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

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

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

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

Source: Think China vs. India

To set the table, water rates in China have been so far below the global average it’s ridiculous. Especially when you consider the severe water problems in China. The graphic below is from The Wall Street Journal (“China Cities Raise Water Price in Bid to Conserve” by Andrew Batson):

The Chinese are water-poor. They are sucking their aquifers dry. It is particularly bad in the north of China. The groundwater under the North China Plains is draining away quickly. By some estimates, China will exhaust this water supply in the next ten years.

You probably know that the city of Venice is sinking a fraction of an inch per year. But that’s nothing compared to what is going on in Beijing. Parts of Beijing are sinking 8 inches a year! According to Andrew Lees (The Right Game), it is the world’s largest cone of depression (an underground hole created by a depleted water table) at over 15,000 square miles. The second largest cone of depression is around Shanghai.

So finally, many cities are raising the price of water. The WSJ points out several places where water prices could rise 25-48%. Shanghai, for instance, raised water rates 25% in June and plans another 22% increase next year.

The second event that caught my eye was the collaboration between China and India to monitor the health of Himalayan glaciers. This area is very important to both countries. They fought a war over it in 1962. So, the fact that they are getting together on the Himalayan glaciers is meaningful.

Here is why it is so important: Seven of the world’s largest rivers, including the Ganges and the Yangtze, are fed by the glaciers of the Himalayas. They supply water to about 40 per cent of the world’s population.

Well, those glaciers are shrinking. The Indian Space Research Organization, using satellite images, has studied the changes in 466 glaciers. It found they had lost more than 20% of their size between 1962 and 2001.

This melting increases the water flow at first, but eventually slows dramatically as the glaciers either melt completely or reform. These observations have given rise to a kind of “Peak Himalaya” where people wonder if we have not seen the maximum water flow from the mountains.

We know the current run rate on demand is already well above what is sustainable given annual rainfall and river flows. That’s why you have those depressions. That explains the depleted aquifers and the rivers that don’t reach the sea. Now throw into that ugly brew a decline in water supply from the Himalayas. The situation is worse than it seems, if that is possible, because much of the existing fresh water in both countries is so polluted it is unfit for human consumption.

As if all of that weren’t bad enough, the demand for water is still rising rapidly in China and India. The water use per capita in China and India are still well below global averages. As these countries industrialize, they’ll consume exponentially more water. It takes water to make just about everything. For example, to make a 1 tonne passenger car takes more than 100,000 gallons of water. Just to make a cotton shirt takes over 1,000 gallons of water. And most of our water goes into making our food.

So, population growth by itself guarantees increased water demand. (Globally, water consumption increases at more than twice the rate of population growth.) These two countries already have big populations and both will get bigger. When you look at demographic trends, China and India alone will add close 600 million people over the next 30 years. That’s two present-day United States.

Fresh water, like oil, is getting a lot harder to find for 40% of the world’s population. It will get worse before it gets better. The days when we think of water as a cheap resource are coming to a close. That’s especially true for China and India.

Bottom line: We need to create more fresh water. You do that by finding new sources either through new supplies (drilling deeper, desalination, etc.) or by using existing supplies more efficiently (irrigation and other efficiency gains).

All of that takes time and energy. Desalination is energy intensive. Drilling deeper for water or going to more distant source requires energy to pump and move the water. Replacing older, less efficient plants and equipment takes time and energy again. (Detect a theme here?)

Countries, companies and people will find ways to make this transition. The companies that can solve these problems will do well.

Regards,

Chris Mayer

Source: The End of Cheap Water?

But it’s the fine print that’s really getting our attention. Here are the highlights… some serious investment trends, to say the least:

• 90% of the world’s youth, about 1.2 billion people, live in developing nations
• Africa’s population just passed 1 billion and is set to double by 2050.
• Half of the population growth in the U.S. and Canada over the next two years will come from immigration
• By 2050, India’s population will reach 1.7 billion, passing China as the world’s most populous nation.

That last one was a particular surprise to us. In fact, the whole rundown of world population growth by nation is worth a quick look:

To further illustrate this point, you have to check out this array of animated charts on “Future Human Capital”. They are too complex for our humble 5 Min., but shouldn’t be missed.

All these data point to the same conclusion: The world is becoming increasingly less Amero-centric.

“Populations are rising,” says Chris Mayer. “The amount of arable land is in decline, thanks to desertification, urbanization and other factors. Water tables are dropping fast — Beijing is sinking eight inches per year!

