China’s 470 million ton demand for steel is considerably lower than the country’s annual production capacity of 660 million tons, and to that effect, China announced a three-year ban on new mills The New York Times reported.

“Disorderly competition” has pushed up iron ore prices, caused a glut of production capacity and resulted in “serious losses,” said China’s Information Minister Li Yizhong. “My ministry will not approve any expansion-related projects in the iron and steel industry. I would like to call on the whole industry, all iron and steel producers, not to construct any new projects within three years.”

China is using its clout as the world’s largest steel producer to negotiate lower iron ore prices with some of the larger ore producers, but six weeks after the last agreements expired at the end of June talks are still deadlocked.

Beijing is showing it can and will shop around for the best prices it can find, inking an iron ore deal Monday with Fortescue Metals Group Ltd. that gives the Red Dragon prices 3% below a benchmark set by Rio Tinto with Japanese, Korean and Taiwanese steelmakers.

Still, the Fortescue contract covers only 18 million metric tons of ore, compared to the tens of millions of metric tons Rio Tinto and BHP Billiton Ltd. (NYSE ADR: BHP) have earmarked for the second half of this year.

“The price Fortescue is getting should not be taken as indicative of what Rio and BHP will get,” H3 Global Advisors Director of Commodities Funds Manager Mathew Kaleel told Reuters. “In terms of volume there’s no comparison”

Rio Tinto agreed with Japanese and South Korean steel mills to cut prices by 33%, but negotiations with China stalled when the China Iron & Steel Association demanded a deeper price cut. China is still receiving iron ore on long-term contracts with provisional pricing terms based on the 33% cut, Rio Tinto Chief Executive Officer Tom Albanese said yesterday in a conference call.

It may be difficult for Rio Tinto to bend too far on pricing, as the company saw its profit drop to $2.5 billion in the first half. Operating income at Rio’s iron ore division, its biggest profit generator, fell to $1.9 billion in the first six months of the year.

Chinese iron ore imports rose to their highest level ever as prices swooned in July.

Source: China Turning the Screws on Rio Tinto in Iron Ore Negotiations

If you grew up in the United States, you know that English literature is one of those subjects they foist upon you in 10th grade or so. I recall very little from English Lit 101. Most of the stories and poems we read (or pretended to read) have become a hazy blur.

But after all these years, one poem still stands out. Due to its oddness and simplicity, I have never forgotten it. The poem is “Red Wheelbarrow” by William Carlos Williams, and it goes like this:

so much depends

upon

a red wheel

barrow

glazed with rain

water

beside the white

chickens.

That poem comes to mind as I ponder the odd yet powerful simplicity of this global market rally. If you take a look around, it is quite impressive how everything has moved higher. And I do mean just about everything. Commodities are up. Currencies are up. Emerging market equities (and bourses around the world) are up. Dead duck U.S. consumer retail stocks are up. Crude oil, which has moved twice as far in half the time in comparison to all previous rallies of the past two decades or so, is way, way up.

So what’s going on? With apologies to William Carlos Williams, here’s the poetic take:

so much depends

upon

a red China

stockpile

paid for by

stimulus

beside the massaged

data points.

Translation for all you non-poetic types: China has taken the “industrial inflation hedge” concept and gone to town with it. It has been stockpiling raw materials and hard assets like crazy, and this in turn has popped the Baltic Dry Index (lots of shipping required) and driven commodity prices up.

At the same time, a steady stream of rosy data points on the Chinese economy has convinced investors that all is well, that “decoupling 2.0″ is at hand, and that the dragon shall boldly lead us into the land of milk and honey (i.e. global economic recovery).

Stockpilin’

The “industrial inflation hedge” concept was introduced in these pages some time ago (and originally to Macro Trader members some time before that). On April 22nd we observed the following:

Hard assets like copper and nickel and zinc are immune to the whims of the printing press, and China will need all those metals and more, in substantial quantities, to build out the vision of economic prosperity it holds for the coming years. And what better time to stock up than in the quiet period before a stimulus- and debt-fueled inflation tsunami returns?

We further observed, in that April 22nd piece, that China would employ three specific strategies in its “stealth abandonment” anti-dollar campaign:

1. Speak to those with ears to hear (i.e. test the waters with subtle trash talk against the dollar).
2. Quietly circulate the yuan (start small, with the intent of later challenge once strength has accrued).
3. Embrace the industrial inflation hedge (buy boatloads – literally! – of raw materials and hard assets).

All three elements have come to pass, as predicted and expected, with one major caveat. Your humble editor expected these strategic moves to be deployed gradually and quietly. Instead they have been deployed rapidly and loudly, to a shocking a degree.

The dollar trash talk has become anything but subtle… Chinese officials are now making aggressive, vocal demands that the yuan be used in more transactions, even going so far as to call for the issuance of yuan-denominated U.S. debt (!)… and, last but not least, the dragon has gone absolutely hog wild with the industrial inflation hedges.

In an eye-opening piece titled “China’s Commodity Buying Spree,” The New York Times chronicles just how much of a hoarding groove China has gotten into:

At least 90 large freighters full of iron ore are idling off Chinese ports, where they face waits of up to two weeks to unload because port storage operations are overflowing, chief executives of shipping companies said in interviews this week. Yet actual steel production from that iron ore is recovering much more slowly in China, and Chinese steel exports remain weak.

Commodities and shipping executives describe Chinese stockpiling in recent months of a range of other commodities as well, including aluminum, copper, nickel, tin, zinc, canola and soybeans. Starting in April, China began stockpiling significant quantities of crude oil.

No wonder commodities have been ripping and snorting like the good old days. And no wonder traders are looking around and starting to see inflationary pressures everywhere.

The Page One Problem

We went on record expecting this to happen, and it did. Man oh man, did it ever… and it’s still happening, right now. Copper and oil are breaking out to fresh highs as I write. The commodity currencies, too, are flying higher than a kite (great news for all of you who took our table-pounding currency diversification advice some months back). That’s all a reason to be happy, right?

Yes, but to be honest, for me it also creates a reason to be nervous. I look at some of these incredibly extended trends and I think about an old Yogi Berra line: “Nobody goes there anymore, it’s too popular.” Trends are like people – they can get frail with old age. Trends can also get winded. They need to breathe.

What’s more, China has been so blunt and upfront in its “down with the dollar, up with hard assets” campaign that I’m starting to wonder how far we are from the “page one” problem.

