You see, the massive fiscal stimuli and ultra-easy money from the Fed does indeed have real effects on the economy.  Whether you want to call them artificial or real, the stimuli have moved and will continue to move profits, until it is withdrawn.  And the timing of the deployment of the fiscal and monetary stimuli, the timing of its positive effects and the timing of its eventual removal are uncertain.

In addition, we have many short-term uncertainties. The upcoming Group of 20 (G20) meeting has potentially important ramifications for the global financial system and for global currencies. We also will get more data about foreclosures, existing and new home sales and the Federal Deposit Insurance Corp.’s (FDIC) funding needs.  Finally, we have Damocles’ sword hanging over the market with the potential for additional deficit from President Obama’s healthcare reform.

So we are going to go for a safe play that enjoys a nice dividend and presents a compelling value proposition right now: Kimberly Clark Corp. (NYSE: KMB).

When in doubt, go for consumer staples.  And a superbly run Kimberly Clark will do the trick.  The stock has overcorrected recently, and the headwinds of soft consumer demand and volatile commodity costs are abating.  What’s more is that KMB’s major source of growth will continue to be emerging economies.

U.S. consumer activity is not as dead as it looks.  While unemployment is still climbing, the rate at which people are losing jobs is declining on a consistent basis.  Additionally, the pick-up in home sales and in the stock market is helping slowly reverse the negative wealth effect suffered from last year’s crash.  Programs like “Cash for Clunkers” and tax incentives for purchases of new homes are having a positive effect on those sectors and are generating increased incomes in the industries that benefit from them.

With respect to emerging markets, the situation is even more positive. Advanced economies are surely going to commit their support to emerging market growth at the G20 meeting in Pittsburgh this week.

This is good for KMB, because supportive trade and capital flows will help propel the main source of KMB’s growth.   Emerging markets have been giving KMB more than three times the growth than advanced economies have.  And the trend will continue.

It is easy to understand why.  For starters, it helps a lot to have much higher population growth.  Also, income growth is higher as the currencies appreciate, and people leave poverty to join the middle class at a much higher rate than in the advanced economies.

The expected rate of growth for next year in emerging markets will continue to accelerate and dwarf the rate of growth of the United States, Europe and Japan for years to come.

Growth rates in emerging economies are catching its self-sustaining levels, which should lead to further acceleration next year.  This has been my thesis since last October, when I called the turn on Brazil with my recommendation of the iShares MSCI Brazil Index (NYSE: EWZ), which has since doubled in value.

Then we have the issue of volatile commodity prices, which have led KMB to raise prices, hurting some demand.  KMB is taking further restructuring measures to address costs in short order.  This will improve profitability short term, and it will give the company a lasting competitive advantage.

What is critical for KMB’s success is their established brand leadership.  The company’s brand enjoys superior recognition and acceptance and creates sustainable competitive advantage in an industry that is little affected by economic mishaps.  This cements the defensive nature of our call.

Meanwhile, KMB’s price-to-earnings (P/E) ratio on estimated earnings is only about 11 times.  That makes the stock a gift for investors that could easily pay about 15 times for a name like this.  Adding to the allure of the value proposition is KMB’s generous dividend yield of more than 4%.  This dividend is supported by a mammoth cashflow that ensures that it is safe.  In fact, the dividend payout ratio is only 60%.

Rather than investing in U.S. Treasuries, why not own a stock of a company that will surely appreciate strongly over several years?

And there is yet another reason to buy KMB.  There is short interest that in this market is likely to get squeezed out of their positions.  By many measures, KMB is an attractive short-squeeze play.  Shorts typically increase their positions in defensive stocks in bullish markets in order to go long against highly cyclical stocks.  Now, close to year end, as we are right now, it is highly probable that they will be reversing their position in order to close their books for the year.

And for those lovers of technical analysis, this stock is a gem:

• Its 50-day exponential moving average crossed to the upside violently in mid-July and has been consolidating at these levels.
• The stock is sitting at the precise lower-end of the Bollinger bands.
• And, very importantly, it is way oversold by many key indicators.

So, this is a defensive stock that pays a generous 4.2% dividend yield, and enjoys an earnings surprise upside as it deals with headwinds.

Recommendation: Buy Kimberly Clark Corp. (NYSE: KMB) at market(**). I suggest you buy anywhere between one third to half of your position initially, and dollar cost average into a full position over the next four weeks.

(**) – Special Note of Disclosure: Horacio Marquez holds no interest in Kimberly Clark Corp.

Source: Kimberly Clark Corp. Offers a Strong Defensive Position and a Generous Dividend Yield

But given the economy’s strong performance following the financial meltdown that crushed economies the world over, it looks like Brazil’s time is now.

Brazil’s gross domestic product (GDP) contracted 0.8% year-over-year in the first quarter and 0.8% from the fourth quarter. That beat analysts’ expectations but wasn’t enough to keep the country from sliding into its first recession since 2003. However, the economy is already showing signs of recovery and many economists believe Brazil is already on the rebound and poised for a strong second half.

Brazil’s GDP likely grew 2.2% in the second quarter compared with the previous quarter, according to a report by Bank of America Corp. (NYSE: BAC).

Nelson Barbosa, Brazil’s economic policies minister, optimistically told the Rio de Janeiro-based O Globo newspaper that Brazil’s economy will grow by 4-5% this year.

That kind of optimism in July helped Brazil’s benchmark Bovespa stock index book its best monthly gain since 1998.  The index jumped 2.3% to 55,997.81 – its highest level in 11 months. It’s up about 50% this year, outpacing even the red-hot MSCI Emerging Markets Index. The Dow Jones Industrial Average and S&P 500 Index are up just 5.8% and 11% respectively.