“As I said in Vancouver, I don’t see how, when we look at the world in three-five years, the market for irrigation equipment is not substantially bigger than it is today. The Asian countries have the money to build new irrigation systems. They just have to decide to make that a top priority. China already gives its farmers subsidies to purchase equipment. I expect we’ll see more of this from other countries too.

“That’s one example of a great long-term idea that this short-term market crunch could give you a great chance to own.”

Source: Another Global Megatrend

Here in the United States, at a cost of a mere $3 billion, the “Cash-for-Clunkers” program appears to have given new hope to the U.S. auto industry.

But that new hope is destined to be short-lived.

It’s true that – in terms of value delivered for the money invested – “Cash for Clunkers” has eclipsed every other stimulus program that has been tried. But the program has a projected lifespan of only three months, meaning it can’t reverse the powerful global forces that are destined to turn the U.S. auto market from leader to laggard on the global stage.

Financial Crisis Fallout Reshapes Sector

Thanks to the financial crisis whose impact continues to be felt, worldwide automobile demand had dropped on an overall basis since 2008.

But regional differences are already emerging.

In the United States, for instance, the benchmark seasonally adjusted annual sales rate (SAAR) finally jumped up past the 11-million mark in July after failing to eclipse the “breakeven point” of 10 million vehicles in any prior month this year. But the actual year-to-date sales of 5.81 million vehicles through July was still 33% below the 8.55 million that had been sold by that point in 2008, and is 67% below the all-time annual record of 17.4 million achieved in 2000 and 65% below the decade average of 16.4 million.

(Prior to the global financial crisis and accompanying recession – which prompted the U.S. auto industry to restructure and shift its breakeven point down to 10 million vehicles – the breakeven point was actually 16 million vehicle sales in a year. Below that point, several or all of the U.S. “Big Three” would be spinning their wheels in red ink.)

It’s a much different story abroad, however, where several markets are in a long-term growth mode. In India, for example, sales were up 31% on a year-over-year basis, while auto sales in China were an astonishing 70% above those of a year ago. Even if U.S. auto sales continue to improve, China’s automobile market may outsell its U.S. counterpart for a full year for the first time ever.

Granted, India’s auto market – around 2.5 million cars and light trucks a year – is still much smaller than either China or the United States. However, its growth makes it comparable to the Japanese or German markets, the next largest automobile markets after its U.S. and China counterparts.

Thus, global automobile sales are undergoing a major reorientation towards Asia and away from the United States and Europe. This will inevitably have a huge effect on the structure of the sector.

That’s why Asia will become the new Detroit – the future center of the automaking world.

Gone For Good?

In the United States, General Motors Corp. and Chrysler Group LLC have lost market share because of the government takeover. They are unlikely to get it back in spite of the debt costs they have relinquished through bankruptcy.

For Chrysler, the partnership with Fiat SpA (OTC ADR: FIATY) is unlikely to help much. Fiat is among the weakest of the European companies, and has not been competitive in the United States since the 1980s. The U.S. market is undoubtedly moving toward smaller automobiles. That trend is being “fueled” by the new Corporate Average Fuel Economy (CAFE) standards for 2015 and probably by higher fuel taxes for environmental and budget reasons. Nevertheless, it seems unlikely that the Chrysler/Fiat partnership will have the models to compete.

General Motors has the model range to compete in the United States. However, GM is doing much better in China, thanks largely to its joint venture with Shanghai Automotive Industry Corp., which expects to sell 1.4 million vehicles in 2009. Since GM is also selling Opel, its European operation, GM (NYSE:GRM) will find itself driven primarily by the demands of the Chinese market. Given the growth of that market, it will probably make the most economic sense for GM to become Chinese-owned. Politics may delay this, but probably only for a few years.

The United States’ One “Better Idea”

Ford Motor Co. (NYSE: F) has picked up market share in the United States from GM and Chrysler’s problems. It should benefit both from “Cash for Clunkers,” and from the early stages of the U.S. market recovery. If GM and Chrysler continue to have difficulties, Ford may be in a good position here in the large U.S. market – as the most-effective manufacturer of the large automobiles that Americans continue to prefer – no matter what the government tells Ford to do.

Nor is that Ford’s only competitive advantage going forward. Ford Europe is big and viable enough to allow Ford to remain credible as a producer of smaller cars, primarily in the higher price brackets.

Outside the United States, European manufacturers will find themselves increasingly confined to the luxury end of the market. However, as global incomes rise and the newly wealthy become brand-conscious – particularly in the emerging economies of Asia – that upscale portion of the auto market should continue to be strong.

