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

Coca-Cola beat earnings, increased guidance, increased dividends and reinstated its stock buyback program.  The company plans to repurchase $1 billion in shares of stock in the second half of 2009.  What more do we need?  The answer is: Consistent performance.

As I tracked the developments in Coca Cola and their global markets, I ascertained that my original view remains unchanged and Coca Cola should keep growing profits consistently, which should keep propelling its stock up.

Remember, on March 9, a few of weeks after our Coca Cola recommendation, I called the U.S. market turn by recommending a pro-cyclical energy play with Diamond Offshore Drilling Co. (NYSE: DO).  That call coincided with the turn on Diamond Offshore stock as well, which has since soared about 67%.

Earlier, on October 27, I had called for the turn on iShares MSCI Brazil Index (NYSE: EWZ), which has since soared more than 90%.

The point is that emerging markets, as was my thesis, are going to turn around much faster and come back much stronger than developed economies.

Prudent emerging economies – like Brazil and Chile – having enjoyed a few years of exponential growth in commodity prices did not over-extended themselves. Instead, they captured a sizable portion of those huge price increases and turned them into huge national savings, improving their fiscal positions.  They kept their banks clean and disciplined and became net creditors to the world.

So, while the advanced economies are saddled with debt, many emerging economies are the exact opposite.  Their fiscal positions are strong; their social security systems are not in peril, and their population growth means strong economic growth.

So, my initial thesis was predicated primarily on the fact that strong growth in emerging markets would lead to success for major international players.

While it’s true that Coca-Cola’s soft drinks are consumer staples, which are very resilient in economic downturns, the company’s biggest advantage is that a full 75% of its income is generated abroad.

Additionally, Coca-Cola is the most widely recognized brand name in the world.  With a distribution network that covers more than 200 countries and a 50% of the global market for carbonated drinks, Coca-Cola is the poster-child of a multinational.

What’s more, having kept its rival PepsiCo Inc. (NYSE: PEP) at bay by beating them in the market, their price wars are not an issue any more.  This is crucial because pricing power has returned.

The strong U.S. dollar shaved 14% off of operating income during the quarter, but this is a temporary phenomenon, since the dollar is likely to remain week in the months to come.

Meanwhile, Coca-Cola continues to excel in emerging markets, just as we anticipated.  While overall volume growth was 4%, up from 2% in the first quarter, emerging markets took the prize: China was up 14%, India 33% and Brazil up 5%.

India, for example, has a high birth rate and 1 billion people with an average age of 25 years, and going lower.  This is a very receptive crowd for carbonated, sugary drinks, especially as their income soars.

Hence, with the strong recovery in China, India, Brazil and Russia, and many more emerging markets, plus the renewed weakness in the U.S. dollar, Coca-Cola should continue to perform in the second half and beyond.

Coca-Cola stock closed Friday up 17 cents, or 0.34%, at $49.84 a share.

Recommendation: Buy The Coca-Cola Co. (NYSE: KO) at market(**).

(**)  Special Note of Disclosure: Horacio Marquez holds no interest inThe Coca-Cola Co. (NYSE: KO).

Source: Buy, Sell or Hold: The Coca-Cola Company (NYSE: KO) Continues to Deliver Knockout Profits

This from Horacio:

Continuing with the trend of companies that have blasted through Wall Street’s earnings estimates of late, The Coca-Cola Co. (NYSE: KO) last week announced its ninth-straight quarter of double-digit earnings per share (EPS) growth and a third straight year of meeting or exceeding its long-term-growth targets.

Excluding one-time items, the Atlanta-based company’s earnings per share of 64 cents represented a 10% gain from last year’s fourth quarter, beating analysts’ expectations by three cents.  In addition, Coke’s unit-case volume was up 4% in the fourth quarter and 5% for the full year.

And they achieved this profit growth despite a very adverse situation.  In addition, the company had to take losses from the appreciation of the U.S. dollar, which was product of the flight-to-safety experienced in the last few months of 2008.  As the U.S. dollar has stabilized from last year’s lows – and even rebounded in some of the key currencies – we do not expect to see the phenomena repeat itself in 2009.  Quite the contrary, we should see China pulling out economically and the yuan strengthen, and similar movements across key emerging economies.

