 50,000 microwave ovens in Syria every year. Another Chinese company, Sichuan Machinery Import & Export, recently completed a $180 million hydroelectric plant here. There are big real estate projects, including a new $300 million resort on the Syrian Mediterranean coast. There are some 40,000 new hotel beds coming online in the next three years – up from 48,000 currently. Tourism is already 13% of the economy.

Syria is basically following the “China model” of maintaining a closed political order but carving out free zones and allowing trade.

Of course, this isn’t some Big Rock Candy Mountain fantasy where the sun shines every day on the birds and the bees and the cigarette trees. There are all kinds of problems in Syria, and elsewhere, but I find the changes taking place so far absolutely remarkable.

In a sense, we’ve seen this movie before. Roger Owen wrote the classic study on the Middle East and its place in the economy. In his book, he covers the period 1800-1914. This was a time of growth and transformation. At least a few points are similar to today. Then, as now, the region experienced a huge population growth. The Middle East’s population alone grew 300%. Then, as now, trade grew even faster under a more liberalized economic regime.

Then, the Middle East benefited from growing demand for agricultural goods from European markets. Today, the region benefits from expanded trade with China and the rest of Asia for the region’s oil.

But that’s not to say that oil has solved the problems of the MENA countries…

Right now, these countries are looking to invest in farmland overseas. The Saudis have grabbed farmland in Indonesia. The UAE has locked down farmland in the Sudan and Pakistan. As Eckart Woertz of the Gulf Research Center in Dubai says: “In a global food crisis, you may find it difficult to secure food supplies at any price no matter how many oil revenues you have.”

When I got back home from Vancouver, there was an issue of The Economist waiting for me. It had a cover story on the Arab world titled “Waking From Its Sleep” and a 14-page special report within. What’s happening in this part of the world is starting to get more attention.

The key takeaway from all of this is to recognize this other, non-BRIC, growth engine and the needs and opportunities it creates. Once again, we’ll see enormous investment in food and water resources to feed and slake the thirst of all these people. And we’ll need all of the infrastructure and burn all of the hydrocarbons that come with that growth.

Sincerely,
Chris Mayer

Source: Forget BRIC… These Emerging Economies Hold the New Keys to Growth

If they haven’t, it’s not a surprise. You see, Snow Beer is only sold in China, where the greed-bottled brew is a ubiquitous denizen of any retailer that carries beer. According to beer-market-researcher Plato Logic Ltd., more than 6.1 billion kiloliters of Snow Beer was sold in 2008, up 19.1% from the year before – easily outselling such former worldwide leaders as Bud Light and Budweiser.

What may be a surprise is the fact that China is now the largest beer market in the world, having surpassed the United States way back in 2001.

“To many investors, China is an old, worn-out ‘been there/done that’ investing story,” says Money Morning Investment Director Keith Fitz-Gerald. “And some folks are downright scared of it. They got burned jumping into the “China Rush” back when China was the hot, next-big thing – and they jumped out for good. What those skeptical investors don’t realize is that they only experienced the first chapter of the China story.”

Says Fitz-Gerald: “Ironically, the worldwide financial crisis marks the beginning of the second chapter of China’s rise to economic dominance, as well as its emergence as a global economic superpower.”

Welcome to the new game of post-financial-crisis global investing, where the rules have changed completely, and where there are $300 trillion in profit opportunities – if you know where to look.

Global Investing Web Summit

In fact, these new profit plays are the focus of a free-of-charge Money Morning Web summit that Fitz-Gerald will host on Thursday afternoon. The 4 p.m. event – “The $300 Trillion ‘Recovery’ That No One’s Talking About” – is planned as a half-hour streaming video session in which Fitz-Gerald will address the changing rules of global investing, as well as a number of potential investment ideas that investors might wish to study more closely.

But the greatest benefit for investors who take the time to watch and listen to the free Web summit might be a perspective on globalization that they won’t be able to get anywhere else. Fitz-Gerald, a former professional trade advisor, is a well-known expert on global market trends who actually lives in Asia for part of each year. He heads an investing trip to Mainland China every year and in each of the past two years has actually written a multi-installment investment travelogue for Money Morning readers.