Analysts that were skeptical of Brazil’s economic growth in the heady years leading up to the financial crisis pointed to the country’s supposed reliance on high commodities prices and exports.

No doubt, the country benefited a great deal from the commodities boom that drove up prices for Brazilian exports like iron ore, steel, and soybeans. But in eviscerating commodities prices and ravaging the market for exports, the financial crisis demonstrated that Brazil is more than a one-trick pony.

Sublime political stewardship leading up to and during the crisis kept Brazil’s economy well intact when global economy seemed to be falling apart. Stringent financial regulation shielded Brazil from the worst of the financial crisis, while government tax cuts and a growing middle class buoyed the country’s economy as exports dried up.

Back to the Future: Brazil’s Troubled Past Preserves its Present

Indeed, the very financial crises that had Brazilians believing their country would never find its place among the world’s elite economies endowed the nation’s policymakers with a streak of caution as they entered the 21st century.

“We are used to dealing with challenging environments, for our institutions and our regulations,” Alexandre Tombini, director for regulation at Brazil’s central bank, told the Financial Times. “Everything we have done since the mid-1990s has tended to take a more cautious approach.”

For instance, banks in Brazil are required to keep capital reserves that equate to at least 11% of their total assets. That’s high by most international standards, but many banks maintain capital ratios of 16% or more.

Banks are also required to keep 30% of all deposits at the central bank. That makes borrowing more expensive, but it also made it possible for Brazil’s central bank to dole out $51.4 billion (100 billion reals) overnight to ensure banks were adequately funded.

Brazil’s high interest rates are another reminder of the hyperinflation that overwhelmed the economy in the 1990s. But those rates also kept lenders from getting carried away, and now that the crisis has subsided, inflation has been crushed and rates are plunging.

Brazil’s official IPCA consumer price index advanced 0.24% in July after posting a 0.36% gain in June, according to the Brazilian Census Bureau (IBGE). The rolling 12-month rate sank to 4.5%, down from 4.8% in the 12 months through June.

Brazil’s central bank has lowered its primary interest rate, the Selic-base rate, six times this year, with the most recent a 0.5% cut after the bank’s July 21-22 meeting. The benchmark rate currently stands at a record low of 8.75%.

With inflation subdued, most analysts believe the rate will be kept at its historically low level until at least 2010.

“With inflation under control, I believe it will permit the Selic to be maintained at this low level until at least the middle of 2010.”Alex Agostini, chief economist at local ratings agency Austin, told The Wall Street Journal. “I don’t seen any inflationary pressures on the radar. The inflation scenario is so well behaved that it could give the central bank room to make another rate cut at the next meeting, even though the signals coming from the central bank have indicated there will be a pause.”

And while U.S. regulators are only now looking into the inconsistencies and manipulations wrought by irresponsible futures trading, Brazil has long held the reins tight on such activity. Short selling – selling shares you do not own – is allowed, but naked short selling – selling shares that you don’t have – is kept under wraps by fines for traders who can’t to deliver shares they have sold within three days.

Additionally, brokers in Brazil are obligated to provide information by every client. That means a Ponzi scheme like the one orchestrated by Bernie Madoff would never have worked in Brazil.

Retail Remains Resilient

Just as Brazil’s regulators have taken their cues from past mistakes, Brazil’s growing middle class – which now encompasses more than half the country’s population – has been hardened by tough times and proven resilient throughout the current crisis.

May retail sales advanced at an annual pace of 4% and June sales are expected to have increased by 6.5% year-over-year. Furthermore, an IBGE survey showed that nine out of 10 retail sectors showed month-on-month sales increases.

“Brazil has had so many crises over the years, people got used to them,” David Neeleman, the founder of JetBlue (Nasdaq: JBLU), who last December started a low-cost Brazilian airline called Azul told BusinessWeek. “I don’t think they’re at all fazed by this crisis-everyone seems to be focused on buying their first car, getting their first credit card.”

Credit card purchases have grown by 22% a year over the past decade, BusinessWeek reported.

However, Brazilian consumers also got a helping hand from the government, which cut income taxes and reduced levies on a wide range of durable goods.

In April, the government cut taxes on construction materials, cars, and household appliances. The end result was a 5.7% rise in spending on construction materials in May and an 8% surge in auto sales.  Rejuvenated auto sales hit a record-high 300,000 in June.

And increased sales led to increased production. Industrial output rose for the six straight month in June, climbing 0.2% on a monthly basis.

“Brazil has proved it can govern itself and keep the economy on track in very difficult times,” Riordan Roett, a professor at Johns Hopkins University’s School of Advanced International Studies, told BusinessWeek.

Buying Into Brazil

Brazil has also proven that it has a strong consumer base of its own ready and able to fuel economic growth, even as exports falter. In fact, exports account for a mere 12% of Brazil’s $1.5 trillion economy.

From 2001 to 2007, the poorest 10% of the population enjoyed a 49% increase in real income, Brazilian economist Marcelo Neri told the Miami Herald, describing what he called “Chinese-like growth.”

Roughly 27.8 million Brazilians – out of a population of nearly 200 million – joined the consumer economy from October 2003 to October 2008, according to Neri.

About  8 million jobs have been created in that time, while the minimum wage has increased 45%

That makes Brazil a very attractive destination for investment.

In an April Buy/Sell/Hold column, Money Morning contributing editor and emerging markets specialist, Horacio Marquez, recommended Petroleo Brasileiro (NYSE ADR: PBR) for several reasons – the rising prices of oil in the next few years, the discoveries of large oil fields off Brazil’s shore, and increase local demand from the country’s growing population and income levels.