By page one I mean page one of the newspaper. The idea being, you don’t make money from news stories that are splashed above the fold in bold headline type. You make money from the story buried back on page sixteen, where few have really cottoned onto it yet.

It’s the process of migration from page sixteen to page one that produces the profits. By the time everybody and their brother know the deal, it’s pretty late in the game.

Then, too, I wonder how many checks China can write. Ninety freighters full of iron ore! Damn! Where are they going to put all that stuff? When it comes to hard assets, are they going to just buy everything available… or only buy as much as they can afford? Is there any distinction between the two?

It’s very tough to say, of course. We know little about China’s hidden intent, and Beijing likes to play it close to the vest. China-watcher energy analysts are so data starved, for instance, some of them are using the free satellite capability of Google Earth to make guesses about where China might (or might not) be storing crude. (Apparently there is a way to interpret building structures and ground movements with oil in mind.)

China’s strategic intent and spare buying capacity thus become key factors here. If the dragon intends to throw another couple hundred billion directly at hard assets, then maybe the page one treatment won’t matter. A buying spree with that kind of aggressive depth and duration could drive a move for quite a long time, regardless of how many caught wind of it… sort of how oil soared to triple digits and beyond even as the world gaped in awe.

But one has to wonder… could even cash-rich China find itself tapped for funds at some point? I mean, how much aluminum, copper, tin, canola, soybeans and so forth can a country sit on? And beyond a certain point, when the stockpiles pile up to the sky, aren’t there more pressing uses for the funds?

Dubious Data Points

The other disconcerting thing is the lack of visibility when it comes to China’s economy. We are told that China is doing amazingly well, and the official statistics seem to back this claim. Investors certainly seem to believe this, as China’s health is the rationale for bidding up emerging markets like gangbusters.

But there are all kinds of weird discrepancies on the ground. For example, China’s electricity usage has gone down when it should have gone up. That doesn’t make sense if factories are humming.

And then there’s this, via Grant’s Interest Rate Observer. In a recent Morgan Stanley fact-finding trip, the analyst who led the trip reported 11 out of 12 investors left Chinese soil with fresh concerns. “It’s not that the stimulus is not working,” the analyst noted, but more that “the trip exposed massive levels of excess capacity…”

So it sounds like China indeed has a leg up on the United States in terms of putting their half trillion bucks or so to immediate and aggressive work. But while the mandarins in Beijing know how to move fast, they aren’t necessarily the greatest at figuring out what to spend the dough on.

One might further think Western investors, as acquainted with the ills of government as they are, would be more skeptical than Chinese locals in regard to anticipating positive effect. But no… the outsiders buy the China recovery story hook, line and sinker, while the insiders maintain their doubts. “The local Chinese are clearly skeptical,” the same Morgan Stanley analyst tells Grant’s, “as savings rates are rising despite government incentives to consume.”

So Much Depends…

And now we come full circle back to the William Carlos Williams poem.

What we are experiencing now, I believe, is a massive sentiment-led rally (or bull move, or whatever you wish to call it)… and it is almost all pure sentiment so far, with buying rooted in hopes for the future rather than actual improvements reported. “So much depends” on China as savior – the cornerstone and lynchpin of the decoupling 2.0, turn-the-clock-back mentality that has now gripped the globe.

My slim hope is that the Chinese really and truly know what they are doing, because, in fueling investor optimism with such flair, they are playing a high stakes game. My worry is that they drop the ball, somehow, and the result shows up as a violent wake-up call for “high beta” assets… emerging market equities, energy, commodities and the like.

What happens next is far from clear. The huge stockpiles could continue to grow at a breathtaking pace – after all, Beijing has plenty of greenbacks to work through – and the dragon’s data points could continue to impress, or at least not frighten.

But with that said, a stumble from the dragon… and the shock of a sharp, swift deflationary contraction immediately following… does not feel like a far-fetched scenario at this point. It would certainly have profit potential as a surprise event, given how far the notion seems to be from Mr. Market’s mind.

Source: The Fate of This Rally May Rest in China’s Hands

In the past year, it rained pretty hard on Brazil’s burgeoning economy. Its Bovespa stock index is been halved since hitting a record high in May. During that fall, Brazil’s currency, the real, tumbled more than one-third from its nine-year high.

In the fourth quarter, commodity prices and consumer demand continued falling, leading to a loss of 654,946 government-registered jobs in December – the worse monthly loss since the government began tracking jobs data in 1999.
With the interest rate cut – a moved allowed by falling inflation – the central bank hopes the $1.9 trillion economy can keep pace with President Lula’s 2% economic growth target for 2009, a small figure compared to the 6.8% expansion registered by the Brazilian economy in the third quarter of 2008, Bloomberg reported.

Inflation cooled to 5.9% in December, falling within the bank’s target of 2.5% to 6.5%.

“We have a good macroeconomic situation to cut interest rates,” Alexandre Lintz, chief economist at Banco BNP Paribas Brasil SA, told Bloomberg.

Brazil Outlook

In the next three years, China, alone will invest as much as $725 billion in infrastructure, while Brazil will invest $225 billion with very similar goals:

• Strengthen fiscal stimulus, allowing a drop in the value of the real currency (a decline that’s already been substantial) in order to cushion exports.
• Easing capital requirements to Brazil’s strong banking system, which will spur housing and car loans.
• Export financing.
• Begin huge local infrastructure projects.

There is another little-understood phenomenon that cushions the blows for emerging economies: Intra-emerging market trade has become increasingly important.  By now everybody understands that iron ore from Brazil and coal and oil from other emerging markets is flowing into China in order to fuel China’s massive infrastructure buildup and growing consumer demand.

Money Morning Contributing Editor and emerging market specialist, Horaocio Marquez feels Brazil will pull itself through the financial crisis because historically and presently, the Central Bank of Brazil and the Brazilian government have acted very quickly to backstop the liquidity effects against their banks.

Both are run by a superb team of experienced managers, especially adept at controlling the till in rough economic waters, Marquez said.

“The policies, run day to day by a sophisticated technocracy led by top economists and international bankers, many of which held top positions in leading international banks, have allowed Brazil to move forward,” Marquez said. “Hence, Brazil is by far my favorite Latin American play for 2009.”

