And how about the US$? It was heading for the nether parts of the earth. So it’s a pretty good bet that the call went out that when Mickey’s big and little hands were pointing at the number 12…it was time to intervene…and they did.

Open interest changes for Thursday showed that gold o.i. rose a smallish 1,177 contracts to 377,013…on volume of 85,231 contracts. In silver, o.i. fell 418 contracts to 107,740…on 23,898 contracts traded. Nothing to see here, folks.

The Commitment of Traders [for positions held at the end of trading on Tuesday, June 16th] showed some improvement in the grotesque short positions that the bullion banks are currently carrying. In silver, it wasn’t much of a change…as the bullion banks only reduced their net short position by 1,348 contracts…and are still net short 228.0 million ounces. The full-colour silver COT report is linked here.

In gold, the COT numbers were in line with what Ted expected. The bullion banks reduced their net short position by a respectable 17,679 contracts. But…and it’s a big but…the bullion banks are still net short an obscene 20.7 million ounces of gold…more than 25% of world production. The full-colour gold COT graph is here.

Is there any good news in this COT report? Not really. The sky-high short positions in both metals still exist…and there hasn’t been any further improvement in them since the Tuesday cut-off. Past history indicates that 100% of the time, there is only one way that these scenarios end…and that’s with a plunge to the downside as the bullion banks start the avalanche, pull their bids, and cover their shorts while they ring the cash register. The really scary part is that, with almost no significant reduction in the bullion banks short position since the peak in price during the first few days of June, the gold price is already down about $55…and silver is down more than two bucks. To make matters worse, we haven’t even broken through the 50-day moving average to the downside in either metal…but are hovering just above them. So…if the bullion banks get really serious about this…it could get ugly in a hurry.

But…on the other hand, as I’ve said before, we could go up in price from here and establish new record highs before the bullion banks finally pull the plug. That scenario is not unheard of…and has actually happened a couple of times during the last ten years. The other wonderful-to-contemplate scenario is that they get totally overrun as gold and silver prices explode and the bullion banks…led by JPMorgan (NYSE: JPM)…crash and burn. But what are the chances of that being allowed to happen at this particular point in time? Nothing that I’d bet the ranch on.

The Comex Delivery Report for Friday showed that only 15 gold contracts were delivered…and so were another 97 silver contracts. That brings June’s silver deliveries to 1,021 contracts…5.1 million ounces. It was well under four million ounces at the beginning of the week. The GLD, SLV and U.S. Mint showed no changes. And over at the Comex-approved warehouses, another 722,988 ounces of silver were withdrawn. Total silver inventories in all four warehouses at week’s end were 118,590,889 troy ounces.

In other gold news yesterday, I noted that The Central Bank of the Russian Federation had updated their gold reserves. In May, they added another 100,000 ounces, bringing their total reserves up to 17.4 million “fine troy ounces”…as they so eloquently put it.

Today’s first offering is a story out of the Financial Times in London that went to press late on Friday afternoon. Whether this is a tempest in a teapot…or the beginning of real trouble…is yet to be determined, but the headline reads “Turkish army on defensive over alleged plot”…and the link is here.

The next story is from timesonline.co.uk. It’s the only interesting gold story that I could find this late on a Friday night. The headline reads “Submarine hunts for Tsarist gold ‘worth billions’ in Lake Baikal”. I know a fair amount about Lake Baikal…and all I can do is wish them luck, because they’re going to need it. The link is “here.

And lastly is a piece from the Asia Times by veteran Indian diplomat, M.K. Ghadrakumar. I’ve been reading his commentary for years, and I’ve always been impressed with his grasp of the issues…especially in his own back yard. The essay is entitled “Beijing cautions U.S. over Iran” and the link is here.

Government has no wealth of its own. Before it gives anything to anyone, it must take it from those who produce it. – John Stossel

Today’s blast from the past was part of the “British Invasion” of the 1960s when The Beatles…followed by many other groups…took North America by storm. I was in Grade 11 when this song came out. The video is in black and white…but it matters not. Turn up your speakers and then click here.

So…IMF gold is now supposedly in play. We’ll see. There have been several stories out there trying to put lipstick on this pig, by saying that this is wonderful news. The press release from the World Gold Council comes to mind. The story is a negative…but only if the gold actually sees the open market, which I strongly doubt. It’s been two days since this news broke, and so far there’s been no sign of panic in the streets…as the decision has obviously been priced into the market already. My only concern…as it should be yours…is this grotesque short position by the ‘8 or less’ traders in general…and the ‘3 or less’ U.S. bullion banks in particular. What these institutions do, will determine what the gold [and silver] price does in the next few weeks and months.

It was ever thus.

Enjoy the rest of your weekend and I’ll see you bright and early on Tuesday morning.

Source: And Then There’s This…Monday, June 22nd, 2009

With the global commodities meltdown, and the news earlier this month of the government’s $152 stimulus package, the word on the street is that Brazil is facing tough times like everyone else these days.