Another commodity play is Vale S.A. (NYSE ADR: VALE), the world’s largest iron ore exporter and a key supplier to China’s exuberant infrastructure expansion. Vale will benefit not only from increase in demand when global economies (and trade with them) recover, but also the rebound of commodity prices across the board.

Martin Hutchinson, another Money Morning contributor, recommends Companhia de Saneamento Basico, orSabesp (ADR: SBS), which operates the water-and-sewage system for Brazil’s Sao Paulo region. Sabesp currently has a P/E ratio of 6.92.

“Now that’s a growth business, and one that’s not dependent on commodity prices,” he said.

Finally, the iShares MSCI Brazil Index ETF (NYSE: EWZ) has been recommended by both Marquez and Hutchinson. The ETF aims to measure the performance of the Brazilian equity market. It has net assets of $8.58 billion, a Price/Earnings (P/E) ratio of 12.75, and a dividend yield of 3.66%.

Source: With One of the Hottest Economies on the Planet Brazil is Finally Living Up to Its Promise

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

In fact, when you peruse the news it’s difficult to come to any other conclusion. For instance:

• A number of key earnings reports have been much better than expected, and company executives buttressed those profit figures with positive comments about the next 18 months.
• The trading operations of Goldman Sachs Group Inc. (NYSE:GS) and JPMorgan Chase & Co. (NYSE: JPM) both just reported record profits.
• U.S. housing prices rose in May for the first time in three years. Initial jobless claims have plunged 15% since their April peak. The Conference Board’s Index of Leading Economic Indicators rose 0.7% in June, its third successive positive reading.
• And just yesterday (Thursday), the Dow Jones Industrial Average topped the 9,200 mark for the first time since November – a potentially highly bullish development for the economy, since stock prices are forward-looking.

But while many experts will look at these developments as an excuse to celebrate the looming rebound to come, I actually see them as a real cause for concern. The reality is that these reports, when viewed in concert with other data, are actually a sign of a re-inflating financial bubble.

This is actually an “Economic Recovery Trap” that – when sprung – will inflict a lot of pain on overly optimistic investors. Now that we’re sufficiently forewarned, we should re-orient our money accordingly.

Doomed by Deficits

It’s not surprising that the U.S. economy has shown signs of strength in recent weeks; it has had huge amounts of money thrown at it.

On the fiscal side, the Obama administration’s May budget plan suggested deficit for the 2009 fiscal year (which ends in September) would reach $1.83 trillion – about 13% of gross domestic product (GDP).

However, subsequently released unemployment figures have shown that the U.S. jobless level reached 9.5% in June, far above the 8.3% rate assumed in the budget. And unemployment is expected to spike further in the second half of the year.

This worsening unemployment situation strongly suggests that the true budget-deficit figures will be even worse than those already announced, a supposition strengthened by the postponement – from mid-July to mid-August – of the normal mid-term budget review. Since U.S. President Barack Obama is currently attempting to steer two difficult and expensive pieces of legislation – the cap-and-trade energy bill and the healthcare-reform bill – through Congress, he does not want unfavorable budget numbers appearing that might be used to persuade wavering legislators to oppose them.

Even at 13% of GDP in fiscal 2009 and 10% of GDP in fiscal 2010, the U.S. federal deficit is far above any previous level reached in peacetime, so it’s likely that if the economy begins to recover these deficits will prove difficult to finance, meaning the budgetary shortfalls will push up long-term interest rates.

That escalation in long-term rates, in turn, could choke off the economic recovery, which to be healthy requires a rebuilding of inventories, extensions of credit to new domestic-and-foreign customers, and a revival of enthusiasm for such large-ticket items as housing and automobiles.

With the yield on 10-year U.S. Treasuries already up from a low of 2.07% in December to a recent level of 3.60%, the dampening effect of rising interest rates may already be becoming apparent. In any case, the deficit is a dark cloud that threatens to obscure the economic outlook.

And that dark deficit cloud will be very difficult to remove.

Know Your (Real) Enemy

The other main problem with today’s economy is the likely resurgence of inflation. Even the U.S. Federal Reserve – which under central bank Chairman Ben S. Bernanke for a long time apparently maintained a fear of deflation above all else – admitted in its last meeting that the likelihood of deflation had receded.

That’s not surprising: In the last six months, core consumer price inflation (excluding food and energy) was a reported 2.4% annually. Although the “headline figure” has been low because of the sharp drop in energy prices the United States economy has experienced since last year, that effect is about to disappear, as energy prices peaked in early July 2008 and fell sharply throughout the fall. Thus, even reported consumer price inflation – on a year-over-year basis – is likely to surge in the months after this one (July).

Moreover, the reported inflation figure may be low. Each month, the U.S. Bureau of Labor Statistics “seasonally adjusts” consumer price statistics to remove normal seasonal patterns from the data. That seasonal adjustment process is thoroughly opaque, and is subject to manipulation. In the early months of 2008, for example, when reported inflation was high, the downward seasonal adjustments were consistently much larger than the average of the decade 1998-2007. The process was then reversed late in the year, when reported inflation was negative, but the upward seasonal adjustments made it less negative. For the year as a whole, “seasonally adjusted” inflation was 0.5% below unadjusted inflation, which shouldn’t happen, except by bizarre rounding effects.

In the first six months of 2009, the negative seasonal adjustments have re-appeared, to the extent that total seasonal adjustments for the six months were minus 1.2%, compared with a 1998-2007 average of minus 0.61%. If the seasonal adjustments are indeed wrong, and should have been at only the average level, then “core” price inflation in the six months to June would have been 3.6% annually.