Japanese and Korean manufacturers will continue to dominate their domestic markets. And such companies as Honda Motor Co. Ltd. (NYSE ADR: HMC), Toyota Motor Corp. (NYSE ADR: TM) and Kia Motors Corp., will also do well in the United States and Europe, and in countries where they have been able to establish viable local manufacturing operations, and lower labor costs.

But it will be the players from China and India who are destined to be the big market-share gainers on a global basis.

The New Leaders

For U.S. investors, India’s Tata Motors Ltd. (NYSE ADR: TTM) is the best known of the newly emerging global auto elite. Tata’s $2,500 for-the-masses “Nano” car has been well received. Over the long term, the Nano may expand the entry-level portion of the worldwide auto market, forcing other manufacturers to produce equivalent low-price models.

Indeed, the introduction of $2,500 cars may greatly expand the market’s size in India and other emerging markets, much as Ford’s Model T did after its introduction in 1908, or the Volkswagen AG (OTC ADR: VLKAY) VW Beetle did in the 1950s and 1960s.

Tata looked to be in financial difficulty after it bought the loss-making Jaguar and Land Rover brands in 2008 at the top of the market. However, the $300 million loan for its Jaguar Land Rover Unit announced on Aug. 10 gives Tata the room it needed to maneuver. Market growth in India, combined with the strength of its Tata Group parent now suggest that Tata Motors has the strength to survive without dismemberment.

The bottom line: Tata and its India-based competitors – Maruti Suzuki India Ltd. (Mumbai: MSIL) and Mahindra and Mahindra Ltd. (London: MHID) – as well as such top China carmakers as Chery Automobile Co. Ltd. (still publicly owned), Geely Automobile Holdings Ltd. (OTC: GELYF) and Great Wall Motor Co. (OTC: GWLLF), are thus the companies that will see most growth in the automotive market of the decade to come.

By 2020, the global auto sector will look nothing like it does today. Given that most of the muscle will be in Asia, investors shouldn’t be surprised.

Source: Why Asia Will Supplant Detroit as the Global Center of the Auto Industry

The stock is still a far cry from its record-high level of $83.56, but is only 0% below its 52-week high of $53.46.  Much has changed since then, as the U.S. auto industry is no longer producing the 16 million cars it produced in 2007, nor the 13 million it managed to sell last year.  This year we are looking at some 10 million units sold, according to J.D. Power and Associates, the leading forecaster in the industry.

But there is encouraging news:  The very quick restructuring of both General Motors Corp. (NYSE: GRM) and Chrysler Group LLC, the U.S. Federal Reserve’s efforts to stabilize the financial markets, and the U.S. government’s fiscal stimulus plans have helped keep the economy from falling into a depression.  The Fed’s support for the auto industry included buying auto receivables under the Term Asset-Backed Securities Loan Facility (TALF) program, in order to restart this type of securitization.

Therefore, the paralysis of sales that we saw late last year, when the financial system froze and there was no financing available, has subsided and sales are increasing.  In fact, J.D. Power expects U.S. vehicle sales to increase to 11.5 million units next year, a full 15% pickup from projected 2009 levels.

In fact, we are already seeing an increase in auto sales already, thanks in no small part to the government’s Car Allowance Rebate System (CARS), popularly known as “Cash for Clunkers.” So far, CARS has spent some $1.29 billion and Congress has expanded the original $1 billion authorization by another $2 billion.

Total light vehicle sales for July were just shy of 1 million units, a milestone the industry hasn’t topped since August 2008, mostly due to the program’s success.

This shot in the arm on the back of the general cost restructuring that Ford Motor Co. (NYSE: F) is carrying out under Allan Mulally has already prompted Ford to increase production of its Focus model.

Similarly, Chrysler has reported that it is running two plants in overtime and a third shift at another plant just to keep up with demand.  And GM, which is seeing a huge rebound in sales, will add to this by increasing advertising spending and selling new cars on eBay Inc.’s (Nasdaq: EBAY) popular online auction Web site. Most of Wall Street is in “wait-and-see” mode, which gives us more of an incentive to jump in.  But the steel story is not just about cars.

Nucor will not only profit from the remaining $1.75 billion to be deployed through the government’s cash for clunkers program and the general improvement in market conditions, but on the pick-up in government construction in the United States that will result from U.S. President Barack Obama’s massive fiscal stimulus.