That certainly may be true about most opportunities in Brazil, but one company continues to prosper – making it perhaps one of the great values on both the NYSE and the Brazilian Bovespa exchanges.

The company is Companhia Brasil Ads (NYSE:CBD), and it’s one of the largest grocery chains in the country. CBD manages to capture the synergy of Brazil’s enormous population and agricultural sectors to show a steady stream of positive earnings. Right now, the stock is trading near the bottom of it 52-week range of R$21.26 – 50.50.

CBD is riding a trend of ballooning grocery sales. Brazilian supermarket sales increased in December by 6.1% over December 2007, according to the Brazilian Supermarkets Association.

In 2008, CBD’s French parent, Casino, announced in 2008 expansion plans for the chain. It intends to invest around US$523 million opening 105 new outlets. The breakdown would be 80 convenience stores, 14 cash-and-carry stores, seven supermarkets, three discount stores and one hypermarket.

Market analyst Research and Markets was of the opinion that the supermarket sector could become saturated with major competitors from the U.S. and Europe, the convenience segment was “left open to target high-income shoppers.”

Regardless, CBD seems to be doing things right in terms of market expansion and protecting its home turf.

Sales in 2008 rose 9.0% compared with the year before with the strongest growth seen in the first half of the year.

In its Q3 report issued on Nov. 4, 2008, the company posted gross sales of R$ 5,055.6 million and a net of R$ 4,407.0, with respective year-over-year gains of 22.4% and 26.0%. Same-store gross sales rose by 10.3% and net sales by 13.6% over the same period the year before. And the company posted a Q3 net income of R$ 82.5 million, up a blistering 137.8% over Q3 2007.

Overall, CBD could be one of the best bargains for investors looking for a position in Brazil.

This from Money Morning:

Despite what you might be hearing about a global recession, consumer capitalism is alive and well in China.

And it’s still fueling growth.

Take a stroll through Beijing’s trendy Wangfujing area, a quick walk south of Tiananmen Square or the six-story Shin Kong Place in Beijing’s Dawanglu area, and you’ll find more than 100 top international designer brands on sale, including Prada, Gucci, Bvlgari, Dolce & Gabbana, and others. While you’re on the prowl, don’t forget Xidan Market, which the locals prefer. It’s also bursting at the seams from countless stores, fashionable-clothing shops and, of course, the ubiquitous and ever-present Starbucks (NYSE:SBUX).

In contrast to other global markets, like the Ginza, Beverly Hills’ Rodeo Drive or London’s Oxford Street, for example, where a heavy silence hangs over the once-bustling shopping areas, the sounds of commerce are everywhere.
Literally.

Cash registers clink and clank, and credit-card machines whiz, but not where most people would predict.

With the deepening of the global recession, throngs of Chinese consumers and expats no longer willingly stand for 40 minutes to get into stores selling Gucci, Vuitton and other top-end items. Instead, they’re pushing their way into places with names like Uniqlo (pronounced “uni-clo”), Lavinia, and Blur – all of which were once regarded as the illegitimate children of yuppie-dom, because of their bargain-based orientation.

Lately, though, they’re the unsung heroes. That might strike you as strange because Uniqlo hails from Japan, while Lavinia comes from Italy. Only Blur is a native Chinese operation. But all three specialize in providing high quality at super reasonable prices.

It’s always fun for me to shop at Uniqlo, in particular, since my family and I shop there each year when we’re home in Kyoto. Just to be unique, I often pick up something for my wife and kids from China’s Uniqlo stores. The service is top notch and I can’t help but chuckle over the fact that I can buy several shirts for less than I would ordinarily pay for just one in Europe, or here in the United States.

Locals – like my friends Hao Jun and Hairong Zhao – tell me the situation is much the same among China’s yuppies, or “Chuppies,” as they’re now known.

“We’re still buying what we like, if we can afford it,” Hairong says.

And judging from the latest figures, which said China’s domestic consumption advanced at a mind-boggling 28% in 2008, there’s lots to like.

Depending on which studies you believe, Chuppies account for slightly more than 7% of the population. That doesn’t sound like much, but that puts the number of Chuppies at more than 100 million – every one of them with a middle class income, appetite and purchasing power that can be expected to grow.

Granted, China’s overall consumption is slowing and 2009’s domestic growth could slow to the mid-teens, but that’s still more than double what we’re likely to experience here in the United States, or in Europe.

For some, this slowdown is the end game. But others understand that this is just the beginning. I’m in that latter camp, having spent considerable time in the region over the past two decades – more than enough to watch several boom-and-bust cycles in both Japan, and China, and to understand how they work and what to look for.

“While it’s clear that Chuppies can’t replace a drop in Western consumerism [all] on their own,” said my good friend and noted China expert, Robert Hsu, “they’re still spending in many sectors – like education, for example. And the government is still spending on the infrastructure that enables financial growth.”