Coca Cola’s secret for success?  The emerging markets.  Despite the naysayers, as I have been writing, the reality is that most of them took advantage of the unprecedented phenomenon of global synchronic growth and reduced debt and accumulated reserves.  So China, which has almost no debt, has “only” some $2 trillion in foreign reserves. And a similarly benign picture occurs with India, Brazil, Chile and many other emerging economies.

Very importantly, these countries have a lot more people and populations that are younger and much-faster growing than the United States, and the real per capita income in all of them has been increasing at much faster pace, as well: Imagine 1.5 billion Chinese and 1 billion Indians incorporating Coca-Cola’s drinks into their regular diets.  Will they?

For starters, Coca-Cola has been around for so long and has been so successful, that its brand is marketing nirvana – the best-known consumer brand in the world. And research tells us that there is strong correlation between income growth and the consumption of sugar across the world, which brings us to Coca-Cola’s secret sweet flavor, the envy of the soft-drink industry.

We clearly saw this phenomenon in Mexico as it came into the North American Free Trade Agreement (NAFTA) and incomes grew.  In the case of the region of Yucatán, where incomes grew strongly thanks to the spectacular growth of tourism and its development in the Cancun area.  And once people adopt a habit – especially a cheap one like a soft, fizzy drink or Coca-Cola’s Vitamin Water, Dasani bottled water, PowerAde for sports or Nestea – it is hard to give up, even if things turn down.

From Beijing to Buenos Aires, to Goa, India, you will find that Coca-Cola refreshes not only your body, but your portfolio as well.  Because 75% of the company’s sales come from outside the United States, this is the kind of stock that’s worth owning long-term. So, if you are worried about the housing meltdown and the prospects for the U.S. economy, this soundly-managed U.S. company already gives you global diversification in the places that matter most today – the emerging markets.

You see, a good 90% of global growth this year is going to come from emerging markets.  And the reason is simple. Since these markets have accumulated that huge wealth, they are in a much better position than the advanced economies to stimulate their own economies.  And that’s just what’s happening.  China, Chile, Brazil and many other countries are resorting to lowering interest rates and expanding fiscal stimulus plans in order to grow.  These programs have been very appropriately targeted to support much-needed infrastructure development and also to support house, cars and appliance purchases with lending and tax breaks for most.  It took longer for the United States to launch its own, much-more-complex plan.

In any case, Coca-Cola is not content to just go through the ongoing global financial storm; it plans to grow through it.  This company, with its very long history of operating in a very long list of countries around the world, has seen recessions, financial blow-ups and currency disruptions as few have seen. It’s managed to not only survive through them  but thrive. In addition to the end of dollar strength effects, we have seen commodities drop to much more comfortable levels, and this is wind in the sails for the company, even if this respite is temporary.

The stock is undervalued after having dropped from a 52-week high of $61.90 to the low $40’s, even while still experiencing profit growth (Friday’s close of $43.85 is only slightly above its 52-week low of $40.28).

A Price/Earnings (P/E) ratio of 12, for a consistent grower in a market as uncertain as this one, is very low. And that’s especially true of a stock that also pays a 3.7% dividend rate, a company with a superb balance sheet and $8 billion in cash.

So we are going to jump onto Coca Cola, ahead of all these global stimulus packages and ahead of the positive effects of a global liquidity growth, as central banks keep easing rates and growing their monetary bases.

Recommendation: Buy The Coca-Cola Co. (NYSE: KO), which has blasted through earnings estimates as its global diversification and worldwide commodity softness keeps powering profits (**).

Source: Buy, Sell or Hold: Coca Cola (KO) Keeps it’s Fizz

“If this comes to fruition, it says a lot of bad things not just for Caterpillar but for the economy as a whole,” Morningstar Inc. (MORN) analyst John Kearney told Reuters.

Because Caterpillar is viewed as an economic bellwether for its connections to the construction and mining industries, its forecast focuses even more attention on the details of President Barack Obama’s $825 billion economic stimulus plan and, in particular, what it might hold for infrastructure spending.

As Money Morning reported yesterday (Monday), the President’s giant stimulus plan heads to the floor of the House of Representatives this week, with House Minority Leader John A. Boehner, R-Ohio, saying many in his party will vote against the package unless significant changes are made.

