Fear is one thing, but new economic ties to perhaps the fastest growing economy in the world surly stands for something when evaluating the prospects of ^TWII – especially since the index is down over the past 52 weeks from 9,437.43 to a tempting 4,110.09.

The trade agreement between China and Taiwan has been in the works for the past six months, following the election of Taiwan’s new president, Ma Ying-jeou.
With missile threats and naval exercises by China perhaps a thing of the past, Beijing and Taipei buried the political hatchet to work on strengthening economic ties.

The timing does indicate a sense of desperation by both nations to cooperate in this devastating global cash crunch.

Under the new accord, China and Taiwan will expand shipping, air travel, food safety and mail service – underscoring Taiwan’s role as a major transportation hub in the region. It also means that Taiwan’s high-tech industry will get a boost with unfettered access to the mainland’s growing middle class.

The news, however, lacked the fuel to send up ^TWII. The index has been see-sawing since mid-October – closing at 4,995.06 on Nov. 3, down from a monthly October 1 high of 5,764.01.

Rather than looking to Beijing, it seemed that all eyes were on Taiwan’s central bank, as it cut interest rates on Thursday for the third time in about a month.
The central bank cut its benchmark discount rate by 25 basis points to 3.0%.

It’s the central bank’s third reduction since late September and follows cuts on Wednesday by the U.S. Federal Reserve and the central banks of China and others.

In a way, ^TWII represents a trading mentality of hope against hope.

As fear grips the world’s markets, ^TWII could make a rational choice for investors who tend to see that the numbers underlying this new agreement favor Taiwan.

Keith Fitz-Gerald says the political posturing and wrangling over the plan distracts from the key financial issues. Can America afford a $700 billion rescue package?

Keith says investors need to understand three keys points. A bailout will cause national debt to climb, the US inflation rate to soar and the US dollar to tank. Bottom line: Investors need to go overseas for growth and profits in the foreseeable future.

This from Money Morning USA:

Even in its revised form, the consequences will hang over us for years, and that means this is no time for investors to be speculating, nor is it time to put the proverbial “pedal to the metal.”

However, it is time to think about the following:

• Virtually any bailout plan – regardless of its format – will ultimately saddle the incoming president and the American people with trillions of dollars in debt that will actually dwarf the U.S. economy’s actual output as measured by gross domestic product (GDP). This means that investors must plan for much-higher interest rates – rates that are so high, in fact, that they could easily choke off U.S. growth well into next year.

• The dilutive effect of $700 billion – not to mention the additional trillions of dollars that still are not recognized as “problem assets” – will be extreme. U.S. inflation could spike overnight. And the U.S. dollar has a higher-probability than not of cratering from here. (We hope we’re wrong on this point, incidentally, but we’re not optimistic). This reinforces the investment case for commodities, in general, to begin moving far higher as we have suggested for some time, now.

• At the same time, global growth will continue. In fact, in the years to come, the world’s healthiest overseas markets could more than make up for the unmitigated disaster that America has become lately.

The bottom line is this: For the foreseeable future, global investing is the way to go.

We can make the case that things will improve in the United States one day and we’ll welcome the market’s return to normal.

In the meantime, however, more than 78% of the world’s economic activity is taking place outside U.S. borders. And that’s worth noting. According to International Monetary Fund (IMF) reports, China’s on track for 9.8% growth this year, and at least 9% in 2009. Taiwan and Brazil are projected to advance at rates of 4.3% and 4.8%, respectively.

So, it only makes sense to “follow the money,” even if we can’t pronounce where that money is going. Not only are the companies in many often-overlooked regions stable, many still are growing at double-digit rates.

For those of us who are north of 50 or closing in on retirement, it’s important to note that many of these stocks pay dividends that dwarf the anemic 2.5% average payout of a U.S. Standard & Poor’s 500 company. For instance, companies in New Zealand routinely pay dividends averaging more than 8%. Taiwanese stocks commonly feature dividend yields of 5% or more. Many pay even higher amounts.

We’ve repeatedly talked about how much of a difference dividends can make in your portfolio. But for you speed readers out there, here’s an investing fast fact: If you invest $50,000 in a U.S. stock paying 2.5% a year, you’d accumulate $64,000 in 10 years (excluding capital gains).

That’s a 28% increase based on dividends alone.