Not only is that not deflation; it suggests accelerating inflation.

Money Supply Moves

Another reason I wouldn’t be surprised by a reappearance of rapid inflation is the big increases in the money supply we’ve seen over the last year.

According to St. Louis Fed data, the M2 money supply has increased by 8.8% in the last year. The St. Louis Fed’s own Money of Zero Maturity (MZM) – the best measure of the broad U.S. money supply available since the central bank ceased reporting M3 in 2006 – jumped 10.2%. And the overall monetary base zoomed an astounding 92.8%.

In addition, the Federal Reserve has bought $300 billion of government bonds, always an inflationary warning signal since it monetizes the deficit. Furthermore, the Fed and the government together have engaged in rescue, stimulus and guarantee programs totaling an astounding $23.7 trillion, according to Neil Barofsky, inspector general for the government’s Troubled Assets Relief Program (TARP). A “gross” number if ever there was one, that figure is nearly twice overall U.S. GDP.

Let’s face reality: We’re going to be paying this bill for decades to come – almost certainly largely through resurgent inflation. In those circumstances, the recovery in the stock market is based not on reality, but simply on a bubble – an assertion that’s already been vindicated by the extraordinary afore-mentioned profitability of the Goldman Sachs and JPMorgan Chase trading operations, which typically benefit enormously when bubbles are inflating and there is too much money sloshing about.

The near-bankruptcy of CIT Group Inc. (NYSE: CIT), and the losses recorded by the commercial banking sides of Citigroup Inc. (NYSE: C) and Bank of America Corp. (NYSE: BAC), demonstrate that even in a period when short-term rates are exceptionally low, conventional commercial banking is not currently a moneymaker.

Other then Goldman Sachs shares (whose prosperity is likely to be short-lived), it is clear that our investment dollars should be concentrated in two areas:

• Conservatively run overseas economies.
• And inflationary hedges such as gold and silver.

Let’s look at some investment opportunities in each category.

First, we should buy moderately priced shares in countries where “stimulus” has been limited and in which monetary and fiscal policies are close to balance. The two largest such countries are Germany and Brazil, so you should look at the Germany ETF iShares MSCI Germany Index (NYSE: EWG) and the Brazilian iShares MSCI Brazil Index (NYSE: EWZ).

Second, you should make sure that a substantial portion of your assets are in inflation hedges such as gold and silver, either in the metals directly through SPDR Gold Shares (NYSE: GLD) and iShares Silver Trust (NYSE: SLV) or through gold mining shares, the exchange-traded fund (ETF) for which is the Market Vectors Gold Miners ETF (NYSE: GDX).

Source: Beware of the Obama Stimulus Trap

The two emerging market nations – both members of the BRIC group (Brazil, Russia, India, and China) – will each welcome a major new IPO to their respective stock markets.

The fact that they’re debuting on the same day is purely coincidental, but the story here is that both are very significant not only to their own countries, but could also underpin the emerging market area.

Let’s take a look at these IPOs in the context of the broader emerging market topic… the effect this often volatile but flourishing pack of nations is having on the global economy – and how you can hitch a ride…

Emerging Markets Rebuilding Momentum

In the excellent movie “Wall Street,” Michael Douglas’s slimy Gordon Gekko character famously proclaims, “Greed is good. Greed works.”

Some equally unscrupulous Wall Street characters lived by this mantra. But they became so fat and bloated that they clogged the arteries of the entire financial system. Greed was most definitely not good – and it certainly didn’t work.

When the system toppled over, little was spared. Certainly not emerging market nations, which were unable to withstand the worldwide financial earthquake. While their GDP growth is rapid and their economies are flourishing, they’re still raw in terms of crucial elements like infrastructure, and are more susceptible to volatility.

So when the U.S. sneezed, the world caught Wall Street’s swine flu (ironically caused by swines in the first place). Emerging markets fared just as badly (or worse in some cases) as the U.S. and other global heavyweights like Japan and Europe.

But the big new IPOs in China and Brazil signal that the tide is gradually turning and emerging markets are rebuilding their momentum…

China’s 9-Month IPO Itch

The fallout from the global meltdown crushed China’s Shanghai Composite stock market by 60%, prompting regulators to impose a 9-month ban on new IPOs.

But on Monday, small-cap Chinese drug maker Guilin Sanjin Pharmaceutical Co. will end it by debuting on the Shenzhen market, the smallest of China’s exchanges. The move comes on the back of a scorching 58% climb for the Shanghai Composite this year, amid confidence that the government’s multi-trillion yuan of stimulus money will help the flagging manufacturing sector and trade market.

After a 9-month IPO absence, the decision to “start small” with the Guilin launch is a good one (the firm will offer 46 million shares). A mass relaunch, with bigger, more heavily hyped companies could put too many shares on the market at once – and high-profile disappointing debuts could knock confidence. When the ban was imposed, 37 companies had received IPO approval, so this may kick off a new wave.

Meanwhile, in Brazil…

Brazil Goes Big… And Lula Bangs The BRIC Drum

Like China, Brazil’s stock market is also up big this year. Not as big as Shanghai’s 58% surge, but the 35% year-to-date gain for Sao Paolo’s Ibovespa is still impressive.

Besides, Brazil is expected to take advantage of that run by notching up the biggest IPO of 2009 so far – and the biggest in its own history, too.

On Monday, credit card firm Visanet SA will hit the stock market – and is estimated to rake in $3.6 billion. That will thrash 2009’s current highest IPO – China Zhongwang Holdings, which launched on Hong Kong’s Hang Seng with $1.2 billion raised.