That’s a mantra I’ve spent years encouraging investors to take to heart, if for no other reason than there will be growth “because” of Chinese policy that’s not just limited to the growth taking place “in” China. And that, in turn, leads to some appealing investment opportunities – particularly now that the markets have beaten the share prices of so many superb companies down so significantly.

Assuming this strategy is correct, history suggests there are two potential ways to profit. Clearly the results won’t be immediate, nor will they be straight up – like the returns we saw a few years ago, during China’s earlier period of frenetic growth.

Nevertheless, the payoffs to come could well be the best we see for a generation or more.

First, savvy investors in sync with Chinese buying patterns can target companies that sell to Chuppies, like New Oriental Education & Technology Group Inc. (NYSE:EDU), the Beijing-based provider of private-educational services, and YUM! Brands Inc. (NYSE:YUM), the well-run global operator of the KFC, Pizza Hut and Taco Bell fast-foot-restaurant chains. Both companies are enjoying superb year-over-year sales growth in China – even in the face of worsening global economic conditions. [For Money Morning's recent report on Yum Brands' successes in China, please click here. The report is free of charge.]
Second, investors who believe that infrastructure is the way to go can easily choose from dozens of companies engaged in China’s great economic build-out, including choices related to rail, air and construction.

Third, still another choice is to invest directly in the Chinese Yuan (Renminbi). Not only is China’s currency continuing to appreciate and gather strength; it’s likely to emerge as one of the world’s most powerful currencies, once both the dollar and euro are eviscerated.

Undoubtedly, a good number of people reading this will take issue with my assessment. And I don’t blame them. On the surface, it appears that China may be all washed up.

However, at a time when our own economy is sliding into a deep, dark hole, China’s relentless march forward suggests that this Asian country not only has a more promising future; it will emerge as an important economic and political force to be reckoned with.

Not to mention a powerful investment opportunity.

Source: China’s “Chuppies” Point the Way to Growth and Profits

The elephant in the room blasted out a mighty honk last weekend in a report by Access Economics, as reported in today’s Australian. “Batten the hatches,” Access says. “This is not just a recession. This is the sharpest deceleration Australia’s economy has ever seen.” Access adds that the federal budget is “buggered.”

“Leading economic forecaster Access Economics warns in its quarterly Business Outlook, released today, that the nation’s economic boom will ‘unwind scarily fast’, halving corporate profits, costing more than 300,000 people their jobs and blowing out the current account deficit to more than $100 billion.”

Dire stuff indeed. But the question from last week remains, is this massive dose of negative news already priced into Australian stocks? Or is it a further hammer blow that will drive them to new lows?

So far, the market seems to be taking the prospect of a prolonged earnings recession fairly well. Or maybe it’s just in denial. The Access report correctly points out that the fall in commodity prices will dry up government royalties and corporate taxes. This will lead to higher budget deficits, more unemployment, and a contraction in the mining industry after four years of break-neck expansion.

Australia’s government is now in the same pickle that Gordon Brown and Barrack Obama find themselves in: how do you distribute enough borrowed loot to keep your economy from shrinking without igniting inflation and a weakening of your currency? And if you accept that the government really can step in and spend money while households and businesses are not, where does it spend it? Roads? Bridges? Booze? Pokies?

Those are mostly political questions. Economically, it’s hard to see how corporate earnings will recover this year. Demand is falling. Miners are winding up projects. All this being the case, don’t look for earnings to lead to a big bear-market rally.

In fact, as we mentioned last week, we think it’s likely that you’ll see a large exodus of institutional money out of common stocks and into corporate bonds. Corporate bond yields are now much higher than what you’ll find in U.S. government bonds. And it is the habitual thing to do, changing asset classes rather than liquidating altogether.

The big sleeper so far this year is oil. Oil prices have fallen 25% since rallying to just over $50 last week. The leverage is out of the oil market. And with a global recession, the IEA now predicts oil demand will fall for the second year in a row. It’s the first time that’s happened since 1983.

But the real story is how the falling oil price is hammering oil producers. Multinational oil companies are cutting back exploration programs. They’re not looking for oil. And you can’t produce what you can’t find.

As for the national oil companies in Mexico, Venezuela, and Russia, well they too are being hit hard by the falling oil price. During the big run up to $150, national oil companies were cash cows. But it now appears that little of the oil bounty was reinvested in new production or even maintenance of existing production.

So what do we have now? We have a situation here. A situation where the falling oil price is leading a big reduction in oil production. This will match, for a while reduced demand for oil. But we also think it’s baiting the trap for a huge blowback in oil prices. And the spark for that could be geopolitical. More on that next week.