Additionally, the company will benefit from the already massive stimuli being deployed in China, Brazil, India and Russia.  And let us not forget Europe, where the European Central Bank will soon consider raising its benchmark lending rate to 1.25% from its current record low of 1% in order to prevent inflationary expectations from building up.

China will achieve more than 8% growth this year, driven by public spending, especially in construction and a strong pickup in auto sales  (up 63.6% in July from a year earlier) and domestic appliances.  All of these have a very high content of steel.

Similarly, India’s gross domestic product (GDP) will grow by more than 6%, barely down from last year’s 6.7% expansion. Auto sales in India jumped 18% last month.  Remember that India’s Tata Motors Ltd. (NYSE ADR: TTM) launched the cheapest car in the world last January and this is likely to work wonders in today’s budget-conscious market.

So what about Nucor itself?

The company reported a second quarter loss of $133 million, which improved over the first quarter’s $189 million loss.  But the key is that volumes are already turning around.

Volumes increased 11% in the second quarter, which allowed the company to increase its capacity utilization from 45% to a still very low 46%.

And this is where the upside lies.

In capital-intensive industries like steel, the very high fixed costs induce very large swings in profits, depending on volumes.  And not only did Nucor see its volumes pick up in the second quarter, the trend should continue accelerating in the third quarter and beyond, thanks to the recent burst in car sales and increased government infrastructure spending.

In addition, prior to the cash for clunkers program, Nucor announced it already expected to see an improvement in its third-quarter results. The company said that many of its customers had run their inventories too low and would need to replenish them just to meet demand.

So, at reporting time, investors could be very positively surprised by Nucor and many other companies in the sector, which will provoke many analysts to increase their stock targets.

And to make the whole story even better, we are counting on increasing inflationary expectations and a weaker dollar, which will continue to drive portfolio managers to hedge this risk in commodity stocks.

That means Nucor, which has been bumping into strong resistance levels since the beginning of January, but making higher lows in every subsequent correction, is likely to break out of its current range with an explosive rally before it even reports third-quarter earnings.

Nucor stock closed down 92 cents, or 1.93%, Friday at $46.79 a share.

Source: Nucor Corporation Will Get Is Due for a Boost from Government Spending

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

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

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

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

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

Global Investing Web Summit

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

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

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

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

The Market Investors Can’t Afford to Ignore

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Emerging” Profit Plays

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

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

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

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

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

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

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

And there will be plenty more to come.

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

Cool Beans, eh? OK… Well… If yesterday was Turn Around Tuesday as the writer said, I sure didn’t see it! We had a “stop the dollar at the 1.38 border” Tuesday… But a complete turn around from Monday’s sell off, after Russian Finance Minister, Kudrin, threw a cat among the pigeons? Not that I saw!

We do seem to be stuck in a trading range of 1.37 to 1.40… With probes below 1.37 and above 1.40 short-lived. That’s OK with me, at this point, but it had better not last too long, or traders will grow tired of the boring range… And, I will be yelling at the walls for some price action!

Well… The BRIC (Brazil, Russia, India and China) meeting didn’t really bring about the Thunder and lightening as I thought it would… The leaders of these countries did discuss the need for a “more diversified monetary system to reduce dependency on the world’s reserve currency.” (read the dollar!) They also discussed selling bonds and swapping currency among the group. Now if we rewind back to Monday, I said that I thought this could be what they would do… The crystal ball was bang on that day! HA!

I can’t believe the markets have allowed this to be swept under the rug… This could be colossal if it’s carried through… And this way, all of them can smile and say they believe in the dollar and U.S. Treasuries while not dealing with them! Personally, I think the reason the markets aren’t paying attention to these goings on, is that the media isn’t covering it… The grip that the administration has on the media is really beginning to show just how tight it is…

One other thing from the meeting… The BRIC nations announced that they wanted to take a more active role in the world’s financing system… And with $2.8 Trillion in currency reserves among the 4 of them… That would be more than a “kind gesture”…

Speaking of the media… I have to wonder what the media is thinking on this one… Here’s the skinny… First of all, this story came to me a week ago… But at first, I thought, I had better make certain this is not a hoax before talking about it… What am I talking about? I’m talking about the report that two Japanese men were caught at the Swiss-Italian border with $130 Billion in U.S. Treasuries!!!!!!! Now, Chris and I were talking about this yesterday, and Chris said, “But I thought all Treasuries were book entry for some time now”… Yes, since 1982 (a great year, with the Cardinals winning the World Series!) Treasuries have been book entry only… So… The question I had from the beginning is “are they real or fake?” Because I didn’t want to waste your time and mine if they were fake bonds… But apparently the someone believes them to be real…

Hmmm… $130 Billion in bearer bonds… Does this intrigue anyone? It sure does for yours truly. Does this mean that the U.S. Treasury has been printing bearer bonds and selling them under the cover of a dark night? That’s the only explanation I can come up, IF THEY ARE FOR SURE REAL!