IPOs like these signal that the BRIC economies are once again on the move – with Brazilian president Luiz Inacio “Lula” da Silva banging the drum when leaders of the four nations met in Russia last week.

Quoted by Reuters, Lula proclaimed: “The good news is that rich countries are in crisis and emerging countries are making a huge contribution to save the economy and, consequently, save the rich countries. Wealthy countries are no longer the only ones that account for the world’s production capacity and consumption.”

That’s true. But how much of it is attributable to emerging markets?

Redressing The Global Imbalances… BRIC-Style

The BRIC meeting last week was a chance for the four leading emerging market nations to come together and plot their triumph over the mammoth, industrialized economies.

Okay, not quite. But in the first summit of its kind, the four countries definitely did discuss using their existing strength to enhance their fortunes on the global market even further.

In short, that means addressing the balance of the global financial system – a debate that included ideas on how to create more diversity away from the U.S. dollar as the world’s dominant currency and give the BRIC nations better representation on the global stage.

Or, as Lula da Silva and Russian president Dmitri Medvedev respectively put it, to “change the political and trade geography of the world” and “create conditions for a more just world order.”

Medvedev argues that you can’t have a balanced, successful global system if most of the markets are priced in U.S. dollars. He’d like to redress that imbalance by having Russia buy bonds from the other BRIC nations in return for them upping their ruble reserves.

But with the Russian ruble, Brazilian real, and Indian rupee down 35%, 25%, and 35% this year respectively, those currencies aren’t exactly blowing the dollar out of the water.

So can the BRIC succeed with its plans?

These Davids Won’t Slay Goliath… Yet

According to Reuters, the BRIC nations currently account for about 15% of the global economy.

In addition, while the U.S. racks up GDP of about $14 trillion per year alone, the BRIC nations’ combined total is only about $9.4 trillion. And the GDP per capita, poverty levels, and infrastructure in these countries are significantly worse than in the U.S., with America doubling the output of the BRIC countries combined.

So the BRIC group clearly has a long way to go to usurp the big boys. But Goldman Sachs predicts that by joining forces, it’s possible that the BRIC nations could surpass the G7 in 20 years time, with China’s economy climbing above the U.S.

However, with China’s GDP almost surpassing the combined total of its three fellow BRIC members, the group itself is imbalanced. In addition, the BRIC is not a formal union. All four countries have substantial differences and while they remain heavily tied to the U.S. and other big nations in terms of trade (with India and Russia receiving U.S. aid, too), there’s no way any of them want to rattle the saber by laying down the gauntlet. Not while they also hold almost one-third of U.S. Treasuries.

What they do have in their favor at the moment, though, is GDP growth…

An Emerging World Of Growth

China: 9%.
Russia: 8%.
India: 6.7%.
Brazil: 5%.

Those were the GDP growth totals for the BRIC nations in 2008, compared with the U.S. economy’s contraction of more than 6%. And even the BRIC’s current impressive pace is a slowdown from the red-hot growth seen before that.

What’s more, that growth isn’t artificially stimulated by government printing presses alone. The economies are growing in their own right.

This year, China and India are expected to grow by 7.2% and 6.2% respectively, with China accelerating to pre-global meltdown levels of 8% and 9% during the third and fourth quarter.

So with that, some investment options for you…

Investing In The BRICs

For the sake of diversity and ease of investment, I’m going to focus on ETFs here.

If you want a broad emerging market play, take a look at the iShares MSCI Emerging Markets ETF (NYSE: EEM).

For investments in the specific BRIC nations combined, consider these:

~ iShares MSCI BRIC (NYSE: BKF)

~ SPDR S&P BRIC 40 (NYSE:BIK)

And for investments in the specific BRIC nations individually, take a look at the following:

~ China: iShares FTSE/Xinhua China 25 Index (NYSE: FXI)

~ India: PowerShares India (NYSE:PIN) or WisdomTree India Earnings (NYSE: EPI)

~ Brazil: iShares MSCI Brazil Index (NYSE: EWZ)

~ Russia: Market Vectors Russia ETF (NYSE: RSX)
Best regards,

Martin Denholm

Source: Monday Will Be a Big Day for These Two Emerging Market Nations

On Monday March 9, barely three months ago, I strongly recommended buying Diamond Offshore (NYSE: DO) as part of Money Morning’s “Buy, Sell, or Hold” feature.  Both the stock and the Standard & Poor’s 500 Index had both hit 52-week lows the Friday before.  But oil had already bottomed three weeks prior, and the lax fiscal and monetary policies of governments around the world seemed almost certain to promote reflation.

Additionally, since the earlier oil bottom, Diamond Offshore stock had been outperforming the market.

Diamond not only had compelling fundamentals, it sported an incredibly high dividend yield, particularly if you combined both the regular and the special dividend payouts. That made the stock a compelling buy.

Not only has Diamond Offshore’s stock turned around since that early-March recommendation, the U.S. stock market as a whole turned around.

Making an investment at a market bottom is a rare opportunity. It is both risky and difficult to try and time the market, but that is precisely what we have done with two of our Buy, Sell, or Hold recommendations. I recommended the iShares MSCI Brazil Index exchange traded fund (ETF) (NYSE: EWZ) on October 27, and the fund went on to appreciate 92% in the subsequent eight months.

Now, Diamond Offshore stock has climbed more than 60% from a March 9 bottom of $54.29 a share, to its current level above $90.