It didn’t seem possible, but things are getting worse for Americas largest commercial banks, Citibank and the Bank of Amerika. “The U.S. government, recognizing that the banking crisis is far larger than originally thought, is laying the groundwork for a second phase of its rescue attempt, with plans to purge bad assets that are paralyzing the financial system,” reports the Wall Street Journal.

Aha! Remember that phrase from last week, “incorporating the public debt?” This was the alchemical process by which a huge slab of outstanding debt was transferred to a new entity and converted into, ahem, “capital” in 17th century Britain. It now looks like you’ll see a new large national financial institution in America this year. It may even resemble a giant vacuum, or a garbage dump.

No matter what it looks like, it will be the receptacle for the metastasizing debt that is killing the financial sector. The Journal says that the discussions for the new “Bad Bank” between the Fed, the Treasury, and the FDIC, “show how the rapid deterioration of bank assets is outpacing the government’s rescue efforts. Banks are now struggling not only with the real-estate investments that sparked the crisis, but also with the car loans, credit-card debt and other consumer debt that have taken a hit with the faltering economy.”

We may as well get on with full nationalisation of the financial system. Thus far, it’s been incremental. But the end game is increasingly obvious now. Governments will either begin guaranteeing all mortgage lending and corporate debt (as plans in the U.K. suggest) and/or assume responsibility for the toxic assets impairing financial balance sheets (in exchange for equity).

What this means for stocks, paper currencies and gold bears more discussion. More on that next week.

Regards,
Dan Denning

Source: The Coming Oil Backdraft

This from Money Morning:

The Chinese word for crisisis weiji.

But get this – when translated literally, wei means danger and ji means opportunity.  So to the Chinese, a crisis – or danger – represents an opportunity.

Of course, you don’t have to actually speak Chinese to understand what this mindset means for investors.

What you’re seeing in China today is nothing less than the classic definition of a crisis presenting the profit opportunity of a lifetime.

While investors in U.S. markets are mostly concerned about saving their necks, China has been stacking the deck in favor of those who have the guts to pull the trigger on the most undervalued market in memory.

Here’s why you should consider taking an early position in China in 2009.

The Mother of All Stimulus Plans

While it’s not old news, the current crisis in U.S. financial markets is all too familiar.  The Standard & Poor’s 500 Index is down almost 40% from its 52-week high and there seems to be no end in sight.

Worse, the malaise encompassing the United States has clearly spread to the rest of the world, including China.

So it appears that what investors once considered to be the greatest investment opportunity of our lifetime has imploded – just another financial black hole where portfolios go to die.

Truth be told, however, there is ample evidence that China’s economy and markets will weather the storm and ultimately thrive in the year ahead.
The Chinese economy has been the fastest growing in the world for the last three decades, averaging double-digit growth for the last seven years.  And while the credit crisis has slammed on the brakes in terms of growth in the West, China is still on track for a solid 8% growth in 2009.

But the Red Dragon isn’t about to take any chances.  With $2 trillion in foreign exchange reserves available, China can increase the growth rate of its economy – even as it works to boost economic recovery efforts elsewhere in the world.

And that’s just what it’s about to do.

The People’s Republic of China has already announced a $586 billion (4 trillion yuan) spending package.  To put that in perspective, this plan amounts to a staggering 20% of China’s gross domestic product (GDP).  Compare that to the $1 trillion in U.S. bailouts, which equate to about 8% of GDP.

And China’s reserves won’t be doled out in dribs and drabs. The plan calls for spending the whole amount in just a few years.

To further grease the recovery skids, China has reduced interest rates five times in the last three months, and loosened lending rules.  Now China’s banks are perfectly positioned to get the ball rolling, flush with cash from a world-leading savings rate of 35%.  And because they are state-owned, the cash will flow quickly from the banks to government projects.

The convergence of the recent market swoon and the stimulus plan means you now have the opportunity to buy great companies at the dawn of the Chinese century.

But specifically, where should you look to park investment capital in the Chinese market?

Well, there are solid plays across all spectrums of China’s economy, but the best are in infrastructure, consumer goods and energy.

Infrastructure Paves the Way to Profit

The first place to look is infrastructure development, which has been the main engine of China’s explosive growth over the past two decades.

While most believe China’s economy is export driven, statistics show public works spending accounts for 4%-6 % of the country’s GDP growth. From 2007-2010, China will spend a whopping $725 billion on infrastructure improvements in a race to accommodate its rapidly migrating populace.

By 2030, 1 billion of its people will live in cities, up from 600 million today.  About 170 mass-transit systems will be needed.  Another 40 billion square meters of floor space will be built in 5 million buildings – 50,000 of which could be skyscrapers.

And all of these developed regions will be connected by new roads. Shorter transport times drive down costs, and smooth the transition to city living for China’s exploding middle class.

Plans for China’s road system call for 12 major routes across the country from north to south and east to west connecting millions to new routes of commerce, according to The Wall Street Journal.  The system will stretch 53,000 miles by 2020, surpassing the 47,000 miles of roadways in the United States.