It’s that time actually spent on the ground in China – and the high-level contacts that he’s nurtured as a result – that’s enabled Fitz-Gerald to provide Money Morning readers with unique and independently conceived insights on China that just aren’t freely available.

Let’s take a look at some of the new rules of the global investing game that the Web summit will address – as they relate to China.

The Market Investors Can’t Afford to Ignore

Far too many investors view China as a near-term investing bubble. In doing so, they miss the real point: China is probably the single-biggest profit opportunity of this generation – if not of our lifetimes. But it’s a long-term opportunity, and one that admittedly will experience some ups and downs – and even some major bumps – along the way.

But any near-term risks are dwarfed by the long-term growth potential China poses. For one thing, China is using the global financial crisis as an opportunity to transform itself – both from an internal and external standpoint.

There’s plenty of long-term growth potential from an internal standpoint alone.

China’s leaders understand that they can no longer afford to allow their economy to function as an export-only machine – whose fortunes rise or fall depending upon the health of such trading partners as the United States. So they’re transforming the economy into one where there’s actual domestic demand from China’s consumers.

That creates a massive opportunity. China’s emerging middle class is already a major economic force. Estimates of its size right now range from 100 million to 247 million, although one prediction says it could reach 600 million by 2015. For some perspective, consider this: The entire U.S. population is about 300 million.

Right now, about 35% of China’s economic activity is consumer driven. But households there save 35% of their wages. In the United States, by contrast, consumer spending drives 70% of the economy and the household savings rate is in the low single digits most of the time.

Consider this: As China’s economy evolves into more of a domestic/consumer-driven market, there’s plenty of fuel to keep driving an economy that – even now, tempered a bit by the global malaise – will advance at about an 8% clip through the rest of this year. And that’s considered a conservative estimate.

That bullish outlook is one reason that China’s stock market has outperformed its U.S. counterpart in recent years [See accompanying graphic for additional insights]

Just think what will happen as China’s worker wages continue to advance, even as that country’s consumers save less and spend more, meaning that a greater percentage of China’s overall economic growth will be consumer driven.

Even as China makes that shift internally, however, that country will continue to become a bigger and bigger force in the global economy.

As we noted above, the global downturn is viewed inside China as a major expansion opportunity.

China’s companies are capitalizing on the weakness being experienced by the United States and Europe, and are working to grab market share away from their wheezing Western rivals.

And with U.S. stock prices still well below their record highs, expect to see cash-rich foreign firms – including those from China – buying market share, needed technologies or winning products by purchasing companies outright. The next round of U.S. takeovers will be made by foreign companies.

China has the financial firepower to make this happen: It’s foreign reserves are an all-time-world record of $2.1 trillion, meaning it will be able to help its companies finance deals that are deemed strategic in nature.

“The global blue chips of the future may well be companies whose names you have trouble pronouncing, with corporate headquarters in cities that are on the other side of the world,” Money Morning’s Fitz-Gerald says.

But don’t let that deter you. When it comes to profitable investing, the name of the game is ferreting out the most-promising profit plays – no matter where they are – while also managing risk.

And in the new global reality, one of the biggest risks is the risk of getting left behind – by failing to capitalize on the next round of global trends.

“Emerging” Profit Plays

Although his Thursday Web summit will focus a great deal on China, it won’t ignore the other developing investment opportunities that investors need to know about.

Take the emerging markets of Asia, Eastern Europe and Latin America, for example.

According to a 2008 report by the University of Pennsylvania’s Wharton Business School, the World Bank estimates that the global middle class is likely to grow from 430 million in 2000 to 1.15 billion in 2030. Muhtar Kent, chief executive officer of The Coca-Cola Co. (NYSE: KO) since July 2008, says this opportunity is the equivalent of adding a city the size of New York to the world every three months.

In 2000, developing countries such as Brazil, India, China and others were home to 56% of the global middle class. By 2030, that figure is expected to reach 93%. China and India alone will account for two-thirds of the expansion – with China contributing 52% of the increase and India 12%, the World Bank said.