I have consistently advised readers to slowly build stakes in our recommendations over a period of time. And that strategy helps mitigate risk and take advantage of panic selling.  In the cases of the iShares Brazil ETF and Diamond Offshore, we were actually able to boost our profit exponentially by starting our investment at the very bottom.

Diamond Offshore’s special dividend yielded an incredible 13% when we bought it. Since the stock has run up in value, however, that same special dividend has been reduced to a 7.4% yield but remains considerably high.

As I pointed out in my previous recommendation, Diamond Offshore likely will keep paying the dividend in order to help recapitalize other holdings of its experienced and savvy majority holders. And some analysts question whether this is sustainable over the long-term.  Obviously, Diamond Offshore at some point will depart from this special dividend, but I don’t expect that to happen anytime soon.

Still, with the strong gains that we’ve seen so far, it would be prudent to take some profit by selling half of the position and allowing the rest to ride on a pure valuation and risk-management call.

Let me explain.

The whole investment was predicated on three general types of factors: Macroeconomic, company fundamentals and the special dividend.  And everything I expected worked like clockwork, without any negative surprise showing up from nowhere to derail our initial investment thesis.

On the macro side, all the factors we analyzed are playing out as we expected. Oil prices have been very supportive.  This is not only supported by the monetary and fiscal reflationary policies I have outlined but also by strong demand from China.  The monetary base expanded significantly.

The type of massive fiscal stimuli deployed by the United States and China is common knowledge.  And China is doing its part by supporting its economy with massive investment and taking advantage of its $2 trillion in foreign exchange reserves and to gobble up resources at low prices.

On the company-specific side, Diamond Offshore did indeed beat earnings expectations by a mile and expanded margins as we predicted.  This was aided by sharp rebound in oil prices and strong execution on the part of management.

Similarly, the dividends were paid out and the special dividend likely will stay in place for a few more quarters.

But even with all of this upside, there are many uncertainties about the market that are could reinforce headwinds and spur more profit taking.  The Iranian elections could result in a more moderate regime that might ease tensions in the Middle East and allow some rapprochement between Iran and the United States.  This might be conducive to lower oil prices, even though the risks of Iran’s continued pursuit of nuclear weapons under the veil of a nuclear electricity policy will remain.

The Federal Reserve’s balance sheet expansion and the large issuance of U.S. Treasuries is coming under criticism from many quarters and has already achieved the normalization of many financial markets.  We could see a slowdown in any of these stimuli deployments.

In addition, the heightened risks of inflation, dollar weakness, and interest rate increases in the longer term have brought long-term interest rates up.  Higher rates have already increased the cost of mortgages and put renewed pressure on the already badly hit housing market. Together with higher oil prices, this could put the brakes on future economic growth.  It does not mean that the recovery will stall, but continued increases in job losses, as is typical in recessions will keep damping prospects.

Profit-taking also poses a risk ahead of the earnings season, as the United States and other stock markets have seen strong gains over the past three months.  Should this transpire, we could see a counter-trend correction due to a temporary fly-to-safety into bonds for a while, a strengthening of the U.S. dollar, and a drop in commodity and pro-cyclical stocks.  This could affect Diamond Offshore in the short term.

We must also consider Diamond Offshore’s opportunistic purchase of a semi-submersible unit PetroRig I.  We will not have the price and terms of this deal until closes on or around June 25.

Some analysts believe that this purchase – or the possibility that Diamond will get more aggressive in serving Brazilian oil major Petroleo Brasileiro SA (NYSE ADR: PBR), also known as Petrobras –could jeopardize the special dividend, but I disagree.  The issuance of a $500 million, ten-year debt placement will cover this purchase and raise the operating and financial leverage of the company, thus raising the potential upside for earnings-per-share (EPS) in this new pro-cyclical bull market for commodities.  And I believe the recapitalization needs of the sister company in the group has some more length to go.

Recommendation: Having obtained already very strong profits, sell half of your holdings in Diamond Offshore Drilling Inc. (NYSE: DO) in light of heightened risks that could materialize. Set a 20% trailing stop on the remainder.  I have little doubt that over the long-term we can expect DO to consistently outperform the market.

(**)  Special Note of Disclosure: Horacio Marquez holds no interest inDiamond Offshore Drilling Inc. (NYSE: DO).

Source: Buy, Sell or Hold: Time to Take Profits on Diamond Offshore Drilling (NYSE: DO) ]]> http://www.contrarianprofits.com/articles/buy-sell-or-hold-time-to-take-profits-on-diamond-offshore-drilling-nyse-do/17904/feed 0 http://www.contrarianprofits.com/articles/835-and-counting-with-ishares-brazil-etf/17839 http://www.contrarianprofits.com/articles/835-and-counting-with-ishares-brazil-etf/17839#comments Fri, 12 Jun 2009 18:57:43 +0000 Contrarian Profits http://www.contrarianprofits.com/?p=17839 Payout Trader editor and Crisis Strategy Alert senior analyst Charles Delvalle says Russia and Brazil are entering the big leagues. Yesterday, these two BRIC nations announced they are buying a combined $20 billion of bonds from the International Monetary Fund (IMF). According to Goldman Sachs analyst Alberto Ramos, “They’re not buying IMF bonds to diversify reserves. They want to be seen as having a large voice in global markets.”

This from a recent email Charles sent through to Notes HQ:

I’m a big believer in emerging markets – especially Brazil, which has some of the most resilient consumers in the world. It has also kept inflation at bay, while improving its balance sheet. And it’s set to become the Saudi Arabia of offshore oil, with finds of…

One day I told my lovely wife to get her passport ready because we were going to Moscow.  She was quite excited because Moscow is a shopping mecca with many historical sites to see.  But, I assure you—I was there for business.