Grim Forecast for Global Economies

Caterpillar’s forecast takes a dimmer view of 2009 than the company outlined in October, when it predicted world growth of less than 2.5%.

“We expect 2009 will be the weakest year for economic growth in the postwar period,” the company said.

In a wide-ranging statement, Caterpillar predicted 30-year mortgage rates could fall below 4.5%, and U.S. housing starts will top out at 900,000 units, about equal with 2008.

U.S. housing will continue its slide in the first half and then begin to improve later in 2009, the company predicted.

The U.S. should pull out of the recession in the second half of 2009, while the Eurozone and other developed economies will likely experience negative growth for the entire year.  Emerging economies will only grow by 3%, with China expected to grow about 7.5% in 2009, down from 9% last year, Caterpillar projected.

“It’s just a very pessimistic outlook in terms of the world economy,” Tim Ghriskey, chief investment officer of Solaris Asset Management told Reuters. “Clearly the building of global infrastructure has come to a grinding halt.“

After shrugging off the downturn in U.S. housing that sparked the worldwide crisis, Caterpillar and other makers of bulldozers, dump trucks and excavators suddenly face a world of challenges.  The Peoria, Ill., company said earnings slid as their well-heeled energy and mining customers scaled back purchases amid slumping commodity prices, the credit freeze and tough market conditions.

Caterpillar, a component of the Dow Jones industrial average, earned $661 million, or $1.08 per share, during the three months ended Dec. 31, down 32% from $975 million, or $1.50 per share, in the same period a year earlier. Revenue rose 6% to $12.92 billion. Analysts, on average, expected Caterpillar to report earnings of $1.31 per share on revenue of $12.84 billion, according to a survey by Thomson Reuters.

“We knew Caterpillar was going to be a disaster,” said Eli Lustgarten, an analyst at Longbow Research. “We just didn’t know the magnitude of it. And it’s ugly.”

Stimulus Plan Under Scrutiny

Analysts have continued to forecast weak earnings for Caterpillar and other U.S.-based machinery firms until global economies can execute a turnaround – which policymakers are finding both elusive and difficult.

The news from Caterpillar comes amid rising criticism from Republicans about a spending plan proposed by President Barack Obama that may not boost equipment demand from infrastructure improvements anytime soon.

The stimulus package calls for massive infusions of funding for public works projects, reminiscent of efforts following the Great Depression.  But the bill may get bogged down in Congress, as concerns are raised about its effectiveness in creating jobs.  A lobbying spree by potential recipients extolling the advantages of specific projects in their region or state, could also slow the process.

Obama spent most of his Saturday radio address trying to build public support for his plan and put pressure on recalcitrant lawmakers.

“If we do not act boldly and swiftly, a bad situation could become dramatically worse,” he said.

But Republicans contend the devil is in the details.

“You go through a whole host of issues in this bill that have nothing to do with growing jobs in America and helping people keep their jobs,” said Boehner.

Boehner led a chorus of critics concerned about how long it will take for the money to actually be spent.

As Charles Krauthammer, a conservative syndicated columnist told Fox News, “More than half of the infrastructure stuff with the bridges and roads will not be spent until two years hence…and it will only add to inflation, not jobs.”

Source: Caterpillar Predicts Zero Economic Growth for 2009 – Sheds 20,000 Jobs

But they were wrong. The Datastream Internet Index reached its peak on January 3, 2000, and then collapsed, falling 93.8% over the next 34 months.

In 2005, investors thought the real estate market was “different.” Homeowners were buying houses more expensive than they could afford because they thought inflation would protect them. While home prices could stagnate, they wouldn’t go down.

But, as you know, they were wrong. Beginning July 2006, real estate has fallen 16.2%.

Investors will come up with any excuse to continue pumping money into a sector that’s produced amazing returns for them in the past. And when the money starts piling in, it’s time for you to get out.

Today, the sector is oil. In inflation-adjusted terms, the price of oil is up 140% in the last 18 months. At first glance, the logic seems plausible…

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Global demand for oil is surging. Most of this increase comes from emerging economies like China and India. And global oil supply is on the decline. A large cause is poor reserve management by nationalized oil companies.