It will take massive amounts of steel, cement, and bulk transportation to build those roads.

Money Morning Contributing Editor Martin Hutchinson believes one big winner from the infrastructure boom will be Vale (ADR:RIO) the world’s largest producer of iron ore. As the world’s leading producer and consumer of steel, China is also the world’s leading importer of iron ore, which – along with coking coal – is a key component in steel production.

And while prices and demand for Chinese steel fell sharply in the second half of 2008, they are already beginning to pick back up.

In fact, steel production in the Chinese city of Tangshan, in the Hebei province, has risen to more than 70% of capacity as companies resumed output after prices stabilized, the Tangshan Evening News reported Dec. 26. About 39 out of 57 iron and steel factories in Hebei, China’s biggest steel-producing province, are operating now, compared with 25 in August.

Tangshan is an industrial-level city in that steel-rich region.

“The iron-ore stocks have been overly poorly treated in the past couple of months with all the fear over China,” Michael Heffernan, a client adviser with Austock Securities Ltd., told Bloomberg News.

“Negativity over the Chinese situation is overdone,” Heffernan added. “In the past couple of months the Chinese may have been posturing to get the best possible deals they could when negotiations over contract prices reopen.”

That’s good news for Vale, which looks attractive with a Price/Earnings (P/E) ratio of only 8.6.

A big source of China’s iron-and-steel demand has to do with the country’s commitment to railroads. A full $100 billion of the stimulus package will be spent on rail services.

That makes Guangshen Railway Co. Ltd. (ADR:GSH) a good play.

Guangshen Railways is the biggest rail operator in China with cargo and passenger operations between Guangzhou and Shenzhen, as well as Hong Kong.

There is an acute shortage of rail capacity to carry raw materials from China’s western provinces to manufacturing centers on the Red Dragon’s East Coast. Right now, cargo capacity is only 35% of demand, according to the Chinese Railway Ministry.

That helped revenue at this $94 billion company to jump 17% in the first three quarters of 2008, despite a crippling snowstorm in January.  Guangshen also yields about 3%, rewarding investors who are willing to hold the shares as they wait for the stimulus to kick in.

China’s Urban Migration and Growing Consumer Class

The opening of new highways is providing greater mobility to China’s population, accelerating the massive move from the hinterlands to the cities. Incredibly, China will have 221 cities with more than one million inhabitants by 2025 – compared with 35 in Europe and nine in the United States today.

Quite simply, that urban migration is responsible for creating the largest consumer class the world has ever seen – a middle class greater than the entire population of the United States.

Retail sales in China are estimated to have risen about 21% in 2008, according to the Ministry of Commerce. And now that weakness in the global economy has dented exports, the government is making an even greater effort to boost domestic consumption.

That’s why Money Morning Contributing Editor Horacio Marquez likes China Life Insurance Company Ltd. (ADR: LFC).

China Life is experiencing continued growth for reasons unique to government regulations.  Without a social security system, Chinese consumers must fund their own retirement – one reason the Chinese save an amazing 35 cents of every dollar they earn.

Also, China Life’s investment portfolio hasn’t been hit by the market meltdown, because government regulations prevented the company from owning subprime-related mortgages and securities. With 43% market share, Moody’s Corp. (MCO) expects premiums to grow between 30% and 40% in 2008.  And right now, only 3% of China’s consumers own life insurance, leaving plenty more room for growth.

Another company worth looking at is China Mobile Ltd. (ADR: CHL).

With 443 million subscribers, China Mobile is the dominant provider in the world’s largest mobile telecom market.  And in terms of growth, an additional 3 million to 4 million consumers become mobile phone subscribers in China each month, according to the Chinese Ministry of Information.

The company’s earnings per share (EPS) increased 31% in the first three quarters of 2008 and China Mobile stock yields a healthy 3.2%.

Now, the mobile services giant is in talks with Apple Inc. (Nasdaq:AAPL) to introduce the iPhone to the burgeoning Chinese market.  And with the global slump hurting smaller players, it’s on the hunt for acquisitions with attractive valuations in emerging markets.

Soaring Energy Demand = Growing Profit

Despite a slight slowdown in the economy, China’s energy appetite continues to grow at a ravenous pace. And even though the country is building one coal-fired power plant a week, China’s unable to keep up with exploding demand.

China’s electricity consumption rose 5.2% in 2008 and investment follow.  A total of $84 billion (576 billion yuan) was invested in the sector in 2008 – a 1.52% over to 2007.  Power grid spending rose 17.69% to $42 billion (288.5 billion yuan).

As with other forms of infrastructure, China plans to up its investment in electricity over the next several years. China has already announced $29 billion in new energy projects, including a new natural gas pipeline, construction of 10 new nuclear power plants, and a new coal mine, set to produce 14 million tons of coal a year.