I don’t know what to make of this except it has my attention, and I can’t believe I don’t see one story on cable news… But it’s all over the news in Europe and Asia… More later, as additional news comes to light on this…

OK… Yesterday, I talked about the Current Account Deficit, which is expected to be $85 Billion for the 1st QTR… What I didn’t talk about is that this would be the lowest level for the Current Account in a decade! And would represent just 1.5% of GDP. Now… I used to go out and talk about how the dollar entered the weak dollar trend in Feb. of 2002, after the Current Account Deficit reached 4% of GDP, which historically had been the line in the sand for currency issues…

But let’s put this in perspective, eh? Back in 2001 and 2002, our GDP was running at 4-5%… It’s now negative… So, maybe this won’t be the harbinger to reversing the weak dollar trend, that it looks like on the outside… Besides, as I’ve said over and over again lately, the whole deficit talk used to center on the Trade Deficit (which account for the majority of the Current Account), and with the global recession going on, the Trade Deficit, while still having issues, is no longer the focal point… Instead, the Budget Deficit (the 2nd of the Twin Deficits) has taken the reins of the focal point… If it’s not one thing it’s another, my mother used to tell me! (the you-know-what disturber in me just has to make this comment… “no wonder the Current Account is lower, we don’t report debts or the bonds that represent the debts!”… That’s in reaction to the $130 Billion in bearer bonds!)

I came across a news story yesterday morning that caught my attention… It seems that the Gov’t of Australia, has decided to put Government backing on state issued bonds like the QTC’s (Queensland Treasury). This is HUGE for these issues, especially since the states in Australia were seeing downgrades in ratings! Now, the country of Australia has a higher rating, and these bonds will carry that rating, since they are now backed by the Gov.! The one thing it will do though, is tighten up the yield on these bonds… Probably by about 10-15 Basis points…

Why am I talking about this? Because… If the QTC bonds now have a higher rating, more institutions will be able to buy them, and the more investment in Australia, the more flows into Aussie dollars! The news brought the A$ back to 80-cents yesterday briefly… But this is going to take some time to work through. The thing here is that in the long run, this is good for the A$!

In China overnight, we had an announcement that could really become a problem with protectionism… China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus program in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world.

Now, long time readers know that I’ve always banged on 1. the Bush administration when they placed tariffs on Japanese Steel about 8 years ago, 2. Schumer and Graham for introducing a bill to place tariffs on Chinese exports to the U.S. Because… Both represent protectionism… And a currency will normally get taken to the woodshed for being associated with a country that takes protectionism measures…

So… Will this hurt the Chinese renminbi? Ahhh grasshopper, remember, the Chinese renminbi is a “manipulated currency”. The Chinese Gov. decides what value the renminbi will be… So… In a regular floating currency scenario, yes, this would hurt the currency… But in China’s situation, it’s all different.

However, the reason I make a big deal out of this is that this announcement could lead to other countries placing their own protectionism measures to offset China… One protectionism measure, begets another, and another, and another… Oh boy! NOT!

Talk about smashing a bug! This would be just like doing that to the promises of a global recovery… Somebody stop them for they know not what they are doing! Or maybe the Chinese do…

Yesterday, Housing Starts in the U.S. surprised on the upside, and so did Building Permits… I don’t like this for the simple reason that we already have an “inventory” issue with houses that have been built and not bought or occupied. But, the media was all over this new, because… It’s the opposite from what I told you the day before that economists, Shiller, Roubini and Whitney had to say about housing! And the Housing Starts and Building Permits data flies opposite of the report this morning that mortgage applications fell 15.8% this month!

We also saw that Industrial Production fell -1.1% in May… So output was off sharply at factories, utilities and mines, in May, which is completely opposite of those that are saying the recession is over…

Today, in addition to the Current Account data, we’ll also see the stupid CPI data for May… You never know what that data has in store for us, because the Gov’t doesn’t know what they want it to show for us yet! HAHAHAHAHAHAHA! Of course that’s my feeling toward CPI, and I’ve explained it all many times over the years… But, in a nutshell, CPI is kept artificially low by the Gov’t by re-weighting things that get too expensive, or substituting things that get too expensive… We all know why CPI is kept artificially low too, don’t we? Yes… We do…

Now… I spent more time on CPI this month than I care to! It’s just a dumb report that the media will be all over like a cheap suit!