But that same $50,000 invested in a New Zealand exporter (with an 8.6% dividend yield) would leave you with $114,000 – a return of 128%, from the income alone. In short, by picking a stock with a superior dividend payout, you ended up with 78% more money over that decade-long stretch.

And that’s worth something these days – even if our own dollar might not be.

Source: Although Congress Squelches the “Paulson Plan” it’s Still $700 Billion to You and Me

The Bear Stearns bailout was supposed to prevent the crisis from rippling through Wall Street. Obviously it hasn’t done that. It’s merely thrown the crisis into slow motion and prolonged the agony.

– Addison Wiggan and Ian Mathias in The 5 Min. Forecast have a different view: The government is not willing to bailout another bank…

Long story short, Lehman is as close to going out of business as ever. The firm is still gripped by credit- and mortgage-related losses. Its merger with a government-owned bank in Korea is now rumored to have fallen through. S&P has threatened to cut ratings, again. And the market is terrified that the U.S. government is not willing (or even able) to bail out ANOTHER “too big to fail” financial.

– Selling hits Lehman’s stock.

– Lehman is “ripe for a hostile takeover,” says Jennifer Yousfi in Money Morning. But the clock is ticking. According to Jennifer, “As the list of potential saviors continues to dwindle, so does investor confidence in Lehman Brothers.”

– US futures are pointing down. “Stocks head squarely toward sharp losses as financial  worries and slowdown jitters call the tune.  Data on trade, jobless claims and import prices on deck. 

–  There’s always a way to profit. Martin Hutchinson in Money Morning says as Treasury bonds suffer from higher government borrowing and inflation the Rydex Juno Fund (MUTF:RYJCX) should see major gains. Ian Davis in DailyWealth says it’s difficult to see how investors can lose on fat-dividend paying Taiwanese stocks.

– The dollar continues to rally. It hit a one-year high against the euro and a basket of currencies.

– Charles Delvalle in Investor’s Daily Edge says investors should factor in 6 to 12 months of dollar strength after the buck broke above its eight-year resistance line.

– The rising dollar is having having a negative effect on crude oil prices. Prices are down to just under $102 a barrel.

– Chris Mayer, however, remains bullish on oil long-term future for two fundamental reasons.

– Gold prices regained some strength. Reuters reports that “investors who propelled gold to a lifetime high of $1,030,80 in March on inflation fears and a struggling dollar are ditching their bullion holdings as the US currency stages a dramatic rebound.”
– Lee Lowell at The Smart Profits Repor, however, gold is oversold. He also says the dollar rally is mainly due to sentiment.

DailyWealth’s Tom Dyson reckons he’s found a great buying opportunity in Taiwan. Its economy and stock markets are in a ditch because the government controls the flow of money in and out of the country. This prevents China from taking over Taiwan’s economy.

It means Taiwanese companies have plenty of cash on their books… And according to Tom, it makes them “excellent dividend payers.”

As Tom explains:

While they keep Chinese businesses from infiltrating Taiwan’s economy, these [money inflow and outflow] regulations make it very hard for Taiwanese companies to send their capital out of Taiwan… or to borrow money in currencies besides Taiwan dollars. Taiwan companies can’t get credit overseas, because the government won’t let them use their Taiwan assets as collateral. And any Taiwan companies that do have operations overseas will do anything in their power to avoid bringing the capital they generate back to Taiwan… because they know it’ll get stuck once it gets here.

These rules mean Taiwan companies are loaded with cash. I studied the balance sheets of Taiwan’s 10 largest companies. These companies have total cash balances of $40 billion and only $9 billion in total long-term debt.

Taiwan companies make excellent dividend payers. For one thing, the government hates seeing cash sitting around on balance sheets out of its reach. So it levies a special 10% tax rate on companies who pile up cash for no reason. This tax makes sure companies either use their cash to grow Taiwan’s economy or pay it out to shareholders, where it generates income tax revenue for the government.

There’s another reason Taiwan’s companies dish out cash to shareholders. Cash-rich companies make attractive takeover targets. The predator can grab the cash and get the business for much less than it’s worth. Taiwan’s companies distribute their cash to dissuade predators…

Taiwan is a mature economy. There just aren’t many opportunities for these companies to make big investments in Taiwan. So I know dividend payments are going to increase in the future… unless Taiwan’s government deregulates and allows Taiwanese companies to use their cash on overseas investments. If this happens, Taiwan’s stock prices will jump anyway. Either way, shareholders win.