Here are two solid profit plays on the new infusion of cash:

Money Morning Investment Director Keith Fitz-Gerald likes Yanzhou Coal Mining Co. Ltd. (ADR:YZC).

China burns more “black rock” than the United States, Japan and Europe combined, and this company is one of China’s biggest coal suppliers. It produces lots of high-grade, low-sulfur coal, which burns cleaner and fetches a premium price.  The company also boasts profit margins of 22% in an industry where the margins average about half that amount.  For the first three quarters of the year, the company posted profits that were up 364% from a year ago.  This kind of growth, in a stock that’s trading at three times earnings, is a big time potential bargain – especially given its dividend yield of 4.3%.

Both Fitz-Gerald and Hutchinson recommend like Huaneng Power International Inc. (ADR:HNP), as well.

Huaneng is the largest utility in China, and is a virtual lock to benefit from growth in any form. It owns 16 operating power plants, and has controlling interests in 13 others. As a state-owned enterprise, it has the contract to produce the power for the entire eastern region of China, including Shanghai and Beijing.  Although it’s been generating losses lately due to high coal prices, the power company is likely to increase output and profits with any economic expansion.

If you’re leery of investing in individual stocks you might want to look at the Templeton Dragon Fund Inc. (NYSE:TDF). Over 80% of the closed-end’s assets are directly invested in China. And with roughly 50 positions, it provides ample diversification.

PS. This is the tenth installment in Money Morning’s “Outlook 2009” series, which looks at the global investing outlook for the New Year.
Source: China’s Red Dragon Turns Financial Crisis into Opportunity

If in fact this scenario plays out, emerging markets in Asia could prove to be the superior play in the coming decades as they surpass America’s R&D investments.

R&D is the cornerstone of sustained growth. For example, China recognizes this by launching a branding campaign that turns the pejorative “made in China” to a higher value added “created in China.”

While some of the R&D numbers coming out of Asia today still may pale compared to the U.S., the important criteria is the percentage of GDP and overall growth that these emerging markets are investing in innovation.

For example, South Korea said last week it will allocate $8.3 billion on R&D in 2009. While that’s a drop in the bucket when measured against Washington’s $99 billion budget, the bottom line is that South Korea’s budget is an increase of 11% while the American budget is a decline of 0.34%.

A recent article in The Economist said that approximately $1 trillion is spent on R&D every year in computing, telecommunications and electronics of which the U.S. accounts for over 30%. But while corporate R&D in America and Europe grew by 1-2% between 2001 and 2006, in China’s R&D soared 23%, The Economist reported.  And as a percentage of GDP, China’s corporate R&D spending is almost on a par with the European Union’s (around 1%).

The Economist said that in 2007, South Korea’s Samsung spent more on R&D than IBM. The company has jumped to second place in the number of patents granted by America’s patent office (just behind IBM).

The trend could become irreversible if Washington favors bailouts over innovation.

The Georgia Institute of Technology’s bi-annual “High-Tech Indicators” study concluded that China improved its “technological standing” by 9 points over the period of 2005 to 2007, with the U.S. declining to of 6.8. In Georgia Tech’s scale of one to 100, China’s technological standing is pegged at 82.8, versus the U.S. at 76.1. The U.S. peaked at 95.4 in 1999. China has increased from 22.5 in 1996 to 82.8 in 2007.

Innovation is the fuel for growth and generates profits for investors. That could make Asia a better long-term play than the U.S. for investors.

The idea of decoupling gained prominence in 2006, and achieved superstar status in early 2008, as emerging markets boomed. Advocates of decoupling professed that the rising prices of commodities, which overnight turned many third-world countries into boomtowns, let these long-neglected economies decouple from the G8 and other industrialized nations. By decoupling, they could finally set their own economic destiny.

Well, if there is any economic theory headed for the trash heap it’s decoupling. That’s because, as the markets have proven, young economies are largely dependent on more mature industrialized economies for their financial survival.

Cash, credit and construction fed the so-called Commodity Supercycle, which pushed emerging markets to all-time highs over the past few years. Now that cash, credit and construction are gone, investment opportunities in emerging markets look bleak for 2009.

For example, the Financial Times reported yesterday record volumes of government bonds from the industrialized nations could crowd out emerging markets from a shrinking pool of credit.

Some $3 trillion in government bonds expected to be issued by the big developed economies in 2009 – three times more than in 2008, the FT wrote.

The timing couldn’t be worse for emerging markets. Not only do they need to repay record debts, but they are also dependent on credit to fund new capital-intensive ventures in mining, exploration and drilling so they can be responsive to an eventual turnaround in global markets.

This creates an environment for a new rash of sovereign defaults – turning back the clock by decades on countries in Latin America, Eastern Europe and Asia.

For investors, emerging markets could be a roller coaster ride at best.

As decoupling proves to be a false idol, emerging markets have clearly proven how closely tied they are to the U.S. and Europe.