We traveled to Russia in December of last year and I saw firsthand how the country operates.  I observed that the Russians are a hard working and productive people that just want the best for their families.  Russians are striving for a better quality of life just like anyone else.  I knew right away that the country offers investor’s high profit potential.

I assure you that Russia is still a super power and their society is quite advanced.  The energy sector in Russia is still a powerful force in the world.  Plus, Russia is one of the biggest producers of palladium, platinum, diamonds, nickel and gold.  Russia is a natural resource power house and should do great as commodity prices skyrocket.

When I got back to America I watched the Russian markets for some time and waited for the right moment to tell you to invest.

Then on 04/09/09 in this column, I wrote:

“the Russian market is way oversold and now is a good time to be a contrarian investor and invest when no one else will.”

I told you to buy the Market Vectors Russia ETF (RSX).  This Exchange Traded Fund holds a basket of Russian stocks and seeks to mirror the Russian stock market as measured by the DAX Global Russia+ Index.

I hope you took the advice.  If so, you’re sitting on a 39% gain in just 53 days.  And that’s not the only profitable advice you’ve received for free in these pages…

In fact, just this year I sent you lots of big winners including:

7% SPDR Gold Shares (GLD)
21% iShares Silver Trust (SLV)
85% Freeport-McMoRan Copper & Gold Inc. (FCX)
45% Plum Creek Timber (PCL)
13% PowerShares DB Agriculture ETF (DBA)
26% iShares MSCI Brazil Index (EWZ)
39% Market Vectors Russia ETF (RSX)
29% PowerShares India ETF (PIN)
18% iShares FTSE/Xinhua China 25 Index ETF (FXI)
13% The Coca-Cola Company (KO)
11% Market Vectors Agribusiness ETF (MOO)

If you missed this opportunity to get into any of the above positions, it’s not too late.  Each one of these picks has the potential to run much higher.

I’m sure you are happy we deliver these great ideas for FREE in this Investor’s Daily Edge daily newsletter.  Our staff here at Investor’s Daily Edge strives to give you information that can help you accumulate wealth and enhance your financial well-being.

Now I have an important favor to ask of you.  I need you to tell your friends and family to sign up for our free daily newsletter.  Simply just tell them to go to http://www.investorsdailyedge.com/ and sign up.  Or forward this email to everyone in your address book.

We currently have over 300,000 elite members like you getting Investor’s Daily Edge on a daily basis.  Our goal is to get to one million subscribers.

Tell your friends and family that can benefit from independent and profitable financial insight.

Thank You,

Ted Peroulakis

Source: The Russia Pick I Recommended to You Is Up 39 in 53 Days

My article for Investor’s Daily Edge on 04/09/09 recommended the iShares MSCI Brazil Index (EWZ).  This Exchange Traded Fund holds a nice basket of Brazilian stocks and seeks to mirror the Brazilian stock market as measured by the MSCI Brazil index.

If you took my advice, you’d have seen a big short-term gain as the Brazilian ETF rose over 22% in less than two months.  Our staff here at Investor’s Daily Edge strives to give you information that can help you accumulate wealth and enhance your financial well-being.

If you missed this opportunity to get into EWZ, it’s not too late.  This Brazilian ETF has the potential to run much higher as Brazil is one of the best emerging markets to invest in.  Let me explain:

During a recent trip to Brazil, I observed an economy that is flourishing.  Brazil is a country that is blessed with a bounty of natural resources.  Two hundred million Brazilian people are striving to live a better life and they are well on their way to becoming a developed country like the U.S. or Japan.  I foresee Brazil becoming a global superpower within 20 years.

Brazil is an agricultural and commodities powerhouse with large and well-developed mining, manufacturing, and service sectors.  The world’s population is exploding and Brazil’s rich farmland has the potential to feed the budding masses.  Plus, Brazil has plenty of oil deposits; in fact, they just found another 8 billion barrels in the Tupi offshore oil field.  They have plenty of natural resources that they can export to the rest of the world.  And, once the world finally pulls out of this economic crisis, you will see commodity demand and prices skyrocket… Brazil will be sitting pretty.

Brazil continues to push industrial and agricultural growth and development of its vast interior.  Exploiting huge natural resources and a large labor pool, Brazil is at the moment South America’s top economic power and is expanding its presence on the world stage.

Brazil’s ethanol industry is powerful and is on the rise. The country turns a good portion of their sugar cane crop into alcohol fuel for their cars.  The world is seeking alternative sources for traditional fuels and Brazil is well positioned to deliver.

America was Brazil’s top trading partner until last month, but China surpassed the U.S.!  And, China is looking to widen its exposure to Brazil’s massive amounts of natural resources.  From 2006 to 2008, China/Brazil trade surged at an average annual growth rate of 50%.

China is securing energy resources to power its economy by providing a loan to Brazil’s Petrobras which will supply China with 150,000 barrels of crude a day this year and 200,000 barrels in 2010.  Brazil and China recently signed multiple accords to promote trade, investments and cooperation between the two nations.  And this bilateral trade will be done using Brazil’s currency the “Real” and China’s currency the “Yuan”, not the U.S. dollar.

Brazil’s economy has been quite stable under President Lula da Silva.  He is pushing further economic reforms to reduce taxes and increase investment in infrastructure.  Brazil’s debt achieved investment grade status early in 2008, which in turn encourages more foreign investment.

Plus, Brazil has a growing tourism industry due to their amazing beaches and friendly people.  Check out this incredible picture of Rio.

Not only is Brazil a beautiful country, but it’s a great place to invest for the long run.