Source: Brazil Cuts Interest Rates for First Time in 16 Months

This from Money Morning:

The second phase of emerging markets expansion is well on its way – a period of self-sustaining growth, driven by consumer growth and infrastructure spending.  And Latin America, following China and other Asian economies, is one of the key global pillars of growth that will save the global economy and the U.S. financial system from total collapse. But not all the countries in Latin America will go on to prosper.  There is a wide gulf in the policies that will continue to separate the winners from the losers.

Let me explain.

In a recent article in our affiliated monthly newsletterThe Money Map Report, Money Morning Investment Director Keith Fitz-Gerald made three important points:

• The emerging markets (of which Latin America is the second-most-important leg) will play a growing role in the continued long-term growth of the world economy.
• The U.S. economy will continue to grow long-term, but its relative importance in the world economy will continue to decline.
• In the near term, the emerging markets could well play a determining role in keeping the overall global economy – and the U.S. financial system – from dropping into a depression-like funk that we won’t be free of for years. Emerging economies in Asia and parts of Latin America have huge cash reserves, much of which will be invested in infrastructure projects over the next 20 years.

In the next three years, China, alone will invest as much as $725 billion in infrastructure, while Brazil will invest $225 billion for the same purpose.
This is important to remember, given that the dramatic sell-off the emerging markets have experienced has many investors doubting the ability of these countries to “decouple” from the global economy.  The reality of the situation is that most investors and pundits are failing to differentiate between economic decoupling and market decoupling.

The Gloomy Present

While growth in emerging economies has dropped slightly, the prices of securities and currencies in emerging markets has fallen drastically.   Many investors think that the U.S. economic crash will lead to a dramatic drop in U.S. orders of emerging-market products, which will cause those economies to drop off. That, in turn, would squeeze the profits and market valuations of the companies that operate in these economies.

But that’s a mistaken assumption. And here’s why.

In Brazil, for instance, exports account for a mere 13% of gross domestic product (GDP). In China, exports are just 10% of GDP. So some contraction in U.S. and European orders can easily be counterbalanced by fiscal and monetary stimulus in these countries.

On Oct. 27, in the depths of a rabid, indiscriminate sell-off, I published an extremely bullish piece on Brazil. Since that article was published, Brazil went on to rally as much as 47%. As of Friday’s close – even after some subsequent profit-taking – the exchange traded fund (ETF) that represents the Brazilian market (NYSE:EWZ) is still up 21% (and has risen as much as 42% since my recommendation).

And most emerging markets economies have plenty of fiscal and monetary maneuvering room. Leading the pack is China, which accounted for some 27% of global growth last year, and which has continued to use both fiscal and monetary tools to keep itself on a solid growth path.

It recently slashed interest rates again, down to 6.66% (a lucky number in the Chinese culture, meaning “things (are) going smoothly”).  With record foreign reserves of $1.9 trillion, China also approved a “fast and heavy-handed” $586 billion stimulus, mainly in housing and infrastructure, to be implemented through 2010.  And the Chinese yuan will drop almost 7% vis-a-vis the U.S. dollar to cushion losses in trade.  It has also lowered taxes on investments in capital goods.  And in a key move that’s been almost totally overlooked by the media, China has made huge market-oriented reforms in agriculture.

China has just allowed its 780 million farmers to rent, transfer or utilize as collateral their rights to their lands and eliminated all taxes on agricultural production and to farmers.  This will allow for a massive increase in the scale of production by consolidating companies.  In this way, China will keep its 120 million hectares dedicated to agriculture exclusively, with no possibility of urbanization, while at the same time allowing the millions of small farmers to sell out, and get capital to move to the cities.  This will not only increase the productivity of Chinese farming dramatically by allowing for economies of scale to work and attracting billions in investments, it also will create a huge incentive for these millions of farmers to move to the cities, boosting housing and infrastructure demand.

Brazil’s plans are very similar to those of China. There’s a:

• Strong fiscal stimulus, allowing a drop in the value of the real currency (a decline that’s already been substantial) in order to cushion exports.
• An easing of capital requirements to Brazil’s strong banking system, which will incentivize housing and car loans.
• Export financing.
• And huge local infrastructure projects.

There is another little-understood phenomenon that cushions the blows for emerging economies: Intra-emerging market trade has become increasingly important.  By now everybody understands that iron ore from Brazil and coal and oil from other emerging markets is flowing into China in order to fuel China’s massive infrastructure buildup and growing consumer demand.

The Breakdown on Brazil

Increasingly, a growing proportion of the infrastructure needs of industrial goods being bought by emerging economies are goods produced by other emerging economies.  Trade between Latin America and China has increased by 13 times since 1995, from $8.4 billion to $100 billion.  And China, now the second-most-important commercial partner to the region after the United States, has finally been accepted as a member of the Inter-American Development Bank, committing itself to contribute $350 million to the bank. As an example of this growth in industrial trade, Argentina just bought 279 subway cars from China’s CITIC Group.

However, not all trade with China has been successful, due to China’s notable deficiencies in quality control, especially in health standards.  For example, Latin American imports of medicines manufactured in China had catastrophic results in Panama two years ago, where more than 100 people died and hundreds more became ill from medications containing toxic Chinese glycerine.  Recently, Panama detected toxic chemicals in imported Chinese sweets and crackers and Argentina’s customs recently seized Chinese 20,000 thermos containers for having elevated content of toxic chemicals.

And all of this means that there is a market disconnect between the prices of Brazilian shares and those elsewhere in Latin American equities and the fundamentals of the underlying companies, that we will see played out in the next and subsequent years.  Why?

Just because huge financial losses by banks precipitated a massive de-leveraging cycle, which means they had to sell their holdings, regardless of merit. And that included big sell-offs in preferred investments, including the hugely promising and profitable Petroleo Brasileiro SA (Petrobras) (ADR:PBR), Vale (ADR:RIO), and many others.

Sign up below… and we’ll send you a new investment report for free: “Credit Crisis Report.”

And what is worse, their sales hit the stop losses of major hedge funds, who were also leveraged in such favorite plays as commodities, steel, coal, agro, emerging markets and even defensive stocks such as the U.S.-based Pepsico Inc. (NYSE:PEP).

When you have the proprietary positions of banks and hedge funds all trying to get out of the same door at the same time because of risk management issues, you get the current disconnect between market fundamentals and pricing.

Another impact that we have to understand is that the ongoing dramatic interest rate drops in all major G7 economies and the more than $3 trillion in G7 fiscal programs will have a marked impact on growth next year, containing what would have been a much nastier economic contraction.  But while G7 countries will barely grow between negative 0.5% and a positive 1% in 2009, with the worst contraction front-loaded and recovering in the second half, emerging economies will grow at a minimum of 4%, and in the case of China maybe as high as 10%.