I heard a great old song on the radio this morning that pretty much puts my feelings toward the direction of the country into words… “but you tell me over and over and over again my friend, ah, you don’t believe we’re on the eve of destruction.” – Barry McGuire

And then, I see where the President is going to announce his sweeping regulatory changes today… Hmmm… Do you see what I see? This is a shift from markets driven regulation to Political regulation… Markets to politics… Somebody stop the madness! Serenity now!

Currencies today 6/17/09: A$ .7925, kiwi .6295, C$ .8805, euro 1.3865, sterling 1.6260, Swiss .9190, rand 8.0530, krone 6.4115, SEK 7.8350, forint 204, zloty 3.2580, koruna 19.2570, yen 96.40, sing 1.4580, HKD 7.7505, INR 48.08, China 6.8370, pesos 13.45, BRL 1.9735, dollar index 80.72, Oil $69.69, 10-year 3.67%, Silver $14.10, and Gold… $932

That’s it for today… A pretty busy day for yours truly yesterday, with the monthly Review & Focus due, and the regular daily stuff all rolled into one day… Thank goodness, Chris and Mike help me with the Review & Focus these days! Speaking of the Review & Focus, I did a story on whether inflation or deflation is worse for an economy… You’ll want to check that out, when it shows up in your mailbox! Hey! My beloved Cardinals scored more than 2 runs in a game last night… YAHOO! It’s been a tough month for the redbirds, a June Swoon, if you will. Last night’s game VS the Tigers reminded me of the 2006 World Series match-up, and we all know the outcome of that series! 10th World Championship for the Cardinals! OK, enough of that, time is a wastin’! I hope your Wednesday is Wonderful!

Source: Stuck In A Range

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

Then begins the horror.

But just look around. There are plenty of frightening and unnatural scenes going on.

Broadly speaking, it’s a merciless war between inflation and deflation. But there are many different attacks, ambushes, counterattacks, feints, and massacres going on.

The Dow retreated 173 points yesterday. Typically, following a major fall in the stock market, there is a ‘reflex rally’ that lasts several months. Our rough guess was that it would carry on until summer. Most analysts think it will exhaust itself sooner. Who knows? But yesterday, it looked as though the rally may be nearing an end.

The rally itself is a part of a larger battle between two contradictory body parts – the heart and the mind. The heart wants to believe that the worst is over. It reacts sentimentally, remembering the glory days of the great bubble era and wishing they were back. Higher consumer confidence readings sent the stock market higher on Tuesday – the heart ruled.

But on Wednesday, it was the head’s turn. The head looks at the facts: housing and employment are still going down. People will spend less money. Businesses will make less money. Ergo, no reason to expect stocks to go up. Instead, they’re more likely to go down. The Dow scurried back to the lines it occupied at the beginning of the week.

The head noticed, too, that the Treasury market is getting slammed by higher yields. The long bond yielded 4.56% yesterday – up from well below 3% at the end of last year.

“Treasury yields give cause for concern,” says this morning’s Financial Times.

“Rising Treasury yields threaten to stifle economic recovery,” continues another article in the same paper.

But has the top of the bond market really passed? Is the credit cycle now in full retreat? Will homeowners and businessmen be tortured with higher interest rates?

Those are the questions the head was asking yesterday. And it didn’t like the answers. If there were any green shoots, it reasoned, higher interest rates could crush them.

And then at least a few heads began thinking about what this meant to the big strategic issues… and how this flick will turn out.

At the end of last year, America’s great buddy, China, changed its policy. Instead of buying long-dated US debt, China began buying the short stuff. China’s top man openly wondered whether the US would be able to protect the value of the dollar and keep its promises to foreign lenders.

“We have a huge amount of money in the United States,” we quoted China’s premier just yesterday. He reminded the US that China had entrusted a lot of its wealth to US paper and went on to request that America respect its obligations to bond buyers. Obviously, the Chinese must wonder if the US is capable of protecting its currency while still funding its war against deflation.

Tim Geithner promptly responded. “Yes we can!” But the Chinese cogitated on the matter… ‘No they can’t,’ they began to think. Then, they switched to buying short-term US debt, leaving the longer-term bonds to other buyers. Since the Chinese were the biggest buyers at US Treasury debt auctions, this switch in policy had a quick and noticeable effect. Bills rose. Bonds fell. The yield on bills fell to below zero, while the yield on the 30-year bond has gone steadily up.