Venezuela’s oil production, for example, decreased by at least 1 million barrels per day (bpd) since President Hugo Chavez nationalized the country’s oil fields between mid-2006 and 2007. And Iran’s leaders can’t attract private capital and technology, so production is down 3 million bpd to half of what it used to be under the Shah.

Russia and Nigeria are in the same boat… The problem is, high oil prices make governments greedy. They take over oil fields and mismanage them, decreasing supply growth… and leading to even higher oil prices.

This imbalance has catapulted the price of oil to stratospheric levels. Even when adjusted for inflation, the price of crude oil is now far above its 1980 peak.

In the long run, simple economics tells us the price of a barrel of oil should equal the cost of producing the most expensive barrel of oil needed to meet global demand.

According to the Energy Information Administration (EIA), the oil market has a small surplus of existing production. And according to a Dallas Federal Reserve economist, the most expensive barrel of oil needed to meet global demand is being produced at just $50. With oil currently priced at $137 a barrel, the incentive to find and produce more oil is enormous.

This process takes time… But there are already signs supply is climbing. Shale oil in the Dakotas and in the Canadian tar sands – which costs about $70 a barrel to produce in both places – is attracting enormous amounts of investment capital.

In addition, research into the process of converting coal to oil might yield a more environmentally friendly process sometime in the near future, which would overcome one of the major hurdles facing coal-to-oil production now. The supply of coal in the U.S., if you were wondering, is plentiful.

From the demand side, the EIA reports consumption in 30 developed countries has fallen 460,000 bpd since last year. Most of that decline comes from plummeting U.S. demand.

This commodity rally – and the oil boom in particular – is not any different than previous booms. The market will find a new equilibrium, and the price of oil will undergo a nasty correction.

Good investing,

Ian

P.S. As my colleague Matt Badiali explained in a recent DailyWealth essay, don’t confuse brains with a bull market. If you own oil and gas stocks, now’s the time to keep an eye on your stops. On the other hand, the market has mauled refiners. But I think right now, refining stocks are perfectly positioned for the coming oil rout.

Source:  Why Oil May Be Headed for $50

“If I were in a business model where I needed double-digit growth out of the G7 to drive my performance, I would be in a cold sweat,” said IBM’s CFO, Mark Loughridge, to Thomson Reuters.

“We’re not counting on a resurgence or recovery to achieve our growth for the year,” he said, referring to established markets in the G7 countries – the United States, Japan, Canada, Italy, Germany, France and United Kingdom.

“But we are counting on the high-growth markets to continue to grow,” he said, noting that the company enjoyed more than 10 percent growth in 50 countries last year. These markets include Argentina, Australia, South Africa, Poland, Spain and Russia.

… Loughridge downplayed concerns that any slowdown in the developed economies could spread to emerging markets.

Emerging markets are booming – and they don’t have any awkward subprime baggage, says Bill Bonner in The Daily Reckoning. “The MSCI Emerging Market index has gone up four times in the last five years. Compare that to the Dow – which is flat.

“Much of that growth can be traced directly to the boom to the commodities that these countries export — but not all. Some emerging markets — notably China — export neither food, nor fuel, nor raw materials. Instead, they are the biggest importers of these things in the world. In other words, they should be the countries that suffer most when prices rise. Instead, they’re booming too.”

European investors seem to be falling out of love with China. Leave Hong Kong out of it and EU foreign direct investment into the Asian dragon actually fell by 70% last year. China pulled-in 6 billion euro in 2006, but that dropped to just 1.8 billion euro last year. And that’s not because European investors are sending less money abroad. In fact, the foreign investment from Europe into the rest of the world soared by 53% last year, to 419.9 billion euro.

That’s interesting when you actually think about how much media attention the China story gets. China is not exactly yesterday’s news – this growth story still has a long way to go. But production costs in the country are soaring and low-end producers are feeling the pain. China just isn’t “China” anymore. And that’s pushing economic growth into a lot of new areas.

Profit Hunter readers will already know that though. Last week I explained why a lot China’s low-end manufacturing companies plan on shifting production to Vietnam to cut costs. That’s obviously great news for our Vietnam play, but it’s not the end of the story.