Among the biggest winners will be the multinational companies that are able to conceive, develop and market products and services that are “tailor-made for the burgeoning ranks of first-time consumers,” Wharton faculty and analysts found.

It goes without saying that the other winners will be the investors who find those companies while they are still undiscovered gems – and who then stick with them, understanding, as they do, the magnitude of the profit opportunity that stands before them.

One early example is Snow Beer, which is a partnered product – the result of a collaboration between China Resource Enterprise Ltd., and London-based SABMiller PLC (OTC ADR: SBMRY).

And there will be plenty more to come.

Source: How the Economic Rebound and China’s Emergence Will Help Create a $300 Trillion Profit Opportunity for Investors

Good day… We had a very busy day on the desk yesterday, as our newest MarketSafe offering, based on the BRIC currencies, is making the phones ring off the hook. But while we were busy, the currency traders had another slow day as the dollar just drifted throughout the day. The return chart for the last 24 hours shows only one currency made more than a .5% move vs. the US$; and that was the South African Rand which increased .75%.

The markets were watching Ben Bernanke’s congressional testimony through most of the day, but those waiting for a surprise were disappointed. Bernanke stuck to the script which he had laid out the day before in the Wall Street Journal, and the members of the House Financial Services Committee couldn’t get him to commit to any ‘new’ stimulus programs. Bernanke said the economy is showing “tentative signs of stabilization” but the central bank intends to continue to maintain its “highly accommodative” monetary policy for “an extended period”. He indicated that the Fed stands ready to tighten policy, but only after the economic recovery takes hold and pressures holding down inflation diminish.

The Fed Chairman also reiterated his desire to keep the Fed independent from additional congressional oversight. As Chuck reported a while back, 275 legislators sponsored a bill to repeal the immunity of the central bank from audits of monetary policy. Bernanke said the bill would “open a Pandora’s box” for Congress’s Government Accountability Office to probe monetary policy. While I don’t necessarily think the folks in Congress are any more adept at handling the financial crisis (more on that later), I am a fan of opening up the books and letting the ‘owners of the government’, (the taxpayers) see just what all of their taxes are being spent on. Again, I’m not advocating that the Fed should seek congressional approval for every move they make, but I do think an after the fact audit is a good thing. I just get the feeling Bernanke and his pals are trying to hide something.

When pushed about this bill to audit the Fed, Bernanke pushed back at Congress and told them they need to cut the ‘unsustainable’ budget deficits. The Senate took a somewhat symbolic step toward this yesterday, by killing the F22 Raptor fighter jet program. If you hadn’t been following this, it is an excellent example of how spending can spiral out of control. Back in April, Defense Secretary Robert Gates decided, with President Obama’s backing, to scrap the program once it had delivered the 187 F-22s already in production. F-22 supporters in Congress ignored what the military wanted, and went ahead and budgeted another 2 billion dollars to continue production. I know 2 billion is next to nothing with the trillions that we have been talking about, but every little bit counts. If the US Government is going to get spending under control, they have to start somewhere; and killing a program that creates a plane that the military says they don’t need, and don’t want is a good first step.

Budget deficits aren’t the exclusive problem of the US. The Pound Sterling has been coming under some selling pressure lately as the UK budget deficit swelled to a record $21.4 billion in June. This was the largest monthly budget deficit ever recorded, and is increasing pressure on Prime Minister Gordon Brown to commit to a credible plan to cut spending. Recent data coming out of the UK doesn’t paint a pretty picture of the economy. Yesterday data showed that UK house price declines will persist until 2012, and another report predicted gross domestic product will keep falling until the final quarter of this year. BOE policy makers voted unanimously to maintain their asset purchase program in July, another sign that they still feel the UK economy is on shaky ground.

While the BOE and the Fed continue to use their reserves to purchase their own debt, China announced it would be looking to use its huge stash of cash to make purchase assets which have a bit more intrinsic value. A story in the FT yesterday stated that Beijing will use its foreign exchange reserves, the largest in the world, to support and accelerate overseas expansion and acquisitions by Chinese companies, according to Wen Jiabao, the country’s premier.