With that in mind, the International Monetary Fund issued a forecast last week that said U.S. economic growth will be close to zero for the rest of 2008 and the few months following.

The IMF expects a gradual recovery in the U.S. starting in Q2 2009 – an outlook shared by most advanced economies.

Bottom line for emerging markets is that they will continue to be crippled by the global financial contagion at least through the first half of next year.

This from Today’s Financial News:

Wish you had a time machine? I just might be able to help you out with that!

Back in the early 1980s, International Living recommended buying real estate in northern Costa Rica. Readers who took this advice reaped big rewards.

This part of Costa Rica became the No. 1 destination among foreign retirees and investors who wanted to buy land that would increase dramatically in value. These buyers made very wise decisions, as the prices for beachfront property along the Pacific coast increased six-, eight-, tenfold, and beyond throughout the ’90s.

Your chance may have passed in this part of Costa Rica, but I can tell you where to find another pocket of opportunity… a place where prices have stayed low. Why? The area I’m talking about has been difficult to get to. That’s set to change — giving you the opportunity to position yourself ahead of the Path of Progress.

Some of the most amazing scenery in Costa Rica is in an area that runs south of Quepos on the border with Panama. Landscapes here in Costa Rica’s southern zone are dramatic: panoramic ocean views… lush tropical rainforest… and jungle-clad slopes rising sharply away from pristine stretches of sandy beach.

In a country with an established real estate market like Costa Rica, this sounds like just the type of place that would attract a lot of fervent investors. Difficulty getting there has kept it under the radar in terms of development and kept prices far lower than areas to the north.

The Costanera Highway is unpaved between Quepos and Dominical and the airports are small, local affairs. The airport in Palmar Sur is a one-woman show — she issues tickets, checks baggage, and answers queries, while you sit on a wooden bench overlooking the small strip, alongside your co-passengers… all 11 of them. No duty-free shop or airport food here.

These are exactly the kind conditions I look for when scouting for a good real estate opportunity… especially when plans to improve the infrastructure are in place.

For now, pricing here is among the lowest in Costa Rica. I found 1.25-acre lots close to Ojochal for as little as $65,000. Construction costs are roughly $90 per square foot.

So for $245,000, you can own your own piece of this tranquil setting in a custom-built, 2,000-square-foot house on a large lot.

That really is a good-value buy, considering that in Manuel Antonio, near Quepos a 2,200-square-foot condo averages $595,000 and a 1.25-acre lot is listed at $325,000.

The important news for investors is that road improvements on the Costanera Highway are underway and scheduled for completion next year. This should cut the 90-minute trip from Quepos to Dominical to 25 minutes.

An international airport is planned for Palmar Norte. Due to be completed in 2010 (the government has already allocated funds), the airport is planned to open in stages; the first, in 2010, will allow international flights with a maximum capacity of 50 passengers.

Eventually, the plan is to have a runway capable of accommodating even the world’s largest passenger plane, the Airbus A-380. An airport of this scale needs to be close to a hospital and one opened last year in Cortes, just 10 minutes from the airport.

I have been bullish about the opportunity in Costa Rica’s southern zone for the past six months. Today I got word of a government policy decision that makes this opportunity even more exciting.

The Costa Rican authorities have tightened up the regulations for developing land in this area. They are committed to controlling the pace of change, and prevent destruction of primal rainforest. This limits the number of future projects, and sets out to preserve the raw beauty of the landscape.

That all points to one thing if you get into this market today… the value, like northern Costa Rica in the ’90s, will soar in value.

Source: Another Chance to Make Big Profits in Costa Rica… But You Must Act Now

Yum! Brands Inc. (NYSE:YUM) expects another year of double-digit profit growth.

For nearly everyone else, 2009 won’t be just “another year.” Nearly every economist expects the first half of the New Year to bring more of the same, a deepening global financial crisis that’ll throw an even bigger, wetter blanket on economic growth than it did this year.

Indeed, even more than in 2008, next year will be a real-life case study of the survival of the fittest. And Yum’s certainly fit for the fight.

“Our industry is better-positioned in times like this,” Yum Chief Executive Officer David C. Novak told The Wall Street Journal. “We’re better-positioned than most other categories and industries.”

Already, we’re seeing companies slash work forces, trim (or abolish) dividends, and lock the safe that stores their spending money, sell off holdings or even shut down completely.

Yum’s not immune from the downturn. It, too, is cutting $60 million in operating costs from its U.S. business. It’s also putting a hold on buying back shares next year to preserve cash.

But unlike most, Yum hasn’t red-lighted its 2009 expansion plans – it’s still planning to build as many as 1,400 restaurants in international markets. About 500 of those new stores will be in China. That’s part of the reason the overall company is projecting at least 10% profit growth in 2009.