Buying into Russia’s boom

So where is Europe’s money going now? Brazil got 7.1 billion euro, but of the four major emerging economies – the so-called BRICs – Russia won, hands down. The Eurasian giant raked-in 17.1 billion euro last year.

Russia doesn’t usually get positive headlines in the mainstream press. If the government isn’t being accused of poisoning ex-KGB agents, the financial press is reporting on how Western energy companies in that country are having their assets confiscated. (My colleague, Garry White at Smart Commodities has actually found a possible way to profit from that, by the way).

But the truth is that Russia is storming ahead. The economy grew by 8.1% last year and should grow by 6.8% this year. And the average Russian will earn 75% more this year than he did in 2006. The average income was just $6924 in 2006, but it should reach $12,013 this year. And that should hit $25,091 in just five years, according to the IMF.

We are already positioned to profit from Russia’s rapidly growing middle class, through one brilliant investment, that we’re now reaping the rewards from. We’ve also got our eye on something else that could be even bigger …

And that’s not all…

EU investment is just a small part of the story though. Yesterday, Prime Minister Vladimir Putin approved Russia’s biggest spending project since the collapse of the Soviet Union. They’re going to spend US$570 billion to overhaul and expand the country’s transportation infrastructure over the next seven years. And about time as well.

The Moscow Times tells us that as many as three million Russians still live in settlements without year-round roads or rail access. And 70% of all railroads, highways, ports and airports that they have actually got are “outdated.” So, there is huge scope for development here.

They now plan on building 17,000 kilometres of roads, 3,000 km of railroads and over 100 airport runways. They’re also going to be expanding their ports to handle an extra 400 million tonnes of cargo per year. The country is laying down the infrastructure for a sustained boom. Russia is still in the early stages of it economic take-off and European companies want their piece of it. That should give the Russian government the money to buy all the polonium it wants…

India is looking good right now…

The other big winner was India. Foreign direct investment from the European Union into the other Asian giant soared to 10.9 billion euro ($17 billion) last year. That’s up from just 2.5 billion euro in 2006. There is a lot going on in India right now. The 2008 Forbes Rich List shows that 4 of the 10 richest people on the planet are Indians. Two of them are in the top five. No great surprise that Europe is suddenly waking-up to India.

We stayed clear of India last year because valuations on the Indian markets had simply got out of hand. We’ve seen a significant correction since the beginning of the year though. Despite a recent rebound, the Bombay Sensex Index is still down about 18% from its peak. A lot of the country’s most interesting companies now look a lot more attractive…and we’re running the rule over them.

So how can we help you?

Simple…

At Profit Hunter we aim to find the next big thing well ahead of the pack. We called the bottom on Vietnam, we got into Africa ahead of the curve… and our moves to date in Russia have been very impressive.

We can show you where your money should be, before the opportunity becomes headline news and you miss the window.

Find out what our next big play is right now…

Source: Opportunities In BRIC Economies To Become Mainstream News, Get In Now

A new world order is arising… and coming with it is the opportunity to invest in a “corporation” that will dominate the world (literally) by the year 2035.

Investors and politicians who fail to grasp the sheer scale of the change we’re about to witness are going to find themselves consigned to the dustbin of history.

The foreign ministers of the four largest emerging economies will meet in the Russian city of Yekaterinburg tomorrow. They’re meeting to talk about forming a political alliance. Apart from Russia itself, the foreign ministers of India, China and Brazil are going to be attending… the so-called BRIC countries.

Now, you might think that the foreign ministers of these big countries meet-up often enough, so what’s one more meeting in a small city in the middle of nowhere? In fact, this is the first time the foreign ministers of the BRIC countries are getting together outside the venue of the United Nations.

On the agenda tomorrow are issues like: weapons proliferation, counter-terrorism, energy and climate change. Russia says it wants the BRIC’s to become a “notable factor in multilateral diplomacy,” to help strengthen “multi-polarity.” In other words, what they want is to break “Western”/ American hegemony in economic and political affairs.

What’s given them the audacity to come-up with this world-changing agenda right now, is how quickly economic power is shifting to the emerging economies. As Brazil’s foreign minister, Celso Amorim, said, “The meeting is recognition of the fact that we are four big economies with a large influence in the world.”

Investing in BRICs has been wildly profitable… and this is just the beginning…

And he’s spot-on. Just look at the facts.