In an interview published in state-controlled media, the chairman of China Development Bank said Chinese outbound investment would accelerate but should focus on resource-rich developing economies. “Everyone is saying we should go to the western markets to scoop up [underpriced assets],” said Chen Yuan. “I think we should not go to America’s Wall Street, but should look more to places with natural and energy resources.”

This is a shot across the bow for the US, and a huge boost to countries which are commodity rich, including Australia, Brazil, and Africa. This is further evidence that China is looking to slow its purchases of US treasuries, and reduce its reliance on the US dollar as its reserve currency. Investments will focus not on monetary instruments, but on physical assets in resource rich developing economies.

This may account for some of the increase we saw in the South African rand yesterday. The South African rand is now the best performing currency vs. the US$ in 2009, with an increase of over 22.5%. The news will also benefit the Brazilian real which recently climbed to the highest in more than nine months as stronger earnings and higher metal prices bolstered the outlook for Latin America’s largest economy. The Brazilian real is the number two performer year to date vs. the US$, with an increase of approx. 21.5%. Anyone want to guess at #3 on the list?

It is the Australian dollar which has gained just over 15% vs. the US$ in 2009. Australia’s economy is performing better than expected, with GDP rising .4% in the first quarter, helped by consumer spending and increased commodity exports. Policy makers have left interest rates unchanged two weeks ago for a third month, but the bias seems to be shifting toward tightening rates. Australia could end up being the first of the major economies to start raising rates again, which would be a big boost for this currency.

The Bank of Canada will announce their rate policy today, and are expected to leave rates unchanged. Commodity price rebounds have helped push the Canadian dollar higher, and the loonie’s strength could threaten Canada’s nascent recovery. The big boss, Frank Trotter traveled out to Vancouver to join Chuck yesterday, and had this to report after his plane landed:

“Making the approach into Vancouver has always been a treat. This time, for my first time ever we landed to the west – drifting down down along the Fraser River Valley with Ranier on the left and the Olympic Peninsula in the distance affording a great view out to Vancouver Island across the straights. Once down I jumped in the cab and headed for the Agora Financial ‘Decade of Reckoning’ Conference.

“So are you guys picking up down south?” I was jolted out of my observation of the heavy traffic at 2pm. “Haven’t hit bottom yet I suspect” I replied to the cabby with an understatement. He told me that business was down, but okay. That restaurants were not full but they weren’t closing. That work continues for this winter’s Olympics, but everyone wonders if people will have money to travel. I’ll check in after hearing what some of the experts say at the conference over the next couple days; until then this is a pretty decent place to build a gulch.”

I look forward to sharing both Frank and Chuck’s views from the big Agora Financial Conference up in beautiful Vancouver.

As I mentioned in the opening paragraph, or new BRIC MarketSafe CD is proving to be extremely popular with investors. One reason is the tremendous upside potential of these 4 emerging market currencies without any downside risk. It also gives investors the opportunity to invest into the Russian ruble, a currency which we are not able to offer in any other investment. The ruble has shown some good strength vs. the US$ recently, gaining over 2% in the past 5 days. The ruble has rallied 16 percent in five months, as oil prices have climbed. While recent moves have been excellent, the Russian ruble continues to be a very volatile currency. The only way I would suggest individuals invest into this currency is with the downside protection provided by our MarketSafe CD.

Currencies today 7/22/09: A$ .8158, kiwi .6566, C$ .9064, euro 1.4216, sterling 1.6447, Swiss .9371, rand 7.7793, krone 6.2904, SEK 7.609, forint 191.15, zloty 2.9993, koruna 18.1720, yen 94.43, sing 1.4430, HKD 7.750, INR 48.5225, China 6.8313, pesos 13.286, BRL 1.8980, dollar index 78.897, Oil $64.80, 10-year 3.48%, Silver $13.475, and Gold… $947.40

That’s it for today… And for me the rest of the week. I am heading out to San Diego tomorrow morning for a family reunion. Mike Meyer will be Pfilling in for me and Chuck for the next two mornings. The phone calls are already starting up again this morning, so I’ll hit the send button and log into the phones. Hope everyone has a wonderful Wednesday!

Source: Bernanke Sticks to his Script