In my October Brazil analysis, I detailed the massive stress that Brazil came under in 1995 because of another exogenous shock: The Mexican devaluation, the so-called “Tequila effect,” which ricocheted around the world, and which caught Brazil in 1995 in a much weaker position than it is in today. Back then, Brazil had a much higher level of debt, much lower reserves, a fiscal sector that needed huge reform, and a much lower capacity for exports.  Brazil dealt with this massive stress effectively and went on to work at each one of its weaknesses in the next 13 years, getting itself into a position of strength today.

While having the temptation and the perfect excuse for a default right at hand, Brazil proved its seriousness back then by taking the hard, but certain road to progress, keeping its international commitments and gradually affecting strong structural reforms.  Since then, it has become a net creditor to the world; it controlled inflation, and avoided an overheating of its economy with tight fiscal and monetary policies during the recent run-up in commodity prices.

This is paying off strongly today.  The policies, run day to day by a sophisticated technocracy led by top economists and international bankers, many of which held top positions in leading international banks, has allowed Brazil to move forward and to anticipate GDP growth of 4% to 5% for the New Year.
Hence, Brazil is by far my favorite Latin American play for 2009.

Checking Out Chile

Following closely behind, and hindered only by its small size, is the poster child of fiscal and monetary prudence: Chile.

Chile, which came out of its 1970s default by eliminating its foreign debt and successfully restructuring its banking system, has made every effort to maintain very prudent fiscal and monetary policies and to diversify its exports away from copper, which, being the largest exporter of the metal in the world, still accounted for 38% of its GDP.

Today, Chile exports many diversified products, including agricultural products, wine, fertilizers and industrial wares.  And because it’s situated on the Pacific Coast, it is geographically well positioned to trade with the fastest-growing markets in the world – China and the other emerging Asian tigers.

But Chile, in order to minimize the cyclical nature of its economy due to the wide fluctuation in the price of copper, decided years ago to start a “rainy-day” fund, which would accumulate wealth in the good years and be used to soften the blow in the bad ones.  Now, Chile boasts a $28 billion sovereign wealth fund, accumulated almost completely from its copper profits.  That’s almost equal to a staggering 14% of the country’s GDP in cash savings!  This will enable Chile to implement counter-cyclical policies to keep growing at 3.5% to 4% next year – or about the current rate of growth, even with the worldwide meltdown.

Chile already has started to deploy this capital, having passed a $1.15 billion government plan on top of last month’s $850 million to stimulate housing and small-business lending, injecting that capital into a government bank that will make available loans for small businesses.

Avoid Argentina

Chile’s fiscal prudence is in direct contrast to Argentina’s lack of discipline.  Argentina’s Peronist government, which squandered the agricultural commodities bonanza in fiscal spending, is now is trying to use its majority in both houses in Congress to pass the nationalization of the privatized pension funds under the excuse of “protecting them from market volatility.”

These funds, which now have successfully grown to more than $30 billion in size, or 73% of the government’s budget and have returned an average of more than 13% a year since inception will allow the government to cover its fiscal gap and debt maturities next year and to financed public works and consumption projects.  The government, at the same time, is suffering from an important loss of confidence, as evidenced by its need to resort to police controls in order to prevent the illegal purchase of U.S. Dollars.  Argentina might end 2009 with growth of negative 2% and unemployment of 10%.  Stay away.

A “Maybe” for Mexico

Mexico, given its strong links to the United States, is receiving a heavy dose of external shocks on many economic and financial fronts – especially where the United States is concerned: It’s being hit by a drop in exports (the United States is the main component), the drop in oil prices, lower tourism (its largest proportion of travelers is from the United States), falling U.S. investments in Mexico, and reduced remittances from Mexicans working in the United States back to their Mexican relatives.

In addition, many companies suffered strong losses in their derivatives hedges, banks have had to reduce lending due to reduced liquidity and the Mexican peso has lost some 22% of its value against the U.S. dollar.  Mexico’s growth in the New Year may fall to about 1% from 2008’s 2.4% pace, and the country is on its way to approving the first budget with a fiscal deficit in four years.  The government’s target will be negative 1.8% of GDP, in order to stimulate the economy.  Mexico, seeing its oil production declining, is seen moving soon towards opening some oil areas for exploration and development, which some estimate could add another 1% to GDP.

Once the U.S. markets have stabilized, Mexico’s stocks will be an incredible buy once more, since they discount a very bad scenario at these prices.

A Case Against Colombia

Colombia, another country that has merited a lot of attention, given its staunch support of U.S. anti-drug and anti-money-laundering efforts, has seen its free trade agreement with the United States inexplicably delayed.

The country foresees a tightening of credit conditions, so it is moving up its peso-based borrowing to this year.  Next year it will issue only $1 billion in foreign bonds and tap $1.4 billion from multi-lateral lenders.  So the refinancing risk for Colombia is muted, given the small amounts involved, and the country’s economy should expand a minimum of 1% in the New Year, even in the worst economic scenario. However, Colombia could grow as much as 4% under a moderate scenario.

That would represent a big drop from the 8% growth recorded this year.

The story in Colombia has been the curbing of inflation, and how far behind the curve the central bank has been, at least as recently as July, when it boosted rates up to 10% and then kept them there.

These ultra-high interest rates, combined with the global slowdown, have blunted demand for consumer products in Colombia. Since the passage of the trade pact is a situation in flux, I want to wait and see right now.

I will not go into the economies of Venezuela, Bolivia and Ecuador, which, with massive intervention by their governments and advances against property rights, are experiencing severe economic and political stress, and which do not offer the guarantees needed for foreign investment.

Source: Some Latin American Markets Show Profit Potential in the New Year, While Others Pose Risk

[Editor's Note: This is the eighth installment of our “Outlook 2009” series, which looks at the global investing outlook for the New Year.]

Firmer Asian, British and emerging market shares pushed world stocks to a one-month high on Thursday with the focus on the fate of U.S. automakers, while doubts over deep euro zone interest rate cuts boosted the euro.

Oil rose 5 percent, extending earlier gains, while the index of leading European shares fell. U.S. stock futures were pointing to a firmer open on Wall Street with investors focusing on the $14 billion plan to bail out the big three U.S. automakers.