China is expected to overtake Germany as the third-largest economy this year, according to the IMF. Russia has had 10 straight years of economic growth and is now the world’s biggest energy exporter. Brazil is the second biggest food producer globally, after the U.S. And it is now producing so much oil that it is talking about joining the OPEC oil cartel. The Bush administration is ripping its hair out at the thought – because it practically guarantees that higher oil prices are here to stay. (I’ll say more about that some other time…)

The combined gross domestic product of the four BRIC nations made up 12 per cent of global GDP last year. That’s up from just 8 per cent in 2000. That’s impressive enough, but these countries still have a long way to go. Goldman Sachs predicts that the BRIC economies, as a whole, could overtake the G-7 countries by 2035. Most of us will be around to see that happen. And, here at Profit Hunter, we are positioning our portfolio to profit from that shift.

The rapid rise of the BRICs has been fantastic news for early investors in those markets. In the past two years, shares in the BRIC nations have risen by 70 percent – and that’s after the recent declines. The average increase in emerging markets overall was 42 per cent.

How Goldman Sachs destroyed American hegemony.

The irony of this is that the idea of the BRIC countries as a unified group didn’t start with the politicians. The term was coined in 2001 by Jim O’Neill, the London-based chief global economist at American merchant bank Goldman Sachs. It was a catchy label for the biggest emerging markets at that time. But it has taken on a life of its own since then…

Brazil’s Foreign Minister Celso Amorim observed in a recent interview, “It’s really a group that first existed as a concept in the minds of analysts and subsequently came to exist as a practice between the countries.”

The BRICS alone aren’t big enough to dominate global affairs, though. But they probably won’t be acting alone. The new group will probably evolve into the core of a new alliance of emerging countries.

Frontier markets are riding on their coat tails and they’re about to rake it in…

So we can already see the emergence of the new world order taking shape. But, in many ways, it isn’t really the BRICs that excite me. It’s the spillover effect that these economic giants are having on the countries that surround them that we are focused. Countries like Vietnam, or a whole continent like Africa.

These are the new economic frontier. They’re riding on the coat-tails of the BRICs. But they’re in the very earliest stages of their economic booms. Getting in now is like getting into a lift on the ground floor and riding it all the way to the top. That’s why I get so excited when I talk about opportunities like Vietnam or Africa.

There isn’t much point in talking about the rise of the BRICs or the frontier economies if you aren’t in a position to profit from it though. Fortunately, regular Profit Hunter readers will be. At Profit Hunter we are invested in one of the most promising of the frontier markets, Vietnam. And we are playing Africa’s economic awakening through a great pan-African conglomerate. We recently claimed a fat 58% profit on our investment in Brazilian bank, Bacno Itau and are in Russia’s fast-growing economy through a cunning Russian conglomerate.

In fact I’m spoilt for choice regarding which of these emerging market opportunities I’d like to tell you about.

Let me start off with Africa… and how we’ve invested in one small British company that’s holding America to ransom over $135 billion dollars worth of African oil.

Oh… and the share price of this small British company is currently trading for pennies… Learn more about this amazing story here…

Regards,

Manraaj Singh
Editor
Profit Hunter

Source: BRIC -Brazil, Russia, India, China- Get In ‘Now’ For a 30 Year Boom

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

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

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

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

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

The Silent Tsunami

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

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

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

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

It Is The Bio-Fuel Policy Stupid!

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

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

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

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

Are Investors To Blame?

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

Mix this in with sporadic strikes that cut back copper production and you have a clear cut case for higher copper prices in the future.

Just take a look at a chart of copper to see what I’m talking about…

As you can see, the price of copper has been rising since late 2001. But since 2007, copper prices haven’t passed the 400 level. Even with that happening, copper continues to make higher lows.

This forms an inverted triangle pattern. Over time, we should see copper not move under the blue line and continue to rally back up to the red line.

But if copper can manage to breakthrough 400, then we should see copper rally hard.

The best way to take advantage of this is to buy Southern Peru Copper (PCU) as soon as you see the copper prices break through the 400 level.

And if you want an option to play, you can be sure that I’ll be recommending one to readers of IDE’s Global Profits Hotline.

Good trading,

Charles