More broadly, Yum is expanding in the world’s fastest-growing economies and is making its menu part and parcel of every foreign country in which it operates. Two factors have imbued the company with a corporate killer instinct that’s enabling it to survive and thrive in the face of the current harsh economic environment: The innate strength of its own brands and a proven ability to adapt to any market it decides to pursue.

For marketing muscle, the Louisville, Ky.-based Yum has an army of brands – Pizza Hut, Kentucky Fried Chicken, Long John Silvers and A&W – plus its own line of Yum Restaurants that it operates outside the United States.

And its overseas franchises – especially Pizza Hut and KFC – are especially adept at making themselves the people’s favorite local flavor, instead of just their favorite American flavor.

Here’s a look at some of the items on Pizza Hut’s China menu: tuna fish pizza, roasted squid, zesty shrimp soup, a variety of rice-and-meat dishes (kimchi pork, curry beef and Hungarian beef rice), green tea, and chocolate mousse cake.

The bottom line: Yum’s stronghold and growth potential in China is shaping up as one of the most promising investment stories of 2009.

China Stronghold

As far as Yum Chief Financial Officer Richard T. Curucci is concerned, the company’s target for 10% profit growth should be easy to hit.

“We can get these numbers without heroic sales performance” at existing restaurants in China, Carucci said on a Webcast from the company’s analyst meeting, Reuters reported.

While Carucci says that Yum is “still not sure how China’s going to respond to a slowing economy,” he is certain of the company’s master plan which makes the Red Dragon the centerpiece of its growth strategy.

As of now, the United States accounts for 41% of Yum’s operating profits. China accounts for 28% and the rest of the company’s operations around the world account for the remaining 31%.

By 2013, China will account for 40% of Yum’s operating profit, while the United States and the rest of the world will each account for a 30% share, according to company projections.

As this plays out, Yum should outdistance some of its rivals, especially McDonald’s Corp. (MCD). That’s because Yum has done a better job penetrating the China market.

From 2002 to 2007, Yum opened 1,678 new stores in China, for a total of 2,558. In that same span, McDonald’s added 330 stores, giving the Golden Arches’ owner a total of 876 stores in China.

Yum has even stolen McDonald’s thunder in the mascot department. Its KFC mascot, a chicken character (naturally) named “Chicky,” roams stores and interacts with children. And the company’s Chicky program includes in-store birthday parties, kids’ fun camp and school tours of its stores. No wonder that Novak, the Yum CEO, boasted to Business Week two years ago that Chicky had already become “the Ronald McDonald of China.”

“We’re on the ground floor of a booming market, just like when Colonel Sanders started KFC and Ray Kroc started McDonald’s,” Novak told Business Week, noting that he one day wants to have as many restaurants in China as he does here in the United States.

Stateside Strategy

Novak said last week that the United States market was the lone problem the company has had in 2008.

Not only does Yum face a wider number and variety of competitors, but also fighting the headwinds of recession.

In addition to cutting $60 million from operational costs and suspending the company’s share buyback, Yum will offset the planned opening of 200 new U.S. restaurants by closing about the same number.

Other strategies will appear on the menu.

At Pizza Hut, the company is adding lasagna to its new Tuscani pasta line.

At KFC, it’s rolling out a grilled chicken option, a menu item Novak called a “transformational product” at an investor conference last week, The Associated Press reported.

The chicken chain will also create and promote a value menu, featuring items costing from $0.99 to $1.99.

Source: Hot Stocks: Fast Food Restaurateur Yum! Brands Making China its Main Course

The withdrawal of SWFs from American markets means that taxpayers must pick up the slack to the tune of $700 billion (or more). It could also mean that the disappearance of this source of capital could further delay any sustained recovery.

The Persian Gulf SWFs, in particular, are redirecting their funds to domestic projects, where they see a higher payoff, according to various news sources.

Dubai International Capital is turning its attention the Middle East, China and India.

Investment funds in Kuwait, Qatar, Dubai and Abu Dhabi are revamping their investment strategies after losing billions of dollars buying shares in Western companies.

The Kuwait Investment Authority (KIA) recently shifted $4 billion from Western markets into its own bourse. At the same time, the Qatar Investment Authority has begun a bailout of local banks. Dubai International Capital (DIC) is concentrating on emerging markets. And there are reports that the $700-billion Abu Dhabi Investment Authority is investing more in to local markets.

Sameer al-Ansari, the chairman and chief executive of DIC, was quoted as saying that the balance of economic power was shifting east and that the fund’s investments would follow.

Samba Financial Group, a Saudi Arabian bank, said that the Gulf’s wealth funds were likely to lose about $190 billion this year, effectively flattening profits gained from the high price of oil.

If you’re the kind of investor who likes to follow the money, the SWFs are showing that China, India and other emerging economies with low debt on the books are the places to be. But as we’ve all seen, the SWFs have been painfully wrong before.

The real lesson we’re seeing from the meltdown and the SWF shift of capital is this: Just because you’re fabulously wealthy doesn’t mean you’re innately smart.