The proposal passed the House of Representatives but its prospects looked grim in the Senate where supporters, who say the measure is necessary to avoid another jolt to an already contracting economy, struggled to keep it alive.

“Most of the bad news is already in the market. It is going to get worse? Sure. The economic news is going to get awful worse,” said Peter Dixon, UK economist at Commerzbank.

“But the market will only react if the numbers continue to get worse.”

MSCI world equity index rose 0.7 percent. Asia rose 0.7 percent and Britain gained 0.3 percent. Emerging stocks  rose more than 1 percent. The FTSEurofirst 300 index of leading European shares was down 0.7 percent. U.S. stock futures were up around 0.1 percent on the day .

The euro rose 1.5 percent to a six-week high of $1.3222 after European Central Bank Executive Board member Juergen Stark said the central bank does not have a lot of room for manoeuvre after its interest rate cut last week. Stark also said further rate reductions could be done only in small steps.

The region’s interest rate futures are now showing that the euro zone cost of borrowing to bottom out at 1.75 percent, from just over 1.5 percent after the ECB’s move last week to cut rates to 2.5 percent.

“If the euro zone is being perceived to still have rates at substantially higher levels then obviously there’s a positive rate spread,” Rabobank markets strategist Jeremy Stretch said.

“But I’m not convinced that its ultimately going to be positive as the dynamics of the euro zone economy are pretty weak.”

The Swiss franc cut earlier gains to trade at 1.1927 per dollar after the Swiss National Bank cut interest rates by 50 basis points. Switzerland, Canada and Korea joined a growing number of central banks worldwide in cutting interest rates over the past 24 hours.

The dollar fell 1.3 percent against a basket of major currencies. The December Bund futures fell 18 ticks.

U.S. crude oil was up 5 percent at $45.70 a barrel, helped by favourable demand forecast by the International Energy Agency and signs that top oil exporter Saudi Arabia has slashed January supplies ahead of next week’s OPEC meeting have underpinned prices.

Natsuko Waki

LONDON, Dec 11 (Reuters)

This from Investment U:

Consider that your computer could contain up to 38 separate chemical elements and that all of those elements needed to be mined and refined. Everything from cell phones to housing supplies requires massive amounts of raw materials.

Our modern lifestyle encourages us to buy the latest products, all made with increasing amounts of technology – and more raw materials.

But industrialized nations aren’t the only players clamoring for these commodities. Developing nations around the world are pounding the table for more of everything. They want what the industrialized west has had for years. And they want it now.

And that’s just the problem. There isn’t enough of it being produced fast enough to satisfy everyone. An imbalance exists between producers, supplies and the market. It means that there will be an inevitable correction.

Prices will skyrocket for base metals and commodities. And for investors aware of this “supercycle,” the rewards and returns could be immense. Here’s what you need to know about the international demand for commodities – and how you can profit from their price explosion.

Supplies Are Low – And Demand Remains High

The whole idea of a supercycle, of higher commodity prices, remains well intact. Even with the recent slowdown, a massive supply/demand imbalance exists in the marketplace right now.

And nothing has emerged to change that story.

“It is a mistake to assume that current volatility within the commodities sector is proof that the prolonged rally in commodity stocks is running out of steam,” says Ian Henderson, manager of the JPM Natural Resources Fund.

“It is also misrepresentative to attribute it to a change in the basic fundamentals of supply and demand… In reality, it is the self-perpetuating irrational market sentiment in itself which is causing a sell off…”

In the short term, however, we’ll likely continue seeing a softening of commodity demand, along with a decline in prices. But that’s okay because stock prices already reflect the new paradigm in which mining companies are operating.

Mining companies sit at extraordinary valuation levels right now. So buying now ensures that you’re grabbing shares at rock-bottom prices.

But in order to make the most of the opportunity, you need to look above the forty-ninth parallel, to Canada – the world’s investment hotspot for profits from the bull market in metals.

Simply put, Canada is the preeminent leader of the world’s mining sector. According to Paul Stothart, Vice President of Economic Affairs at the Mining Association of Canada,

“About 19% of the total global spending on mining exploration was for exploration within Canada’s borders, well ahead of Australia at 13% and the U.S. at 8%…”

Consequently, Canada’s mining industry will be crucial to satisfying the world’s needs because of its experience and technological capacity. And Canada’s mining-friendly laws only add to the country’s investment appeal – a far cry from other resource-rich countries where regulators are downright hostile. But it’s not just the producing nation that we need to worry about.

Fact is, the United States, Europe and Japan are no longer the only countries vying for the world’s resources. Other countries with young, blossoming economies are now demanding an increasingly larger piece of the pie.

The BRICs (a conceptual coalition of emerging superpowers, which includes Brazil, Russia, India and China) encompass over 40% of the world’s population and hold a combined GDP of $12 trillion dollars, which makes it the largest entity on the global stage on almost every scale.

These countries are in the midst of an unparalleled building boom that is consuming resources like never seen before.

In China right now, a city the size of Philadelphia is springing up every 30 days. (It is estimated that China will need enough structural steel to build a Manhattan’s worth of new buildings every year for the next two decades.) And within another 20 years, China’s economic output is likely to be greater than Japan’s, greater than Germany’s, greater, even, than the United States’.

In short, these countries are going to be fueling international growth for years to come. They’re hungry for the new resources needed to continue their astronomical growth.

Solid Growth at a Deep Discount

Now that you see the potential, there are plenty of ways to profit from this commodities boom. You could trade futures… stockpile gold coins… even buy a copper mine. Unfortunately, none of these approaches – for obvious reasons – are very practical. They don’t make sense for the majority of investors.

But that doesn’t mean that we can’t profit like the titans of Wall Street. The recent turmoil in credit markets – and corresponding volatility in the stock market — has handed us an extraordinary profit opportunity for a number of companies

So we’re advocating a more direct approach to mineral profits. With such a pure supply-and-demand opportunity, a more pure play on precious metal prices is warranted for the largest gains. Accordingly, we’re going straight to the source and recommending buying shares of the mining companies themselves.

Lundin Mining Corp. (NYSE:LMC) is a Canadian mining company with facilities located around the world, which is run by its namesake, the Lundin family. They are easily the most important family in mineral and energy exploration finance around the world.

They amassed a fortune in commodities – valued in excess of $4 billion – when oil cost about $20 a barrel and gold traded for $300 an ounce. By having an innate ability to spot value. In fact, just about everything this family associates with ends up being a massive commercial success.