Source: Why We Can’t Lose Buying These Cash-Rich Divided Payers

Three Stocks to Double Your Money in the Next Asian Market Bubble

Tom Dyson

Flights between China and Taiwan start this weekend. The first plane will fly from Taiwan to China on Saturday morning and then return one hour later. China Airlines, the largest Taiwanese carrier, will operate the flight.

Saturday’s flight will mark the first direct scheduled flight between China and Taiwan in 59 years.

In 1949, Taiwan banned direct flights with China. Taiwan used to be part of China. But in the 1940s, China had a communist revolution. The losers of the war – the business and intellectual elite – fled to Taiwan and broke ties with mainland China. Officially, China and Taiwan are still at war.

In March, a new president won power in Taiwan. This new president wants to mend Taiwan’s relationship with China… and eventually unify the two countries. This was the basis of his election platform. Restoring transport links between the two countries was his first step.

Starting on Saturday, 36 flights will connect Taiwan and China every weekend. Several airlines – from both Taiwan and China – will fly between different Chinese and Taiwanese airports.

Here’s the thing: When the losers of the revolution in China came to Taiwan in 1949, they took over Taiwan by force, imposed martial law, banned all political parties except their own, restricted the press, and put large tariffs on foreign imports and luxury goods. Then they built an aggressive export economy like Japan’s.

The aim of these policies was to make Taiwan rich. And they worked. By 1987, Taiwan had the fourth-largest stash of foreign exchange reserves in the world, after the U.S., France, and Japan. Taiwan had almost as much foreign reserves as Japan… even though Japan’s population was six times larger. In 1987, the typical citizen of Taiwan saved 31.2% of disposable income (vs. 16.6% in Japan and 3.2% in the U.S.).

In 1987, a new president won power in Taiwan… the first native Taiwanese to head the government. The new president started loosening regulations. He encouraged citizens to buy luxury American goods. He freed the press. He allowed opposition political parties to compete for power. He let Taiwanese citizens send money abroad. And he let Taiwanese citizens travel to China to visit relatives… for the first time since the revolution.

The Taiwanese stock market loved these new policies. Between 1987 and 1990, Taiwan had one of the greatest stock market bubbles in history. Taiwan’s market rose from 1,100 to 12,054… a gain of 991%… and the Taiwanese currency rose another 40%. Foreign investors would have made 14 times their money in just three years by investing in Taiwan.

Now I think we’re about to see another huge rally in Taiwanese stocks. Since 1990, Taiwan’s stock market has been the worst-performing major stock market in the world, except for Japan. Today the index is at 7,523. That’s a fall of 38% from 1990 levels.

The new president is freeing up regulations between Taiwan and China. Transport comes first. Capital regulations will come next. Taiwan’s new president has said he wants to help Taiwan’s financial industry go to the mainland. Hong Kong’s stock market rose 55% in 10 weeks last year after Hong Kong opened its markets to Chinese investors in August 2007.

I don’t think the Taiwanese stock market will rise 990% again… but I do think it’ll double over the next couple of years. The Taiwan ETF (NYSE: EWT) is the easiest way to invest in Taiwan. It pays a 2.75% dividend.

There are also two Taiwan closed-end funds: The Taiwan Fund (NYSE: TWN) trades at an 8% discount and pays a 2.75% dividend. The Taiwan Greater China Fund (NYSE: TFC) trades at a 10% discount and pays a 0.16% dividend.

Good investing,

Tom

P.S. I recommended a Taiwanese stock in the most recent issue of my investment advisory, The 12% Letter. It’s the largest technology hedge fund in Taiwan and pays a 6.3% dividend.

Source: Three Stocks to Double Your Money in the Next Asian Market Bubble

Tom is a major Jim Rogers fan. He says Jim is “never wrong.”

Just look at the two trades he’s recommended so far this decade. In 1999, he started telling people to buy commodities. He set up an index to track commodities – the Rogers International Commodities Index – and published a book about commodities in 2004. The Rogers International Commodities Index is up 470% since inception.