If America’s supply lines to cheap credit have been cut, she is at a great strategic disadvantage. Or rather, her pre-existing strategic disadvantage is becoming more apparent: she depends on foreigners just to be able to continue living in the style to which she has become accustomed. As the president of the United States of America acknowledged this week:

“We’re out of money now.”

But how does this affect the war between inflation and deflation?

The US is on the side of inflation, of course. It put its whole economy on a war footing and has earmarked more resources, in real terms no less, to the fight than it spent on WWII.

In a larger sense, the US is at war with capitalism… and with nature herself. Markets have natural rhythms. They go from boom to bust… from inflation to deflation… from expansion to contraction naturally. Trying to stop the bust is futile. It is a fight against Fate… a losing proposition. And it is diabolically unnatural. You have to take the bad with the good in life. There’s no going to Heaven without dying. And you can’t rebuild a house without tearing down the old one. Mistakes must be corrected. Old, worn-out businesses have to go out of business so that new ones can take their places. Bad investments need to be deflated… liquidated. Failed managers and failed business models must be eliminated. Bubble delenda est.

The feds can’t beat nature. The bubble can’t be reflated. They can’t make the situation better than it would be if they left it alone. But they can make it a lot worse.

They still have the nuclear option. Then we’ll all be blown to Hell…

More…after some thoughts from Manraaj Singh, over at Profit Hunter, on the recent rally… and on the next big commodity opportunity…

“There is no accounting for the irrationality of the markets, but the economic data simply doesn’t support the current rise in share prices. Consider what actually triggered this economic crisis – the bursting of the US property bubble. The latest data on US housing makes it very clear that the bubble still hasn’t completely burst.

“The results of the benchmark S&P/Case-Shiller US house price survey came out yesterday. The index tracks house prices in 20 major US cities. And its results show that house prices fell by 19.1% in the first three months of this year. That’s the biggest drop in the index’s 21-year history. And it was a bigger drop than analyst were expecting. Figures like that make me extremely sceptical about claims that the market has already priced-in most of the bad news. It hasn’t.

“That doesn’t mean you ought to pull-out of markets entirely right now. The investments that look set to keep rising despite a broad sell-off are those for which there is a clear catalyst… like sugar.

“We’ve been following this story very closely in Profit Hunter. The epicentre of the looming global sugar shortage is in India. The country was the world’s second-biggest sugar exporter until recently. But a combination of bad weather, crop substitution and tighter credit markets has led to a sharp drop in production there.

“The market for sugar is about to get a lot tighter than mainstream analysts were predicting just a few months ago.

“Consider that in November, the US government was predicting that global sugar production this year would be just 4.6% lower this year than in 2008. Last week they revised that dramatically to an 11% drop in global production. But they are still behind the curve. The US government is basing its estimate on the assumption that India will produce 16.8 million tonnes of sugar this year. That’s far higher than anything the Indians themselves believe will happen. You can bet that the price of the sweet stuff is going up.

“Speculators are now waking-up to opportunity here in a big way. Hedge funds are now making their biggest bet in nine months that commodity prices will rise. And their biggest bets right now are on sugar and corn. The faster they pile-in, the better for the sugar price.”

Yes Manraaj, but how do we play it?

“Your readers will get my new, updated in-depth report on the best way to play the coming sugar price boom in the next couple of weeks. Tell them to look out for details… or to join up for a trial of my Profit Hunter service today, and the name of the company I’m recommending will be revealed.”

Click here if you’d like to take a no-obligation trial to Manraaj’s service and get access to all his current recommendations.

And more thoughts…

*** What’s the nuclear option? It’s the Zimbabwe Solution… pioneered by Gideon Gono, head of Zimbabwe’s central bank… and recently proposed for the US by Harvard professors Rogoff and Mankiw. And they’re not the only ones.

Of course, there is no need to exaggerate. The facts are outrageous enough. So, let’s calmly look at what has happened so far… and where it is likely to lead.

As you know, the battle between inflation and deflation is going badly for the feds. Deflation is winning. And yesterday, the Eastern Front collapsed.

Germany announced that consumer prices are now 0.1% lower than they were a year ago. Germany is in outright deflation. The rest of Europe is probably not far behind.

In America, the trend is probably in the same direction. The money supply – M-1 – grew at an 18% rate over the last 6 months. But taking just the last 3 months, the rate of growth has fallen to only 1.8%.