The Lundin family’s flagship mining operation is trading in the $1 to $2 range, which is about 70% off of its October 2007 high, thanks to the recent commodity cool-off. That means that investors who buy now will get this incredible mining operation for less than half of its book value. Even better, our analysts say that the book value should be much higher than it is, which makes the case for investment here even stronger.

Furthermore, LMC has no debt, which gives it an incredible edge over most other industry players. It can fund its growth entirely on the cash it generates from operations – and not have to rely on the credit markets.

Fact is, the credit crunch is far reaching. And tighter lending practices have meant fewer loans to risky mining ventures. That leaves most miners in a pinch – but not LMC.

Lundin Mining is a phenomenal play on base metals, specifically copper, nickel, lead and zinc. Its operation includes six mines around the world, including five key mines in Portugal, Spain, Sweden and Ireland. Here are some highlights of these massive and highly productive mines:

• Zinkgruvan, Sweden: The primary metal produced is zinc, with lead and silver as byproducts. Costs have been reduced by 22% over the last year and new copper production is scheduled to begin in 2010.
• Neves-Corvo, Portugal: It’s an underground copper and zinc mine. Last quarter’s sales surged 52% over the same quarter a year ago. And it just approved a new program to profitably process mine tailings, which should substantially improve margins. (Mine tailings are the materials left over after processing the ore.)
• Aguablanca, Spain: This nickel and copper mine recently bumped operating efficiency up 46%.
• Galmoy, Ireland: About 100 miles from Dublin, the lead and zinc mine benefits from having a sound infrastructure already in place.
• Aljustrel, Portugal: The lucrative zinc mine is still ramping up capacity, which gives us an opportunity to get in on the ground floor.

What’s more, Lundin Mining has a few up-and-coming operations in the pipeline that are showing incredible promise, too.

One is the world class Tenke Fungurume copper/cobalt project in the Democratic Republic of Congo. It’s being touted as the largest and richest known copper/cobalt discovery in the world, covering almost 600 square miles of the Katanga Province. This blockbuster mine has an expected life of 40 years. And is projected to be in the lowest quartile of operating costs for copper producers.

The reasons for owning Lundin are numerous, but in spite of its enviable (and growing) inventory of proven reserves, shares can be had for a steep discount. The company is valued at $2 billion, which is only 0.63 times its book value. Even better, the forward price-to-earnings ratio is a measly 5.73, despite the company’s mines having a growth rate around 30% to 35% a year.

The market’s been noticing Lundin’s value as well. In recent days, a takeover bid has emerged that could drive share prices higher if it’s approved. However, in light of the number of merger agreements that have gone unfulfilled, there may not be a takeover.

Regardless, of whether it happens or not. These developments should serve to remind you that while the market may not see the value in Lundin, it’s competitors do. And so do we.

Source: Unearth Big Gains from the Commodity “Supercycle”

The economists that prophesied China would become the world’s biggest economy by 2015 have changed their tune. Those that recommended investing in China have quickly gone broke.

Believe it or not, China could be next on the credit crunch’s hit list.

The City still doesn’t buy it though. To quote arch-bear Albert Edwards:

“The consensus still touchingly believes that despite a deep economic downturn in developed economies, continued rapid emerging market growth will keep overall world growth resilient.

“My view is that outright contraction of global growth is entirely possible next year.”

I think he’s right. A sharp slowdown in China growth could be the catalyst to global recession.

Ignore the herd

Everyone is agreed that the UK, Eurozone and US are going into recession. They are right about that much.

However, The Fleet Street Letter has been predicting this since August 2007. The “experts” have finally joined us in this prediction. It only took the collapse of Northern Rock, 11 trillion pounds of stock market losses and five interest rate cuts for them to join us.

We must ignore the harmony of opinion, get defensive and harness our inner contrarian.

And that inner contrarian is telling us that even the emerging markets – including the supposedly bullet-proof China – will not be safe in what could be the world’s worst year for economic growth.

Over-heating, social instability, war have always been hypothesised as catalysts of a China meltdown. However, it’s the Credit Crunch that poses the biggest risk to the world’s fourth largest economy.

I, too, was a China bull. However, the landscape has changed so much in the last 12 months that I have had to re-evaluate what I once took for granted. And it is the idea of China’s unstoppable growth that makes me uncomfortable.

With the speed and force of the recession in other developed-world economies, I am not sure that China will be able to weather the storm as well as most are hoping.
What could knock China off course?

The gears are not turning as they once were.

China is slowing down. At the last count, it was growing at 9% a year. That may not immediately strike you as bad news. But, it’s all relative. Last year it was close to 12%, so it has fallen a long way. And that’s not the only bad reading.

PMI, or the Purchasing Managers’ Index is a measure of new orders, inventory levels, production and employment in the manufacturing sector. A reading of below 50 indicates a fall.

At 41.2, China’s PMI didn’t just fall, it crashed to a record low. Forbes Magazine puts it well:

“The economy of the so-called world’s factory is now decelerating.”

Two international surveys measuring PMI independently corroborated the evidence of a cooling Chinese industrial economy.

China bulls argue that the steep falls have been exacerbated by the Olympics, during which the country was officially ordered to a halt. However, even if we see a slightly stronger growth recording in December, the bigger picture is clear… China, like the rest of the world, is slowing down.

Is this a bad thing?

Yes.

China accounts for a quarter of global growth and 5 per cent of global consumption.

If it stops pulling its weight then we could realistically see a global recession as soon as 2009. A China slowdown directly smashes corporate growth for companies in nearly every sector in the stock market.

Now, sceptics will argue that China’s two stimulus packages will help China to spend its way out of recession. That’s right, China has been doing some bailouts of its own. The impact of these multi-billion dollar bailouts remains to be seen and is probably the global economy’s one lifeline.

I hope that this will be enough to re-energise growth in the world’s leading growth market.

However, I fear we may be on the cusp of global recession, and China’s worse-than-expected slowdown will be the catalyst. Unless we’re very fortunate or the Chinese policy makers are very clever then the only question that “China” is the answer to will be:

“What turned the recession global?”

Right? Well, fact is, the action has actually been greatly muted if we allow for the shocking volatility in gold’s No.1 competitor for “safe haven” funds, the almighty US Dollar.

You see, like so much else, the market action just described only sets Gold in terms of the greenback (against which it has still tripled since July 1999).