China was his second trade of the decade. He’s been talking up China since the early part of this decade, too. The Chinese stock market went up 400% between 2006 and 2007…

 The Last Time Around, This Asian Stock Market Gained 990% 

By Tom Dyson

Jim Rogers is one of the world’s best investors. I’ve followed his recommendations and ideas for 15 years, and I’ve never seen him make a mistake…

Now Jim has a new “favorite” investment. Rogers is buying Taiwanese stocks. He started buying in March. How much will Taiwanese stocks rise? We’ve seen a situation like this before…

In 1987, a new president won power in Taiwan and improved relationships with China… just like we’re seeing today. Taiwan’s stock market rose from 1,100 to 12,000 between 1987 and 1990. That’s a gain of 990% in three years.

———- Advertisement ———-
Don’t Lose this 9-Digit Code: 925335AD3

To most people, the series of 9 numbers and letters above mean absolutely nothing.

But if you follow just one simple instruction… and relay this 9-digit Code to your broker… you are entitled, BY LAW, to receive as much as 181% in gains by June 15, 2009.

Surprisingly, the Code has nothing to do with stocks, mutual funds, gov’t bonds, options, or any other investment you’ve likely heard of…

Click here to learn more.
———————————–

The island of Taiwan split from China in 1949 following a civil war. But China still claims Taiwan as its territory and threatens to attack Taiwan from time to time. Officially, the two countries remain at war.

This political uncertainty creates news headlines… and deters investors from buying Taiwan stocks. Look how badly Taiwanese stocks performed over the last two years:

On average, regional stock markets in Asia have risen 90% since January 1, 2000. Taiwan’s stock market actually declined 3% this decade… and 18% since 1997.

Taiwan’s poor stock performance has given the country its lowest stock valuations ever.

The Datastream Taiwan Index has a price-to-earnings (P/E) ratio of 12.8, which is well below the Datastream China Index’s P/E of 20.9 and the Datastream U.S. Index’s P/E of 17.7.

According to Stansberry’s quant analyst, Ian Davis, of all the indexes in the Datastream database, Taiwan is the cheapest major stock index in the world when you compare its current median P/E, price to book, and dividend yield with its own historical norms.

Most people don’t realize commercial relationships between Taiwan and China are booming. Trade between mainland China and Taiwan will probably reach $120 billion this year. And according to the Associated Press, Taiwanese companies have invested more than $120 billion since the early 1990s in mainland businesses.

These businesses supply advanced plant and equipment – like high-tech electrical machinery or rare industrial textiles – to the factories and industries of mainland China.

And the political relationship between China and Taiwan is improving, too. In March, a new president won power in Taiwan. His name is Ma Ying-jeou. Improving relations with China is at the top of Ma’s agenda.

Since Ma’s election, China has reportedly withdrawn half of the missiles it had pointed at Taiwan… And next month, the first direct flights will connect Taiwan and China. Taiwan will allow 3,000 Chinese tourists to visit every day. That’s a big deal. According to Goldman Sachs, tourism may add about 60 to 80 basis points (0.6%-0.8%) to Taiwan’s economic growth.

It’s still illegal for Chinese investors to invest in Taiwan… or for Taiwanese investors to invest in China. But that’s changing, too.

In August 2007, Chinese authorities unveiled a plan for mainland residents to invest in Hong Kong. This was the first time the government had allowed Chinese investors to invest outside Shanghai. The news sent Hong Kong’s Hang Seng Index up 55% in 10 weeks.

I think Taiwan could be one of the next markets Chinese authorities open up to mainland investors. If this happens, we should see a similar pop in Taiwan’s stock index…

Taiwan’s new president knows tying his country economically to China is the best way to prosperity. Opening Taiwanese stock markets to mainland investors is a way to do this. Wu Rong-I, chairman of the Taiwanese stock exchange, says these elections should “pave the way for an agreement with Beijing to ease such restrictions.”

Mainland Chinese investors have $2.3 trillion in savings. To date, they haven’t been able to invest this money outside China or Hong Kong. If they lift these trade barriers, Taiwan’s stock market will soar…The last time Taiwanese and Chinese politicians made progress, you could have made 990% in three years.

I’m not predicting another 990% gain in the Taiwan stock market this time around. But Taiwan is cheap. There’s a catalyst. I think we could easily see a double in Taiwan’s stock index…

Good investing,

Tom

P.S. Taiwan’s main stock index could double. But pick the right Taiwanese stock, and you could make 10 times your money in the bull market.

I think I’ve found the perfect Taiwan investment. This stock pays a 6.3% dividend… and it’s the recommendation in the latest issue of my 12% Letter. To learn more about The 12% Letter, click here.

Source: The Last Time Around, This Asian Stock Market Gained 990%