Meanwhile, the US Treasury is borrowing 100s of billions of dollars in order to close the gap between what the US spends and what it receives in taxes. Even if the Chinese are willing to fund that borrowing in the very short term, it just pushes forward the inevitable day when the list of willing lenders is shorter than the list of US Treasury bonds to be sold.

When that happens, the Chinese can bend over and kiss their reserves goodbye. Because there is no way the US government is going to forego spending money just to protect foreign bondholders. Instead, to raise money, it is going to turn to its very own bond buyer of last resort – the Fed.

The Fed will “monetize the debt” – by buying Treasury debt and converting it to dollars in circulation. At least, that’s the plan. The risk is that it will cause consumer price inflation. Everyone is aware of the risk. Few doubt that it would happen.

But that’s where Gono, Rogoff, Mankiw and many others, come in.

Caroline Baum reports:

“Harvard University’s Ken Rogoff and Greg Mankiw think more is better when it comes to inflation.

“Rogoff said he advocates 6 percent inflation “for at least a couple of years.”

That would alleviate the strain deflation imposes on debtors, including the U.S. government, who have to pay back their loans in appreciated dollars.

“In the Middle Ages, they threw people who failed to repay their debts into debtors’ prisons. Today debtors are rewarded with all kinds of government perks. Look how far we’ve come!

“Borrowers took out mortgages they couldn’t qualify for to buy homes they couldn’t afford. When the housing market collapsed, they were rewarded with government-subsidized mortgage modifications and, in some cases, partial forgiveness on their loan balances. And now, under Rogoff’s 6 percent solution, debtors would see more of their burden lifted.

“And we, the savers, get screwed again.

“And who says the Fed can orchestrate 6 percent inflation and not let it get out of hand? You know what would happen to those well-anchored inflation expectations: Ahoy, matey, it’s out to sea with you.

“Trying to manage a slight increase in the rate of inflation in a discretionary way is not practical,” says Marvin Goodfriend, professor of economics at Carnegie Mellon’s Tepper School of Business in Pittsburgh.

“Mankiw didn’t specify his preferred inflation rate in the Bloomberg story. He was too busy to give me an interview, directing me instead to his New York Times column from last month where he proposed the idea of negative interest rates: not negative real rates, adjusted for inflation; negative nominal rates. The idea is “to make holding money less attractive” so people will spend it.”

Needless to say, we can’t wait to see what happens. The Chinese already seem to think that holding dollars is less attractive than it used to be. But Geithner and Bernanke assured Wen Jiabao that his money was safe. We wonder what he’ll do when he realizes they played him for a fool.

Source: Financial Horror Movie

It is something that has never happened before. Trading at India’s stock market was halted early this morning after surging ahead by 17%. Thanks to a surprising electoral victory, regulators closed the market and told investors to come back tomorrow when jubilation calms.

India’s Congress Party alliance unexpectedly won 261 seats out of a total of 543 inside its Parliament. It means the country’s once-powerful communist parties are back in the minority and a pro-business, pro-growth government is taking the reins.

While restrictions currently remain on foreign investments and the government still owns large stakes in the country’s oil and banking industry, the election paves the way to a less-regulated economy and future growth.

The region’s analysts are predicting strong infrastructure spending and plenty of reforms. Add the spending and the capital-friendly reforms to a market that now has significantly less political risk to discount and you have a recipe for a strong, sustained bull run.

Investors are paying attention to the situation. Not only did the country’s equity markets surge, so did the value of the nation’s currency. The rupee made its biggest gain in over 23 years.  The action is trickling across the investing world today.

Is it wedding season already?

The Blackstone Group’s India Fund (NYSE:IFN) is up by close to 20% on the news. Rediff.com (NASDAQ:REDF), an Indian Internet provider, is soaring by over 35%. And just to show the gains are across almost all sectors, Sterlite Industries (NYSE:SLT), an Indian mining company, is up by over 20% as well.

Even with the today’s jubilation, investors must be cautious, especially if they believe the action will spread to all BRIC countries. Brazil, Russia and China were grouped with India during the recent economic boom, but now that things have soured the countries have great financial worries of their own.

Today’s news is purely political and will benefit companies working within India’s borders. It will do very little to change the fundamental economic problems facing the rest of the world’s moderate-growth markets.

Investors must remain cautious, but have every reason to be optimistic about India’s long-term success. This weekend’s political moves could be the start of sustainable pro-business growth. If capital begins to flow back into India as many investors are guessing it will today, the country could be set for several years of bullishness.

Now, if only the positive political action would shift to the Middle East.

Source: India’s Political Fog Begins To Rise