Versus pretty much every other world currency, in contrast, gold in fact enjoyed a banner month this October – delivering gut-wrenching volatility plus new record highs – starting right here in London, home to the world’s $60 billion-a-day trade in wholesale Gold Bullion Bars (a.k.a. the “spot market”).

Mid-month, gold also leapt to new record highs for Australian, Canadian, Danish, Estonian, Hong Kong, Hungarian, Icelandic, New Zealand, Norwegian, South African, South Korean, Swedish, Turkish and Russian investors.

Oh, and the 350 million souls in the Eurozone. Plus the 1.1 billion people of India.

Prices of gold have of course slipped back – and sharply – against all major currencies since reaching €685 an ounce for European investors and savers on Oct. 10th. (That marked a near-tripling from the low of Jan. 2000.) In the spot market, gold’s now trading almost 13% lower as the month-end draws near.

And notable by its absence from the rogues’ gallery of fast-sinking currency zones listed above is the Chinese Yuan, as well. More spectacularly, the world-destroying Japanese Yen has squashed the prices of gold since turning sharply higher against everything – real estate, global equities, emerging-market debt, even the Tokyo Nikkei – in mid-July.

But if we really are witnessing a global currency crisis led by the destructive reversal of the Yen Carry Trade (and it certainly looks like it from inside a wallet of Sterling or Ne Zealand Dollars, let alone Forints or Krona), then just what kind of fight is gold putting up as the apparent “ultimate” safe-guard against currency shocks?

Regular visitors to this site may recall a chart we offered in August this year, a chart showing the Prices of gold in terms of the world’s top 10 currencies by economic output. It’s not perfect; the GDP weightings for 2008 will need revising, perhaps, when this year’s full-year data becomes available early next year.

But as a measure of truly globalized gold price, it both softens the US Dollar’s long slide of 2002-2008 on the currency markets, as well as tempering this month’s intemperate highs in gold bullion vs. the Aussie, Loonie, HK Dollar, Forint, Kiwi, Krone, Rand, Won, Lira, Ruble, Euro, Pound Sterling, Rupee and various Kronas.

You can’t help but spot the volatility – otherwise known as “My gold just crapped out!”

The way “quant jocks” figure the violence in asset prices, in fact, the daily volatility in this global gold price has more than doubled since August to a three-decade record.

You might also note, however, that gold really has risen sharply against all major world currencies so far this decade, not just the US Dollar. And no one should imagine it will be an easy ride – whether up or down – from here.

There’s too much at stake when you try to measure that $60 billion daily turnover in physical gold against the $3.2 trillion daily turnover in official government currencies.

Adrian Ash
for The Daily Reckoning Australia

Source: Prices of Gold in the Top 10 World Currencies

More from Justice in Taipan Daily:

Hear ye, hear ye, one and all: The supercycle is dead. Long live the supercycle!

Commodities on the whole have declined nearly 50% from their peak as a result of the credit crisis. This has led some to declare that the “commodity supercycle” – the idea that we are merely in mid-innings of a massive, multi-decade commodity bull market – is defunct too.

I’ll admit it… the weekly chart is hard to ignore. If one had to assess the health of the supercycle by way of the Reuters CRB Index alone (as shown above), Monty Python’s Dead Parrot sketch would spring to mind.

Really though – in spite of deeply dire appearances, it’s a fair question to ask: Has the commodity supercycle shuffled off its mortal coil? Are we now dealing with an “ex-supercycle?”

Believe it or not, there’s a case to be made that the commodity supercycle is not dead – that it really is just resting – despite the speed and ferocity with which commodity prices have been chain-sawed in half.

Let me explain…

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Cures What Ails Ya

There is a hoary old saying in the commodities biz: “The best cure for high prices is high prices.”

What this means is that, when a commodity gets pricey enough, production naturally expands. Expensive oil & gas leads to more drilling in hard-to-get-at places… expensive hogs lead to more hog farming… expensive corn to more corn acreage being planted, and so on. High prices, in other words, act as a “cure” for high prices by drawing new supply into the market.

The same idea works in reverse: “The best cure for low prices is low prices.”

As you can probably guess, the “low price” cure means that when a commodity gets cheap enough, producers start throwing in the towel. New projects are canceled… existing production is cut back… and marginal production is shut down entirely. As profit margins fall, more and more producers rein it in… or simply throw up their hands and quit. Over time, this winnowing process shrinks supply until it matches up with newly reduced demand. Then things stabilize, demand shifts, and the cycle begins anew.

So here’s the ironic thing: Those who declared commodities to be in a “bubble” feel vindicated because commodity prices have been smashed. And yet, today’s ultra-low commodity prices are merely reestablishing the same conditions that fed the supercycle thesis in the first place!

From High to Low (in Record Time)

When the commodity bull really hit stride, it was largely based on a strong outlook for global growth. With so many emerging market countries coming of age, resource after resource was projected to be in short supply as far as the eye could see. Investors of all stripes and sizes, from institutional on down, wanted a piece of the action.

Then the mortgage bubble popped, trust and liquidity evaporated, and credit and commerce fell off a cliff.

Not wanting to be left out, commodity prices jumped off a cliff too… and now things have come full circle. Commodities fell so violently and so quickly, we’ve been rudely transported backwards (or perhaps forwards) to the “low prices cure low prices” part of the cycle again!

For many commodity producers – and metal miners in particular – these new low prices (no pun intended) aren’t high enough to justify keeping the doors open. (That hushed sound you hear? It’s an idle haulpak with an empty gas tank; keys left dangling in the ignition.)

Pity the Miners

Pity the poor miners. Well before the panic and ensuing collapse, profits in the mining business were being squeezed by rising costs. The cost of essentials like fuel, skilled labor, equipment, and even oversized truck tires threatened to spiral out of control.

Due to this relentless “cost creep,” many of the miners – precious metals in particular – struggled to maintain healthy margins even when metals prices were riding high.

And thus when the credit bubble burst, the fall in prices was so vicious that many miners’ profits were simply wiped out. All those sky-high operational costs came down too, it’s true – but that was cold comfort in light of bank credit, investor capital, and pricing power all disappearing into thin air at once.

So now we have a situation where marginal miners all over the globe are shutting down. Operations that were profitable three to four months ago are now bleeding red ink… and screeching to an utter halt.