Again my favorite way for you to play Brazil is the iShares MSCI Brazil Index (EWZ).  This Brazilian ETF offers excellent profit potential.  Pick some up today…

Source: Invest in Brazil Now!

Indeed, its largest first-quarter investments included:

• $50.9 million in Vanguard Emerging Markets ETF (NYSE: VWO)
• $1.5 million more iShares MSCI Brazil Index ETF (NYSE: EWZ)
• $1.1 million more into in iShares FTSE/Xinhua China 25 Index ETF (NYSE: FXI)
• $877,700 into Van Eck’s Market Vector Russia ETF Trust (NYSE: RSX)
• $817,300 into iShares MSCI Mexico Index Index (NYSE: EWW)
• $390,400 more into iShares MSCI South Africa Index (NYSE: EZA)

Harvard’s fund also took a first-time, $45.5 million position in iShares MSCI South Korea Index ETF (NYSE: EWY), as well as two foreign titans – a $16.7 million stake in China Mobile Ltd. (NYSE ADR: CHL) and a $12.6 million stake in Israel’s Teva Pharmaceuticals Industries Ltd. (NASDAQ ADR: TEVA).

Obviously, an institution such as Harvard does its homework before making such an aggressive play call, and committing so much money to the emerging economies of the world – global regions whose stock markets took even bigger hits than the United States’ Standard & Poor’s 500 Index.

Since the market bottomed out at 676.53 on March 9, the S&P 500 has gained an impressive 34.2%.

During that same span, however, the ETFs that received Harvard endowment dollars have handily trounced the performance of that U.S. bellwether index. Just as an example: Vanguard Emerging Markets ETF is up 58.1% and iShares FTSE/Xinhua China 25 Index ETF has gained 51.2%.

And the overall MSCI Emerging Markets Index ETF (NYSE: EEM) – which measures a 26-country-tracking index of the same name – is up 55.2% since the bottom.

Emerging Market Professors

One of the market professors Harvard is listening to is Robert G. Doll Jr., vice chairman and chief investment officer for private equity fund BlackRock Inc. (NYSE: BLK). Doll said earlier this week that the global economy has likely seen the worst of the worldwide financial crisis, and that developing economies are already emerging from recession.

“If, in fact, we have seen a bottom in markets and economies are going to recover, the emerging parts of the world will recover the most and the fastest,” Doll told Bloomberg News. “After all, their recessions were largely unwanted inventory build-up and not the credit bust in the Western world.”

Earlier this month, Doll said he believed the S&P 500 would fall from its current levels (which it had), and then rally to end the year at around 1,000 – for a gain of about 11%.

“Emerging markets, if they are going to do better than that, are going to do closer to 20%,” Doll said. “There are some that already have. Some have done better than that.”

A couple weeks before Doll’s vote of confidence, Mark Mobius, famed investor and head of Templeton Asset Management Ltd., said that emerging-market stocks are building a base to enter a bull market at the end of the year, Bloomberg reported.

“We are at the base-building period for the next bull market,” Mobius told Bloomberg while attending a conference in Indonesia. “What I see happening is perhaps this continuing till the end of the year, and then a breakout.”

Many of these emerging and developing economies are on the cusp of breaking out, but are being held back by the drought of others. The ultimate catalysts that set them loose will be falling interest rates and easing inflation, Mobius said.

In the first week of May, about $4 billion was pumped into emerging-market equity funds. It was the largest weekly inflow since December and the eighth-largest on record, MarketWatch reported. Most of that went into ETFs, and long-term positions at that.

Not coincidentally, the specific countries seeing the largest inflows are represented in Harvard’s portfolio. Brazil posted its second-largest weekly inflow on record. China, India and Russia also saw huge gains, MarketWatch reported.

Those four markets – Brazil, Russia, India and China – comprise the so-called “BRIC” economies of the world.

Emerging Market ETF Plays

How to capitalize on emerging markets reemergence from recession depends on your risk tolerance. And risk levels can vary by country and investment sector.

Carl Delfeld, head of global investment advisory firm Chartwell Partners, noted that while the U.S. financial sector is the chief culprit of the global financial crisis, some healthy-capital foreign banks are currently very nicely positioned because they didn’t get involved in the bad U.S. debt, and because they have the fastest-growing growing base of consumers in the fastest-growing markets.

And a good way to play this trend could be the soon-to-be available Global Shares Dow Jones Emerging Markets Financial Titans ETF, Delfeld writes in the May 25 issue of Forbes magazine. Of the fund’s top-10 holdings, four are China-based, three Brazil and two India.

More speculative investors might be interested in another new ETF, the WisdomTree Dreyfus Emerging Currency Fund (NYSE: CEW), a basket of 11 equally weighted emerging market currencies that are rebalanced every quarter.

The currencies in the fund are the Brazilian real, Mexican peso, Chilean peso, Israel shekel, Turkish lira, Polish zloty, Chinese yuan, South Korean won, Taiwan dollar, Indian rupee and the South African rand.

For more general plays on specific countries, Harvard’s list of new investments could be a good starting point.

Money Morning Contributing EditorHoracio Marquez recommended iShares MSCI Brazil Index (EWZ) in his popular “Buy, Sell or Hold” column last October. It’s also one of the five emerging market ETFs that Money Morning’s Martin Hutchinson recommended earlier this year. Others included iShares MSCI Chile Investable Index (ECH), iShares MSCI Taiwan Index (EWT) and iShares MSCI Singapore Index (EWS).

Source: Looking For the Next Global Profit Play? Take a Look at These Emerging Market ETFs