“Virtually all [mining] projects except those of the biggest companies need financing,” the Wall Street Journal observes, “and even some of the largest still need to borrow after starting out with equity capital.” The debt window is closed, and raising new equity in these conditions would take a miracle.

As a result of all this, production levels are being scaled back rapidly. New production is no longer in the pipeline. And post-panic prices suggest the world has given up on growth.

The Global Growth Question

Say, what about global growth? Is the uptrend in long-term demand dead too?

We know that a large element of this “fire sale” was forced asset selling… a vicious little quirk of the credit crisis that has nothing to do with fundamental outlook. But investors also seem to be arguing for a world of much diminished demand for a long time to come. That could be a mistake.

Rick Rule, a legendary natural resource investor with 35 years experience, points out that emerging market demand going forward could be “steadier… than many people think… simply because the developing countries’ balance sheets are better than we are accustomed to.”

I agree with Mr. Rule. This is the first crisis we have seen where the balance sheets of many emerging countries actually look better than those in the Western World. Not all, but many, of the upcoming emerging market players stuffed the proverbial mattress with cash during the run-up.

China alone, for example, has nearly two trillion dollars in reserves… Russia more than half a trillion at last count… India nearly a quarter trillion. Having that kind of cash on hand can smooth over a lot of bumps on the road to middle-classdom. Their stock markets may be punk, but emerging market consumers could be back in action sooner than we think.

Lags and Gaps

There is another thing to remember about commodity price swings: Normally the shift from high to low prices (or vice versa) takes quite a while. This is because of time lag. Simply put, it physically takes a long time for production to adjust to an upward shift in demand. It’s not as if you can throw a switch and suddenly have a new mine or refinery or power plant in operation just like that. The preparation process – assessing, planning, funding, building – takes years.

Much of the supercycle thesis was predicated on the idea that it will take a very long time – perhaps a decade or two – for the world’s lagging commodity infrastructure to catch up with soaring global demand. As far as I’m concerned, that thesis is still in play.

Right now, commodity production trends and global demand trends have both flat lined (or even flat out declined). But when commodity demand trends start ticking up again – something that is bound to occur – it will happen at a faster rate than production can match. In the long term, this velocity discrepancy is what truly matters.

Think of two upward sloping lines that intersect in the lower left corner a graph. The X axis equals time, the lower sloping line equals commodity production, and the higher sloping line equals global demand trends. Though both lines move higher with time, the distance between the upper and lower line only gets wider as you move to the right.

That’s why I think the supercycle still lives, be it lying at the bottom of the stairs in a heap at moment. Global demand will be back… and when demand trends get back on form, they will again outpace our ability to keep up. And with so many commodity operations scaled back or mothballed thanks to the credit crunch, the starting gap will be even wider when things get rolling again.

And Don’t Forget Gold

And by the way, don’t forget gold in all this. With fiat currencies headed for a predestined tragedy of Shakespearian proportions, it doesn’t take a genius to see how physical gold demand could rise. Gold bars and coins are already flying from the vaults. Faith in the yellow metal will only wax further as faith in paper wanes.

And as for the miners’ role? John Embry, Chief Investment Strategist for Sprott Asset Management, states things flatly: “When the gold’s all gone, the market will go nuts.”

“If gold hasn’t moved up by the end of this year, I would be very surprised,” Embry says. “People don’t realize how distressed the gold mining industry is. Even at $1,000, miners weren’t doing very well. At $800, the entire industry is in crisis. Costs have risen so much, nobody’s making any real money. In fact, some mines are starting to close.”

Embry thinks gold would have to hit at least $1,200 an ounce before the shuttered mines reopen… a 50% rise from gold’s price as of this writing. And if, or should I say when, gold reaches that new high, it will likely be on the way to even higher climes.

And now if you’ll excuse me, I’ve got to go research some very attractive junior mining candidates. Long live the supercycle!

Source: Is the Commodity Supercycle Dead… or Is It Just Resting?

This from The Sovereign Society:

Put simply: If things don’t start improving quickly in South Africa, it’s poised to become the next – and perhaps most noteworthy – failed state in all of Africa. Think Zimbabwe, but multiply the chaos as South Africa has long been the best and last hope for Africans striving to build and maintain a modern and efficient market economy.

1. Global economies, most specifically emerging global economies, have been brought to a halt by declining levels of demand. South African resources are particularly exposed to demand destruction as the global recession spreads. Frozen credit markets have tied the hands of economies once turning heavily to South Africa for its natural resource production.

Declining commodity prices alone will certainly send tremors throughout South Africa. Accessibility of credit will put a damper on new South African projects, and sharply lower commodity prices will make such projects increasingly less profitable.

This ultimately means a severe drop off of capital inflows. Up until this point, South Africa’s appealing growth story was still in its infancy.

The country made hay off the commodity bull market and South Africa’s currency is stamped with a fairly attractive yield. But the collapsing global financial system will stop South African growth dead in its tracks. At that point we’ll learn just how improved the booming global economy allowed South Africa to become.

Unfortunately, there are plenty of pieces that still don’t fit together. To that point…

2. Political and social unrest has frequented the African continent. Though South Africa is considered a democracy, it’s effectively a one-party state ruled by the African National Congress (ANC). Political and social pressures are quickly encroaching.

The ANC is a Marxist-like organization that has aggressive redistribution policies. It has instituted a draconian affirmative action program to increase black employment. But this has led to massive incompetency in key sectors of the economy and a “brain drain” out of South Africa.

The reality is, unemployment for many black workers in the townships has not improved much at all. And these efforts to empower more nonwhites will likely unwind dramatically as the economy deteriorates like it did a decade ago.

In fact, life of squalor and poverty for many South Africans has gotten worse over the past several years. Social stability has spiraled downward and crime is rampant throughout all levels of society. But because the poor don’t have the wherewithal to hire private guards, they are victimized repeatedly by roving gangs of thugs. It is a sad awful existence that has not improved despite the ANC guaranteeing it would.

And as the business cycle turns down, we expect the ANC to try to ramp-up its efforts to redistribute wealth in an attempt to damper rising social unrest. The impact of which will only hollow out South Africa’s economy even more, further weakening what once was a vibrant and efficient economy.

Given these items, we think the South African rand is extremely overvalued. It represents a crisis currency in the making. This is truly big game territory. For when the market finally recognizes this country’s deep and profound economic, political and structural problems, South Africa’s currency will face a world of pain.

Source: Markets Sink Again, and Best Opportunities Still Reside on the Short Side…